Eyeing Growth in 2021, Overstock Could Tie Up With a Physical Retailer

Overstock is a rare retailer that's both digital-only and profitable. But despite the momentum Overstock has maintained, it is exploring a variety of options to build on its strengths while taking advantage of its competitors' weaknesses. The strategies it is putting in place for 2021 has implications from both a marketing and operations standpoint. This year the merchant, which has an emphasis on home furnishings, has benefitted from two prevailing trends during the pandemic: An accelerated shift to ecommerce and a focus on the home. That increase in demand has already influenced the company's marketing efforts, pushing it to embrace text messaging and automation to better serve its customers. But with the various vaccine rollouts underway, companies are beginning to contemplate the post-Covid-19 retail future. In Overstock's case, that means the company may consider new ventures, such as its first potential embrace of brick-and -mortar, an idea the brand's former CEO Patrick Byrne floated in 2018 (he resigned in 2019). How Overstock Sells Expertise And Value As traditional brick-and-mortar brands struggle amid low foot traffic in a time of social distancing, Overstock is seeing success. During the first nine months of this year its net revenue grew about 73%, from $1.1 billion in 2019 to nearly $1.9 billion. The retailer also managed to go into the black this year, with net income during the first nine months of about $36 million versus a net loss of approximately $105 million for the year prior period. Cash on the balance sheet has also grown significantly to close to $530 million, while long-term debt remains low at $42 million. This year, Overstock differentiated itself from its key competitors—including Amazon, Walmart, Wayfair and Target—by touting its focus on home goods and value, said the company's Retail President Dave Nielsen. By comparison, its key rivals sell a much broader array of products, and often emphasize having the lowest prices rather than an optimal price to quality ratio, the company has said. In addition, Overstock emphasizes easy-to-find products, delivery and customer support to win over customers, Nielsen added. "Loyalty builds with a brand over time due to a good experience," Nielsen said. Nielsen said Overstock's typical customer enjoys shopping and finding a deal. The company caters to that customer with couponing, discounting and free shipping combined with personalization. This year, Overstock's investment in mobile also fueled its growth, attracting a younger consumer. While sales are booming, the company is actually spending less on advertising through the first nine months of this year, shelling out nearly $22.4 million compared to about $25.5 million during the same period a year prior, according to data provided by Kantar. Next year, Overstock will continue to focus on differentiation as well as its tagline, "Dream Homes for All," Nielsen said. He expects the challenges from pandemic to continue in some form for the next six months as vaccinations are slowly rolled out to the general population. Therefore, Nielsen reasonable expects more growth for the home furnishings category as consumers remain out of the office and even local travel is kept to a minimum. Still, there is some uncertainty around the economy and whether that will soften demand. A Path To Being Purchased? Nielsen told Adweek that Overstock has contemplated opening stores. But he said the best way to establish a brick-and-mortar presence might be by being acquired by—or merging or partnering with— an established physical retailer. Since the company's former CEO first mentioned the possibility of combining with a physical retailer in 2018, a great deal has happened at the company, beginning with that CEO's resignation in 2019 and then the pandemic. Once Covid-19 goes into retreat, the pressure for retailers to have a strong presence both online and offline will be greater than ever before. T.J. Maxx is at the top of the list of the retailers Overstock sees its customer as having similarities with, said Nielsen. The two companies have different, but complementary strategies: While Overstock is digital-only, the retail giant TJX Cos., parent of T.J. Maxx and Marshalls, has long eschewed online retail. As recently as this year, TJX has believed the power of the treasure hunt was enough to keep growing the business. TJX wants to expand into Overstock's territory, too. It said it plans to roll out ecommerce for its home furnishings banner HomeGoods later next year due to the strength of that unit's performance. That announcement is a sign that businesses across the board are reconsidering their strategies. When asked for a comment, a spokesperson for TJX said it had nothing further to add to the story. The Coming Retail Consolidation Even before "the new normal," all retailers needed to implement an omnichannel strategy to satisfy consumers' shifting online and offline shopping preferences. A retailer's ability to balance traditional and ecommerce sales is more essential than ever to be successful, said Andrea Weiss, co-founder of The O Alliance and CEO of Retail Consulting. A result of the pandemic, consumers now expect more of retailers than before, she said. They are going to want to be able to browse, order, receive and return goods in a myriad of ways, with digital and physical touchpoints. Weiss said consolidation is likely in 2021, as physical retailers look to build out their digital presence while ecommerce platforms, particularly the unprofitable ones, will seek safe harbor within larger legacy brick-and-mortar banners. Another sign of the consolidation to come: Private equity funds are accumulating Amazon sellers and branding firms such as Retail Ecommerce Ventures are buying multiple brands out of Chapter 11, according to Mary Ann Domuracki, a managing director at investment bank MMG Advisors. Such mergers would see both sides ultimately benefit. An omnichannel strategy that would naturally result from the coupling of a player that's more dominant in ecommerce with one that's stronger in brick and mortar. A combined entity could market to consumers more cost effectively, saving money where there is overlap and utilizing the combined power of physical stores and digital outreach. "It's happening in small steps already," Domuracki said. "To compete with Amazon or Walmart, it has to."