Consumers ‘under stress’ but ‘still willing to buy’: Overstock CEO

Overstock CEO Jonathan Johnson joins Yahoo Finance Live to discuss inflation, inventory, consumer demand and trends, a promotional shopping environment, and the outlook for the retail industry in 2023.

Video transcript

JULIE HYMAN: Analysts are warning of further pressures to come for retailers, with inventory expected to remain high and further discounts needed to push product sales. Companies like Overstock are going to have to continue to battle with retail giants like Amazon and Walmart for more market share. Overstock CEO Jonathan Johnson is with us now. One of your competitors, Wayfair, did get an upgrade yesterday, and those shares were trading higher. Give us sort of a flavor for what you're seeing right now, where we are in that inventory correction cycle.

JONATHAN JOHNSON: I think it's still retailers have lots of inventory in their warehouses. I think we'll see more promotions. 2023 feels to me like it may be a tale of two halves, a lot of promotions, a lot of inventory still getting pushed in the first half, things getting back more to normal in the second half of the year.

BRIAN SOZZI: Do you see in the numbers that you're able to get daily that the consumer is still under stress? How much stress are they under?

JONATHAN JOHNSON: Yeah, consumers are-- I think they're under stress, but they're still willing to buy. What we see is that when there's a call to action with a good promotion, a special price, consumers will step up and buy. But they are minding their wallets and their purses carefully, ready to buy when the deal's there. And we think that's advantageous for Overstock because we're all about smart value, trying to please the savvy shopper.

BRAD SMITH: If shoppers are looking for that promotion, then what does the future of kind of price normalization look like then if we're talking about shoppers that are only comfortable spending at 30% discount, 40% discount? What does that mean for actual prices coming back down to those levels to really reflect where consumers are comfortable spending?

JONATHAN JOHNSON: Yeah, so I think that's part of this tale of the two halves, as retailers are deep in inventory. And most of that inventory, remember, is expensive inventory that came in during the supply chain challenges. I think when we get to the second half of the year, that inventories moved out and cheaper inventory has moved in because the supply chain is running fairly smoothly now.

BRAD SMITH: Is this still quality inventory, though? Because that's been a question among consumers, looking for the bang for their buck.

JONATHAN JOHNSON: Yeah, I do think-- well, I know we're flush with quality inventory. And when the second half of the year comes, and cheaper-- less expensive inventory is probably the better way to say it, has come in because the supply chain is normalized. I think we'll see maybe a little deflation in the prices.

JULIE HYMAN: Let's talk about how this affects you guys a little bit more because Overstock is the name, but I know not all of your inventory is overstock, so to speak. Remind me of the percentage now and whether this glut in inventory actually is beneficial for you.

JONATHAN JOHNSON: Yeah, so Overstock started as a liquidator. We don't liquidate at all now. So I mean, we're a first run, first goods furniture and home furnishings company. We also don't own inventory. We have this vast partner supplier network that provides us inventory that was great during the pandemic because it gave us more access to inventory. It's actually good now as they are flush with inventory, as some of our competitors have canceled their orders, have too much inventory. So we've been able to still maintain good inventory and good pricing, regardless of the situation because of our asset light business model.

BRIAN SOZZI: When you talk to your largest investors, Jonathan, are they pushing you to get leaner on costs?

JONATHAN JOHNSON: Well, yes, always, but we are very lean on cost. When you look at our revenue per employee, it runs about $1.5 million per employee. Our competitors, our best competitors are kind of at the $800,000 per employee. So we remain lean and will continue to be that way.

JULIE HYMAN: I mentioned Wayfair at the beginning of the conversation. The company also announced it was cutting jobs last week and cutting some costs. Are you-- do you foresee having to cut back on costs this year and potentially cut workers?

JONATHAN JOHNSON: Well, we sure hope not. We did a small downsizing at the end of last summer. But because we run so lean, we think we've managed that. During the pandemic, when our sales surged, we did not let our overhead surge. We've continued to run lean. And I think that's been helpful as we've gone forward.

JULIE HYMAN: How many people work for Overstock?

JONATHAN JOHNSON: About 1,000, 800 plus.

JULIE HYMAN: That is lean.

JONATHAN JOHNSON: Yeah.

JULIE HYMAN: All right, Jonathan, good to see you in person.

JONATHAN JOHNSON: Good to be here. Thank you.

JULIE HYMAN: Thanks for coming to the studio. Appreciate it. Jonathan Johnson is the CEO of Overstock.