These factors got Overstock’s CEO thinking about growing
By the end of this quarter, Overstock.com expects to offer home furnishings and furnishings only.
SALT LAKE CITY – A low inventory business model, a consumer base more comfortable with large online purchases and other factors are among the main reasons Overstock.com CEO Jonathan Johnson sees good days today, tomorrow and beyond.
Early in COVID, Johnson said Overstock’s model had proven advantageous. Now, as supply and demand shift, Johnson believes the Salt Lake City-based e-commerce heavyweight is well positioned no matter what.
“During the pandemic, we fared better than most because we didn’t require suppliers to put products in our warehouses. During a time of high demand and low supply, suppliers liked maximum options,” Johnson told a sister publication. Furniture today. “Today is different. Today, suppliers are running low on inventory due to slowing demand. I think, again, that we continue to gain or maintain market share and that we have the strong balance sheet to pay our suppliers quickly, that bodes well and we continue to have a good amount of inventory.
Johnson said the shockwaves from Russia’s invasion of Ukraine in February prompted consumers to rein in spending, but that pause lasted longer than usual. He said factors such as high gas prices and inflation continue to drag, even as experiences have returned, creating more competition for disposable income.
“We saw what felt like a pause at the end of February when war broke out in Ukraine. This didn’t surprise us; there is often a CNN effect when there are big world events. These tend to last 10-14 days. It took longer. I don’t know if it’s because of inflation, high gas prices, high interest rates. The American consumer seems to be taking a longer break as they adjust to what the new economy is,” Johnson said. “I would also say that we are in a different period than last year. A year ago, the stimulus checks were pouring in; there was a real feeling that we were still at home. The pandemic was still in full swing and people were expanding their living spaces beyond the four walls of their homes. Today we live beyond our homes. Travel and services have picked up.
Even amid so many headwinds, Johnson is confident there is still plenty of room for growth in the home segment and Overstock is poised to capitalize with an array of options.
“Home is always a priority. Even though we will be spending money on services, entertainment and travel, we are spending more time at home. For most of us, the return to the office is slow or non-existent so there is still time at home. I think there has been some surge in demand, but the American consumer is still coming back,” he said. “When the American consumer comes home, I think what they’ll be looking for is what Overstock offers, which is smart value. As people spend their money to protect their wallets while we’re in a period of inflation is good for Overstock. We offer the most products for what you are willing to spend. If you want a $150 sofa, we’ve got it. If it’s a $1 sofa $500, we got it. It’s that smart value.
Key to that is Overstock’s plan to focus more on the home side. By the end of this quarter, it will fully divest from all other categories, including jewelry and watches. Johnson said this plan was conceived last year and is close to coming to fruition, and while it has affected Overstock’s share price, he said it will create a better business. and fitter in the long run.
“It has been six quarters in the making. We started with the smaller categories of non-domestic products; As seen on TV or pets. We’re now down to jewelry and watches, which are the only non-domestic products on the site. At the end of the second quarter, we will no longer have these products,” Johnson said. “We did it strategically by focusing on the customer and what they want. Customers who buy home-related products buy more frequently and convert at a higher rate. Although there are short term revenue issues as we exit these products, we believe the long term is good for Overstock to become a home furnishings and furniture business.
Another looming sea change is the eventual introduction of Overstock into a physical environment, similar to changes made by Amazon, Wayfair, Casper and other native online brands. Johnson said that even if it were to happen, don’t expect it anytime soon.
“We like our business model; we are light. We have three flexible warehouses that can accommodate top or bottom depending on our suppliers. We think that makes us nimble,” Johnson said. “Eventually, some sort of physical presence, either by ourselves or through a presence with someone à la Amazon and Kohl, makes sense, but there is nothing imminent for the moment. It is an uncertain time. I’m glad we’re not considering paying rent or hiring more employees to run physical stores during a tight labor market. When we hit stores – and it’s more of a moment than if – it will be a kind of asset light model similar to what we have today.
Although some sort of in-store presence is in the future, Johnson remains an advocate for the online shopping experience. A few years ago at Furniture Today’s Leadership Conference, he predicted that online shopping would account for about 35% of all furniture purchases. He did not deviate from this forecast.
“Right now it’s about a third. During the pandemic, it hit 40%, but it settled down to around a third. We look at third party data and they believe that online penetration will continue to grow by 1% to 3% every year. It wouldn’t surprise me if it stopped in 2022 and then returned to that 1% to 3% rate. Where it settles, I don’t know, but I think it will be above a third,” he said. “As online shopping becomes more intuitive, the returns process improves, search becomes easier to navigate, and the younger generation become owners, they are more digitally savvy. Not just e-commerce on a computer, but using a mobile app to make purchases. I think it continues to grow.