If the acquisition of Bed Bath & Beyond was supposed to be a savior for Overstock, it is still a long way from delivering a miracle.
To be fair, the Bed Bath & Beyond business was not fully functional for the whole of the quarter, and only relaunched in the US on August 1. However, that means it contributed over two-thirds of the quarter so, in theory, it should have provided a boost to revenue. The reality, however, shows something different.
For the third quarter, Overstock’s revenue fell by 18.9 per cent. Not only is this a very similar pace of decline to last quarter’s 20.1 per cent dip – showing there has not been much sequential improvement from the initial integration of Bed Bath & Beyond – but it comes off the back of a 33.2 per cent decline in the prior year. On a two-year basis, sales are down by a miserable 45.8 per cent. In short, Overstock is showing a chronic underperformance to the overall home market which, while troubled, is not falling by anywhere near this level.
The only small crumb of comfort is that sales are up by 9.5 per cent on the same pre-pandemic period in 2019. But, again, this is well below the growth of the overall market so still represents a serious loss of market share.
While the top-line performance has barely improved since the last quarter, the bottom line has deteriorated rapidly. Last quarter, the company made an operating loss of $4.2 million. This quarter, it is in the red to the tune of $40.9 million in operating terms. At the net income level, losses came in at $63 million. There are certainly some exceptional and one-off costs associated with the integration of Bed Bath & Beyond within this, but the direction of travel remains worrying.
The big issue with Overstock remains that of customer erosion. Active customer numbers are down 15.3 per cent over last year. Measures like revenue per customer and average order value are also down, as are the number of orders per customer. In our view, there are two issues at play here.
The first is a pullback on spending by core customer groups, many of which are still being impacted by inflation and are reducing spend on things related to the home. However, from our analysis, these people have cut their overall home spend by nowhere near as much as the decline in sales at Overstock – which suggests that Overstock is losing out on their share of wallets to a greater extent than rivals.
The second is that Overstock continues to fall off the consumer radar and is not drawing in customers, even to browse, like it used to. This is not a new problem as from all our surveys, Overstock has always been a brand that comes way down the batting order in terms of unprompted awareness and remains well below par in terms of retailers people think about using for home products. The worrying thing here is that the rebrand to Bed Bath & Beyond was supposed to help remedy this issue but, so far, does not seem to have done so.
In all fairness, Overstock deserves some time to show that the rebranding and acquisition works. It is very hard to assess the ultimate impact after just two months of trading. However, the fact remains that the initial results are not impressive. One of the reasons for this is that Overstock has basically just merged Bed Bath & Beyond into its own offer. The Overstock brand has effectively disappeared which has caused some confusion and dissatisfaction among core shoppers. Meanwhile, those coming to the site for Bed Bath & Beyond find the branding consistent with what it used to be but are subjected to big changes in the ranges and brands offered. The net result is that, at the moment, the company is neither fish nor fowl: it is some kind of Frankenstein mash-up of the two brands.
All of this will take time to settle down. But our impression is that now the two companies are integrated Overstock needs to work on rationalizing the range, creating a much more coherent offer, and developing a much more distinct position in the market. At present, the new proposition feels too disjointed and confusing. It lacks inspiration and comes across as a seemingly random selection of homewares – which is a problem Overstock has always suffered from. Thought will also need to be given to marketing the new Bed Bath & Beyond which, without stores, needs to make much more noise to remain on the radar of shoppers.
All of these things will take time and will require investment. Overstock has some breathing space on both, but as it moves into next year it will need to show investors that its gamble on rebranding is paying dividends.
