The Salt Lake City-based online closeout retailer offers discount, brand-name merchandise and auctions. Its operations include a 350,000 square-feet distribution center in Salt Lake City and a smaller 120,000 square-feet facility in Indianapolis. In 2004, sales rose 80 percent to $221.3 million from $123.2 million the previous year.
In March 2004, the company wanted to cut its logistics bill. It reorganized its supply chain and contracted with DHL (Plantation, Fla.) to be its primary delivery company for shipping merchandise direct to consumers nationwide. Overstock.com uses [email protected], an expedited business-to-residential delivery service developed in partnership with the U.S. Postal Service to fulfill orders for consumers nationwide, says John Eisenschenk, DHL's Chicago-based national account manager. Fifty percent of Overstock.com's sales now go through DHL.
Overstock.com shares order information with DHL through a third-party system called K-Ship (Data Trak Technologies, St. Paul, Minn.). "We create a file manifest of all packages that run through our system and get put on the trucks," Martin explains. "We send DHL files daily that say, 'Here are the packages we are handing over to you.' They scan them in their system to verify that those packages have been imported into their system."
The true test for the partnership came during the 2004 holiday season. "November and December are roughly 40 percent of our revenue. It's what we live and die for," Martin says. Last year, online holiday shopping took off like a rocket. According to a recent report from JupiterResearch (Darien, Conn.), online retail spending during November and December 2004 reached $22.1 billion, up 22 percent from the previous year.
Unfortunately, Overstock.com ran into a huge holiday problem. "DHL's rate structure helped more products qualify for our free expedited shipping program," Martin explains. "Because more products qualified, more got shipped. More than we expected. Now that we know that, we will do a much better job forecasting next year." Roughly 60 percent more express packages than forecast had to be sent through DHL in the week prior to Christmas.
Communication was key to getting the orders delivered on time, says DHL's Eisenschenk. During the two weeks prior to Christmas, the companies had daily conference calls to obtain accurate shipment volume forecasts and anticipate the need for additional resources to accommodate the late season volume increases. In addition, trained DHL personnel were on-hand in the Salt Lake City facility to provide extra logistical support, performing services such as shrink-wrapping pallets, loading containers on trailers, coordinating truck line-haul moves, and assisting with other elements in the distribution process.
The service DHL provided kept Overstock.com's lateseason shoppers happy by delivering their orders on time for the holiday.
"You can imagine trying to build an operations system
around that— how difficult it can be, and how any minor miscalculation
can cause problems in the system."
Online Retailing to Grow 20 Percent in 2005
JupiterResearch projects continued strong growth for online retailing. The company forecasts that 2005 online retail sales from companies like Overstocks.com will surpass $79 billion, up from $66 billion in 2004.
"The holidays present a great opportunity for retailers to acquire new customers for the long term," says Patti Freeman Evans, retail analyst at JupiterResearch. "Not only were millions of people shopping online for the first time, but three quarters of consumers bought from a site they had never purchased from before."