Over the past five years, Overstock’s revenue has grown by 64%. That’s an impressive increase, especially when the overall retail market grew by just 13.5% over the same period. With sales now nearing $2 billion, the company has become a significant and disruptive force in retail.
Despite its success, Overstock flies below the media radar – an interesting juxtaposition to the popularity it has courted with many consumers. How did it become a destination of choice and how does it maintain the loyalty of its army of fans?
Value for money
The starting point for Overstock’s success is the solid value credentials it has built with consumers. Across all of the categories it sells, Overstock has a reputation for being very competitively priced. It is more highly regarded on price than Amazon – a significant accomplishment given Amazon’s dominance.
This reputation proved particularly useful in the aftermath of the financial downturn when consumers were trying to save money. But even today it remains relevant to savvy shoppers.
Although it is not a pure off-price retailer, Overstock’s model shares some things in common with that of operators like TJMaxx and Ross. Its buyers find surplus stock – often well-known brands from overbuying or liquidation situations, for example – secure it at a good rate, and then sell it to consumers at very competitive prices.
However, the company also blends this with the purchase of new goods direct from manufacturers, often on flexible contracts – something that has become a much more significant part of the business over recent years. Both methods of sourcing allow Overstock to secure inventory at a good rate, and then sell it on to consumers at very competitive prices.
The love of a treasure hunt
As important as low prices are, they are not the only ingredient in Overstock’s recipe for success.
An increasing number of consumers are bored with traditional shopping experiences. They see retail offers as lacking variety. Overstock’s model cuts through this lethargy with a constantly changing assortment of products. This creates an enjoyable “treasure hunt” experience that makes customers regularly visit, as they never know what will be on offer.
The continually changing range brings three further benefits.
First, it drives immediacy. If a customer sees something they like, they need to buy it there and then or run the risk of it not being available next time they visit.
Second, it increases average transaction value, as customers often come to the Overstock site with a reasonably open mind rather than a fixed list of things they need. This generates high levels of impulse purchasing, as shoppers find products they did not know they wanted.
Thirdly, it drives frequency of visit, with customers going to the site to browse and see what’s new rather than because they have a specific purchase in mind.
Leveraging site traffic
With a core offering that successfully drives traffic, Overstock’s website is an appealing place for any brand or manufacturer wanting to sell their wares. Overstock was quick to capitalize on this opportunity with its partner program, which allows other businesses to use the site and functionalities such as payment and returns handling to trade with consumers.
This move allowed Overstock to increase choice and depth, thereby creating a more compelling customer experience without raising cost or sacrificing flexibility.
As partner relationships are based on a loose affiliation, as opposed to being governed by formal contracts with set order quantities and periods of supply, Overstock maintains the flexibility to change or refresh its product mix. It also means Overstock only pays for what is sold, rather than having to buy stock up front.
This efficient model is one of the reasons why, when compared to many other online retail operations, Overstock has relatively strong margins and profitability.
Clarity and usability
A rapidly changing selection with millions of different products has the potential to become a messy and difficult shopping experience – the very opposite of the simplicity and ease that so many consumers crave.
Overstock has managed to avoid falling into this trap by developing a website that is highly functional, intuitive and easy to use.
Search functionality, for example, works well, and the ability to filter on different product attributes makes it easy to find desired items.
There are plenty of reviews, tips, Q&As, and social media inspiration to keep shoppers informed and entertained as they look through the site. This engagement adds to the entertainment factor created by the treasure hunt mentality.
All of this means Overstock’s website experience is highly rated and gets better scores than the likes of Walmart, eBay and many other large retailers that have invested significant amounts in online technology.
There are a few lessons other retailers can learn from Overstock.
The first is the need for newness. Overstock’s offer rarely looks tired or gets boring because it is fluid and ever-changing. This matters to consumers who need excitement and stimulation.
The second is maintaining flexibility. When it wanted to increase its range, Overstock teamed up with partners rather than doing everything itself. Not only does this ensure that its capital is not tied up in buying stock, but it also allows it to make rapid changes without too much operational pain.
The third is looking for incremental gains. Overstock has used the success of its main site to develop smaller affiliated websites like Worldstock Fair Trade, which sells products made by artisans. Individually, these small initiatives don’t make a huge revenue contribution, but collectively they help drive growth and profitability.
Ultimately, Overstock proves the point that retail is full of hidden gems. Sometimes it is necessary to look beyond the obvious players for lessons in how to succeed.
Neil Saunders is a retail analyst and consultant. He currently serves as Managing Director of the research firm GlobalData, where he oversees the development of the company’s retail proposition and its research output. He also works with clients to help them understand the retail, shopper and market landscape.
Neil is a founding partner of Prasentia, a firm that works with clients to help them communicate more effectively. Outside of work, Neil is an advisory board member for the faculty of business and law at the University of Southampton, an Honorary Lecturer at the University of New Hampshire, and a Visiting Fellow at the University of Surrey.