John Rogers
It hasn’t been a very good year for Midvale-based Overstock.com Inc. The online retailer lost big-time in the equities market in December, with its stock plunging 31 percent compared to a 9 percent slump in the S&P 500. The decline closed out a brutal year for Overstock shareholders as the stock shed nearly 80 percent of its value during 2018, according to data from S&P Global Market Intelligence.
Overstock’s gruesome year was due partly to its struggling e-commerce retail operation that lost ground to competitors like Amazon and to startup operations like Wayfair. The company pumped money into advertising and lowered its online prices, but the strategy only resulted in more losses.
In the meantime, Overstock founder and CEO Patrick Byrne became an aggressive bettor in blockchain technology, founding Overstock venture capital subsidiary Medici Ventures in 2014 specifically for blockchain investment. Collapsing cryptocurrency prices late last year added to the company’s downslide.
Now Byrne has decided it’s time for dramatic measures to return Overstock to profitability. Last week, the company laid off 100 employees from its retail division in an attempt to reduce expenditures by $40 million in 2019.
In a rambling, 1,000-word email to all of the company’s 1,700 employees, Byrne laid out the reasons and his justification for the cutbacks. Although accepting much of the blame, he had plenty of excuses for the company’s poor performance. He concluded on an upbeat note: “However … think of this all as being more about my errors than yours. In our nearly 20 years, we have gotten through numerous times of belt-tightening such as today. We will do it again.”
Byrne laid a lot of the company’s woes at the feet of an old nemesis. As long ago as 2015, he began blaming changes in search engine Google’s ranking algorithms for Overstock’s drop in Internet traffic. In last week’s message to his employees, he seemed befuddled by the “inexplicable Google SEO erosion over the last 18 months [that] reshaped our firm’s economics.”
In addition to the layoffs, Overstock has also declared, “For 2019, Overstock’s payroll setting is on ‘No raises.’” The declaration comes just a year after “we gave our biggest raise in history ($8 million) taking you (that’s the collective ‘you’) well towards our goal of 115 percent of market.”
Part of Overstock’s strategy as it entered the blockchain business was to sell off the retail part of the company in order to leave Byrne and his key executives free to develop his cryptocurrency endeavors. Last year, Byrne launched a concerted effort to dump the retail end of Overstock by investing $100 million to beef up the company and make it attractive to potential buyers.
“In 2018, I needed to prove to potential acquirers that, we too can accelerate quickly if we let ourselves lose even a fraction of what our competitors lose. I spent $100 million fueling the afterburners in that demonstration and it cost us a net $60 million that we had not planned on at the start of 2018,” Byrne said in his companywide email.
Apparent interest from a Chinese investor has hit the skids, according to Byrne. “Last summer, in scaling up the capital structure of the firm for the future, I chose a deep-pocketed and experienced Chinese partner, in part for the doors it would open globally,” he told employees. “Some of the scaling that we have done has been built around the assumption of their capital. Unfortunately, four months ago they delayed their investment the first time, and recently, again for two more months. This weekend I flew to Hong Kong to meet with them, and they heartedly assured me that they will come through this time.”
In August, Byrne prematurely announced a $375 million capital infusion from GSR Capital, a Hong Kong private equity firm. That investment has failed to materialize, according to money.cnn.com. The news created a temporary surge in the Overstock stock price that has since disappeared.
Byrne has apparently decided not to leave all his sell-off eggs in the Chinese basket, telling his employees, “I have opened the door to a number of conversations I had previously closed.”
Byrne chose not to address Overstock’s substantial investment of effort and resources in Medici Ventures, telling employees only, “You may remember that after many years of blockchain activities and some health-related leaves of absence, I came back last June to fully focus on retail.”
The CEO did address the other elephant in the room. In 2012, Overstock announced plans to build a $100 million corporate headquarters campus in Midvale. The facility opened to much hoopla in late 2016. Byrne justified the expenditure to his employees last week.
“About six years ago I stood in front of 700 of you and your predecessors and talked about this thing we were envisioning called ‘Peace Coliseum,’” Byrne remembered. “I told you and your predecessors that we could spend $100 million to build the most incredible headquarters possible, a place that would be a delight to go into every day. But if we did that, I said, it had to count. That is, I asked, could everyone remember that when they thought of their compensation, they remember that a part of their compensation would be not having to spend eight hours a day and 2,000 hours a year and 10,000 hours (of your) career in a typical office building cubicle jungle, but in a place that would be a delight? I remember 700 hands going up in unison, telling me they would take that deal.”
To those employees who are not part of last week’s layoff, Byrne asked, “So when considering the fact that in order to get things turned around I had to institute a ‘No raise’ policy for 2019, I simply ask you to look around where you work, remind yourself of that promise, and ask yourself, ‘How much does it count?’”
In detailing his plan for Overstock’s recovery, which includes 13 initiatives for improving retail sales, Byrne seems optimistic.” If we execute each of these, the prediction market (always more conservative than me) ... says that we pop back into the black.”