Overstock.com Overcomes Overloads

Overstock.com calls itself the earth’s greatest discounter. And the company, which sells an Amazon.com-like potpourri of excess inventory that it has taken off the hands of flat-footed manufacturers, distributors and retailers, isn’t kidding around: It has actually copyrighted the phrase.

If its sales performance is to be believed, it might actually be right: The company’s 2004 revenues of $495 million were up more than five-fold from 2002 levels, and gross profits have nearly quadrupled, climbing from $18.3 million to $65.8 million.

Although the company has yet to make an annual profit, it has been narrowing its losses fairly consistently, and did make it into the black in the fourth quarter of 2004, earning $2.5 million.

Company execs say they’ve succeeded by operating on a shoestring budget, passing all savings on to their customers. While that’s good news for customers, it’s hardly music to an IT department’s ears—especially one that’s been told to plan for a doubling of business each and every year.

The business continues to double, says Stephen Tryon, a vice president at the Salt Lake City-based discounter, because of a simple business plan: Overstock.com offers a low-price guarantee; the company takes slow-moving merchandise off other retailers’ hands and squeezes out its own profits by handling product more efficiently than anyone else.

Tryon says the company’s original technology investments got it through the first four years of its growth, up to the end of 2003.

Then the IT team realized that if things continued along their current trajectory, sales in the fourth quarter of 2004 would approach $250 million.

That meant the company’s IT infrastructure had to be the equivalent of that of a $1 billion company. And yes, they had to build it on the cheap.

That was the job offered to Shawn Schwegman, vice president of technology at Overstock.com, when he joined the company in 2000.

As Overstock.com looks back on its best holiday season yet—one that brought in some $221 million in sales and went off without an IT hitch—it’s clear Schwegman has done what he was asked.

Like many companies whose livelihood depends on 24/7 availability of electronic data and transaction capabilities, Overstock.com decided in 2004 that it would build a colocation facility to house the company’s vital customer and transaction information, in addition to a “fail over” facility already in a second location. Until last year, says Tryon, “all the company’s information eggs were in one basket.”

To wit: In the past, when the volume of traffic put stresses on the infrastructure, the company actually resorted to shutting down internal applications, such as a desktop “executive dashboard” that showed real-time sales, in order to protect the customer’s Web site experience. But with the scary projections for 2004, the IT team decided it was time for redundancy.

Overstock.com purchased two networked storage systems from EMC Corp. to ensure the Web site’s availability and continuity.

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