Overstock.com has turned bargain shopping into a $788 million business. How does it do it? According to SVP Jacob Hawkins, it’s by offering great prices, quality and service and marketing via multiple channels.

By Vitisia Paynich

Photo By Brian Nicholson

Die-hard bargain shoppers are a force to be reckoned with, especially during the crowded holiday season at brick-and-mortar stores, where sales are rampant, product inventory is growing scarce and tempers are at a fever pitch. This type of consumer is a warrior who is not about to let a great deal escape, even if it means driving from store to store or even to the outlet malls located far outside of town.

While there will always be traditional shoppers walking through retail doors, a significant number of consumers also desire good, quality merchandise, but abhor the mall experience. That’s where Overstock.com comes in. In late 1999, the Salt Lake City-based company brought the outlet mall to the consumer via the Internet-providing the same brand-name products found in traditional retail stores at deep discounts. Nearly nine years later, Overstock offers more than 71,000 non-BMMG (books, music, movies and interactive games) products and over 700,000 BMMG products. What’s more, it has successfully branded the company and its products using a multichannel approach that comprises television, radio, affiliate marketing and mobile.

Electronic Retailer recently spoke with Jacob Hawkins, senior vice president of change management at Overstock.com, to learn more about the “O” and his viewpoints on the market.

Electronic Retailer: Tell us about the concept for Overstock.com.

Jacob Hawkins: Our value proposition is twofold. The first is giving customers great products at great prices. The second is finding the very best deals on the Internet and aggregating those deals in one central location.

ER: What were some of the challenges that the company faced in the beginning?

Hawkins: In the beginning, we had to fight to get our foot in the doors of many manufacturers. We would go to a number of the large buying shows where we’d come across many of these manufacturers and they wouldn’t even talk to us. But as we became larger and as the concept became solidified in people’s minds, the brand Overstock.com became more relevant in the industry. It’s also been easier to get our foot in the doors of many of these manufacturers. We really started by going to middlemen, buying manufacturers’ inventory from them and selling that successfully and then going to the manufacturers and saying, “We’re already selling your inventory. We’re doing it successfully; you’re not having any backlash with the current channels you’re distributing your products through. Why don’t you give us a chance?”

ER: What categories did you focus on during the early days?

Hawkins: Early on, it was primarily jewelry and watches, computers and electronics and some sporting goods. Since then, we’ve really expanded out into the home category; the books, music, movies and video game category; as well as into what we call the “Worldstock” category, which is where we sell handmade goods from disadvantaged artisans around the world.

ER: How did the concept for Worldstock come about?

Hawkins: About seven years ago, our CEO [Patrick Byrne] was riding a motorcycle through Vietnam and he wrecked his motorcycle in the countryside, badly injuring himself. He wasn’t near a hospital and was taken in by a group of people who nursed him back so that he could get on his feet, get out of there and get back to a place where he could receive full medical treatment. But while he was there, he watched these people who were taking care of him and observed the way they lived. He realized they were making a lot of handmade products in a small village. While there was a great demand for the skills that they had, they didn’t have a market to sell those products. And so that inspired the concept for Worldstock. He started building that program back in late 2001, with the majority of the profits going back to those artisans. It’s expanded very nicely. We currently have 5,000 artisans who benefit from our program and who have been able to improve their own living conditions.

ER: How does Overstock make the customer’s online experience easier?

Hawkins: We’ve spent years working on this. We’ve done a tremendous amount of testing on our site. We’ve created a state-of-the-art data warehouse that tracks the customer’s shopping experience on Overstock. We see the process that they go through in shopping from us, and we measure how many people flow through each step of the process. And if they flow through that process, how many of those people end up purchasing? How much do they spend? What is their gross-margin-dollar basis, and how many advertising dollars did we actually have to spend to get those people to that process? And so, we’re measuring all those things, and we’ve got a team of very smart people, who, on a daily basis, are watching all those things in real time and are tweaking different levers to try to optimize each step. We’ve changed out our website dramatically over the last three years. We’ve simplified it and improved the search functionality and the product selection. We’ve also improved the process of moving around and finding what you’re looking for. We’ve made it easier to check out on our website and made it more secure. We’ve done a lot of things to just make it better for the customer. And, what that’s meant for the customer is it’s easier for them to come to our site, to find what they’re looking for, to put that product in their shopping cart and check out.

ER: What do you believe is the key to attracting loyal customers?

Hawkins: Each year, the NRF (National Retail Federation) surveys a portion of their American Express customers and asks them which company (online or offline) gives them the best customer service? Overstock has been rated fourth in the country the last two years. There are three points upon which companies compete: 1) price; 2) quality; and 3) service. It’s tough to get all three things from traditional retailers. If someone’s giving you fantastic quality and fantastic service, you have to pay more for it. And if someone’s giving you a fantastic price, you’re going to probably have to sacrifice the quality or service piece. By competing online and not having the costs and inefficiencies associated with physical stores, we are able to compete on all three points. We’ve got high-quality products; we service our customers well; we compete on price. It’s a tremendous model; we’ve just got to get the word out to more people.

ER: Why did the company use multichannel marketing?

Hawkins: The online world is not a bubble. We have people who live in the offline world who visit the online world and you need to hit them in each of those different channels. When you look back at the online world, there were retailers who branded some niches, but one niche that wasn’t branded yet was the discount retail space. And our CEO identified this gap and made sure it was filled by Overstock. Our first TV commercials were designed to brand the online discount niche, which they did very well. We feel that it really secured that space for us. So these commercials played two purposes: First, they helped people who hadn’t shopped online to come and discover Overstock.com, as well as to help people who already were shopping online, but didn’t know about us to come try us out. And second, they branded the niche of the online discount space.

ER: What impact has mobile had on your business?

Hawkins: We see this as the future. However, it hasn’t gained traction as quickly as we thought it would. It’s really been held up by the technology, and the speed and ease of being able to access that content on a mobile device. As more people get cell phones that have the ability to browse the Internet, and as more people start paying for a data plan to actually access it, more people are going to be shopping that way. We see that there’s potential in that, and we’ll continue to invest resources as that opportunity matures.

ER: What changes do you see occurring in the industry in the next few years?

Hawkins: With social websites like Facebook, MySpace and YouTube, there’s a tremendous amount of traffic. The companies that run those websites are in a quandary. They’re trying to learn how to marry the companies that want to advertise on those websites to the needs of the consumers. You want to do it in a way that’s unobtrusive and in a way that adds value for the consumer. They’re still trying to figure out the right way to do that. The other thing is that the space is changing so rapidly. Every day, there are new technologies coming and every retailer who’s in this space needs to really pay attention to those technologies and find ways to remain competitive.

ER: What will be the key to Overstock’s long-term growth?

Hawkins: What is going to make any company successful is to have a strong business model and abide by that. For Overstock, it’s going to be to continue to expand the number of fantastic name-brand products at excellent prices and service our customers well. But as far as growing our business beyond that, there are going to be a number of opportunities. And if we’re going to be around to be competitive, we need a sharp group of people who will watch the space closely, see those trends and find ways to capitalize on them.