Overstock makes excess pay in slim times
Patrick Byrne is one of the kings of online excess. As chief executive of Overstock.com, Byrne tries to make money unloading goods that other businesses can’t sell. And last year, the company turned its first profit in three years. Byrne, featured recently as the keynote speaker at the Internet Retailer conference in Boston, spoke to Globe reporter Jenn Abelson.
How have consumers changed their buying habits at Overstock since the recession started?
We see this general belt-tightening across almost all the customer base. There’s a downshift away from high-end luxury brands. That’s also been driven by mainstream stores discounting so heavily. When Saks Fifth Avenue is discounting Gucci at 75 percent, it’s hard to be in the Gucci business as a discounter. It’s also much less fabulous jewelry. If people are buying jewelry, it’s not the $1,500 tennis bracelet. It’s the $200 gold chain.
Why did Overstock launch a family bailout sweepstakes earlier this year?
We did this when Congress was dithering about what to do with the economy. We said we’re going to pick one family a month and give $10,000 to them. But we don’t give them the money. It’s a bailout. We’re going to pay down their medical school debt or pay off their credit card debt.
Overstock turned a profit last year for the first time in years. What changed?
Three years ago, we made a $120 million conversion to big professional (information technology) systems. And we came off the rails because some of those conversions went poorly. So we spent the last three years scraping out every excess cost from company.
Why have you been outspoken against efforts to create an Internet tax?
A tax is just the price that a government puts on its service. If someone has a store, they’ve got police protecting their store, they’ve got roads, schools for their kids, water. That retailer puts much more of a load on local services than we do. So how fair is it to ask us to pay the same price?
Target and Wal-Mart are out there pushing like crazy. They’re lobbying because they suffer a disadvantage. The brick-and-mortars have a disadvantage because they’re paying tax on all their stores. So they don’t want us, Amazon, and others to have an edge by not paying a tax. This is basically the Wal-Mart and Target tax.
Merchants are increasingly bragging about reducing their inventory. Does that hurt a business that thrives on overstocked inventory?
We’ve dropped our inventory from $120 million to $12 million and we support the same level of sales. You can do that with the right planning. But people’s tastes are always going to be farther along the curve than manufacturers can keep up with so there will always be excess inventory. It’s the dirty little secret of manufacturing. There’s always 5 percent too much. In some fields it’s 15 percent.
You have been a vocal critic of the Securities and Exchange Commission. What changes need to be made to get better oversight of Wall Street?
The government needs to unplug the SEC. It’s hopelessly co-opted. They should give its market regulating features to the Treasury and its crime fighting features to the Department of Justice. They have to change the revolving door at the SEC. When somebody making $150,000 a year at the SEC leaves to make $1.4 million at a private law firm defending the people he was just going after - this creates a terribly pernicious set of incentives to go on soft on powerful people on Wall Street.
Overstock is a title sponsor of the Jimmy Fund fund-raiser Pan-Massachusetts Challenge. Ho w did you get involved?
The head of it - Billy Starr - got in touch with me and asked if I would be involved. He’s one of the best entrepreneurs I know. You may know I’ve had cancer a few times. And I rode bicycles to recover from having cancer. It’s a great charity, a great program, where 100 percent of your dollars actually gets to the charity.
How does dealing with cancer change your outlook on life and your approach to business?
When I got out of cancer the last time, I didn’t know how much longer I’d be around. I started living life in six-month chunks. That’s not a bad way to lead your life. But I’ve gotten sort of sedentary at Overstock. It’s the first time I’ve done something for this long. But as corny as it sounds, I have the luxury of always being able to do what I think is the right thing and not making compromises. I had so many people to get me to stop with my Wall Street fight. I knew I was burning through friendships and relationships I’d never recover from in my life. But that’s OK. Life is too short to worry about that kind of stuff. 