Overstock Inc. (OSTK) is about to find out what exactly a good brand is worth. The company already knows the cost of a bad one.
Despite its name, the company no longer sells liquidated inventory and hasn’t for 20 years. Yet Overstock inexplicably didn’t change its name even when it started to exclusively sell home goods a few years ago.
Consumers and vendors were no doubt confused. The former were disappointed when they visited the website and didn’t see the hugely discounted prices they were expecting. And the latter didn’t want to do business with a company that implied second rate merchandise.
What's in a Name?
Now Overstock has finally found a solution. The company paid $21.5 million to acquire the intellectual property of bankrupt Bed Bath & Beyond, including the brand itself and domain names.
In a conference call with analysts, CEO Jonathan Johnson called Bed Bath & Beyond a “much loved brand that will help us accelerate our efforts to gain market share in the U.S. and Canada.”
“This is an exciting and pivotal moment for our company,” Johnson said. “I am more optimistic about the future than I have ever been.”
In July, Overstock will change the name of its consumer website in Canada to Bed Bath & Beyond and then do the same thing for the United States in August and September.
Here are three main challenges Overstock faces:
Converting Bed Bath & Beyond Customers
Johnson notes that Bed Bath & Beyond customers, a group that’s four times larger than Overstock’s base, are loyal to the brand.
But converting that loyalty to actual sales is hardly a given. For one thing, Bed Bath Beyond had something that Overstock doesn’t: physical stores.
Overstock didn’t acquire any real estate or inventory in its deal. And that was very deliberate: the company operates what’s called an “asset light” business model, in which it owns very few physical things.
Bed Bath Beyond used the combination of stores and digital sites to drive sales and loyalty, including a heavy reliance on those distinctive giant coupons that frequently show up in people’s mailboxes.
Johnson said the company will work hard to convince members of Bed Bath & Beyond’s rewards program, its best customers, to re-up with Overstock. The company is adopting Bed Bath & Beyond’s Welcome Rewards name and will offer free membership for one year to returning members.
More importantly, Johnson said Overstock is “exploring” the idea of allowing Bed Bath & Beyond consumers to transfer the points they collected as members of the old Welcome Rewards program to the new one.
Intense Competition in a Down Economy
Overstock is hardly the only player in the home goods market.
The company already faces tough competition from mass discounters like Walmart Stores Inc. (WMT), Amazon Inc. (AMZN), and Target Corporation (TGT) and specialty chains like Williams-Sonoma Inc. (WSM), Wayfair, and Restoration Hardware.
Even with the Bed Bath & Beyond brand, Overstock will find it hard, especially during a time when inflation-wary consumers are cutting back on discretionary purchases like home goods, to wrestle market share away from this crowded group.
And again, with exception of Amazon, every retailer operates physical stores, which allows them more opportunities to interact with the consumer. The physical store has long acted as a perfect showroom for consumers to experiment with different combinations of furniture, picture frames, and fabrics.
The good news for Overstock is that consumers are increasingly willing to buy such home goods online. Williams-Sonoma, for example, now generates more than two thirds of its annual sales from e-commerce.
“The growing trend of online shopping is another key driver of the online home decor market, according to a recent industry report. “Consumers are increasingly turning to online platforms for their home decor needs due to the convenience and ease of shopping online. Additionally, online platforms offer a wide range of products and attractive deals and discounts, making them more appealing to consumers.”
Checkered History
Overstock is adopting the Bed Bath & Beyond brand for its websites but is apparently keeping its corporate name.
The company might want to reconsider that, given its tumultuous history.
The primary culprit was its volatile founder and longtime CEO Patrick Byrne. From waging war on naked short sellers to sleeping with a Russian spy, Byrne’s shenanigans often made you forget what Overstock actually did.
Perhaps Overstock could use a fresh start, not just with consumers and vendors, but with investors and the broader public as well.
