Technology

Patrick Byrne: Off-Price Power


Position: Chief executive, Overstock.com

Contribution: By buying excess inventory from manufacturers, other retailers, and defunct dot-coms, Byrne has created a successful closeout shopping site

Challenge: Proving that its brand of discount e-tailing is viable -- despite the wreckage of dozens of Net-based retailers

Patrick Byrne comes from a family of value investors. He's the son of John Byrne, who has been head of Geico Insurance and White Mountains Insurance Group. He has a brother who's a real estate investor and another who's a hedge-fund manager. Patrick, by contrast, is the head of a dot-com that sells off-price goods. "We think of what we do as similar to value investing," he says. But he adds: "There's little doubt that I'm the least risk-averse of the family."

It helps that Byrne, raised in Woodstock, Vt., and Hanover, N.H., has had "many tailwinds" in life. From 1997 to 1999, he ran a uniform company that was owned by his father's pal, Warren Buffett. But Byrne, 38, has also carved his own way. In 1999, he invested in a liquidation company that served flea-market vendors. It evolved into Internet-based closeout retailer, Overstock.com (OSTK).

In May, he took the Salt Lake City company public at $13 per share, raising $28 million amid the most difficult IPO market in years. The stock has since declined to around $6, but that doesn't daunt Byrne. "I'm expecting profits in this year's fourth quarter, and to remain profitable," he says.

NONPOLLUTING SALES. Not bad, if he's right, considering that far larger online retailers have taken much longer to come close to profitability. Overstock.com lost $2.5 million in the quarter ended June 30, down from a loss of $3.9 million a year ago. Revenues in the quarter were $14.4 million, vs. $7.4 million a year earlier.

Byrne's goal is to capitalize on the massive quantities of excess inventory that major retailers can't or won't put on their shelves. "The problem is how to sell the inventory without polluting the normal sales channel," Byrne says. "This is exactly what the Internet is for." Overstock's inventory isn't always consistent, for obvious reasons. Still, enough odd lots of merchandise are around to keep the company supplied.

To move the goods -- which Overstock buys and then resells -- Byrne competes for the same shoppers as Amazon.com and the sites of traditional retailers, such as Wal-Mart. The key to survival, notes Legg Mason analyst Holly Gustafson, is that "you have to be unique. You need staying power, and a concept that's scalable. And maybe a little bit of luck."

READY FOR BATTLE. Byrne will have the chance to prove skeptics wrong in Overstock's first holiday shopping season as a public company. He says he's stocking up to do battle with the rest of the e-tailing industry -- and will be prepared for "an immense amount of demand." Meantime, he has the ugly economy working in his favor. "We do better in volatile times," he says.

Byrne may be the least conventional businessperson in his family, but he says he has absorbed his father's value-investing mindset. "I learned to be indifferent to the market and think about building real value in a business," he says. Good skills to have in a cutthroat industry. By Amy Tsao in New York


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