Overstock lays off nearly 250 in 2 months in effort to become profitable after 'disappointing' year

Overstock lays off nearly 250 in 2 months in effort to become profitable after 'disappointing' year

(Courtesy of Overstock.com)

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SALT LAKE CITY — Overstock founder and CEO Patrick Byrne is a blockchain true believer.

“Byrne ... is convinced that the technology will disrupt Wall Street and commerce. Simply put: Blockchain is the future in the eyes of Byrne and Overstock is the past,” Brittain Ladd, a former strategy and supply chain consultant for the Utah-based e-commerce company, wrote in Forbes.

And Byrne isn’t shy about his beliefs. In late November, he told the Wall Street Journal that Overstock plans to sell its decades-old retail business by February in order to go all in on its blockchain endeavors.

That acquisition hasn’t happened quite yet, though, and Byrne recently said during Overstock’s year-end earnings report with shareholders that he realizes selling a company is like making souffle: It’s not ready until it’s ready.

And Overstock’s souffle is looking a little deflated right now.

It was a rough year for the company. In order to compete with Wayfair, a direct competitor, Overstock started price cutting to gain market share. Though the company had been profitable in previous years, Overstock’s retail side started losing money, and 2018 became a banner year for that loss. In fact, the company made almost $200 million less in pre-tax income in 2018 than two years previously, according to Overstock’s latest earnings report.

“We know last year was disappointing. I made the mistake of trying to compete on the same terms as our main opponent. That was a terrible mistake," Byrne told shareholders during Overstock’s year-end report. "We’ve returned to our normal way of operating business, and that’s about being about profitability. This year I’m committing that we will generate $10 million of positive operating cash flow from the retail business.”

But nearly 250 employees had to lose their jobs so Overstock could start back on the road to profitability.

In December, Overstock had 1,305 corporate employees, not including those involved with its blockchain endeavors. By January, that number had been reduced to 1,172; and by February it was at 1,069.

While the company did hire more people in 2018 in preparation for a strategy that it eventually scrapped, Overstock ended February with about 100 fewer employees than it started with in 2018.

“We’ve taken out 25 percent of our general and administrative expenses,” Byrne told shareholders during the year-end report. “So when I tell you we’re doing … better … this isn’t pie-in-the-sky, hockey stick stuff.”

And it’s true, Overstock does look like it’s on track to reach its goal of profitability — which it appears Byrne then hopes will lead to the company’s sale.

But though the company has “taken out” a swath of employees to cut costs, Overstock has also offered several company officers restricted stock units in what could be interpreted as an incentive to retain key executives during a more turbulent time for the company.

Along with other officers, Jonathan Johnson, the president of Overstock’s blockchain subsidiary, Medici Ventures, received 20,000 restricted stock units, as well as a $500,000 bonus “for his efforts during 2018.”

Overstock executives, especially Byrne, believe Medici Ventures is Overstock’s future and see the blockchain space as a business worth at least $914 billion. Medici, in turn, has been focusing its blockchain efforts on everything from the stock market to voting.

“Five years ago, we became aware of the potential for blockchain,” Byrne said. “We understand there’s a new era coming to humanity, and we wanted to have a stake in the most fundamental processes of that new era.”

Overstock’s “crown jewel” in the blockchain space is tZERO, and Byrne says a “market boom” is just around the corner for the security trading platform.

But Overstock and tZERO were planning on a large cash infusion of up to $404 million in a deal that didn’t end up happening by its Feb. 28 deadline. The company is now part of a nonbinding agreement with another company its hoping will provide a similar boost.

But if Byrne’s focus is on blockchain, what will happen to Overstock’s retail side once the souffle is finally ready for sale?

Ladd believes Overstock would be a wise purchase for several companies, including Amazon, which he says is working to expand into furniture sales.

“It's true that Overstock hasn't lived up to its potential; however, with the right ownership, Overstock has significant opportunities for growth,” he said.

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