Original URL: http://www.theregister.co.uk/2005/12/03/overstock_issues/

The bizarre world of Patrick Byrne's Overstock

A CEO Apart

By Ashlee Vance

Posted in Financial News, 3rd December 2005 00:04 GMT

Analysis The SCO Group and Senator Hatch aren't the only strange things you'll find in the beautiful state of Utah.

Take Overstock, whose CEO Patrick Byrne has held calls with financial analysts in which he delved into his sexuality and experiences with cocaine, in the midst of a tirade on how a cabal led by a "Sith Lord" was out to destroy his company.

These days things are looking pretty awful for the online retailer. It faces mounting losses. It has suffered through an IT collapse. And as we've discovered, it forces buyers to endure the most shocking customer service we've ever encountered. All the while baffling Wall Street with a riddle wrapped in an enigma of a CEO.

This tale begins with our own experience, but grows into a saga of widespread grief.

In August, we ordered seven MP3 players from Overstock as gifts for a party. Relatively pricey gifts? Maybe. But Overstock promised a great bargain, so why not?

A few days later only two of the seven MP3 players arrived. They came in a 4-inch high box that had room for nothing else. We called Overstock to find out where the other MP3 players were. The customer service representative told us that she could not track the items because of an IT overhaul - see the disaster mentioned above - but she guessed that they were being shipped in from different warehouses. Fair enough.

Well, the party came and went, and the other five MP3 players never arrived. That's when the real fun began.

Once Overstock's IT system came back to life, we were informed that all seven of the MP3 players had been delivered because the box weighed seven pounds, and each MP3 player weighed one pound. This wasn't Overstock's problem, the company explained - it was UPS's problem.

UPS told us that it could not initiate an investigation into the matter because a) the box was not tampered with, and b) it only had one box for that delivery.

We'll save you all the ins and outs that transpired over the next two months. In summary, we placed about 12 calls to Overstock and were given a different excuse about the package each time. Some representatives said it was "impossible" that the box didn't have the items, others said a trace was in progress, while others said this was a partner's problem. We were promised a refund three times and never received it. Two customer service representatives said they would "take us under their wing and follow up on the matter personally," only to never call or e-mail us again.

Candice H said, "We can prove that we sent all seven."

That seemed pretty awesome given that only two products arrived.

Ann L noted that, "This has been a nightmare. I can tell."

She never called back.

Finally the head of customer service called and said, "Holy Cow! This is unbelievable. I can't make excuses."

He told us that he rings customers personally "all the time" to fix problems, which seemed pretty doubtful given that we spent close to three months trying to track down a refund, and didn't hear from him until after we had e-mailed the CEO.

In between all of this, Overstock's customer service line would periodically hang up on us for no reason, customer service representatives would insinuate we were lying about the devices and representatives would give out phone numbers that could not be reached from outside the company.

Great times, as you can imagine.

Come on. It isn't really that bad

And we're not alone.

Looking over various customer feedback boards, it seems that Overstock actually received pretty high ratings a couple of years back. Buyers often gave it five stars for service, price and delivery times.

Recently, however, things appear to have taken a drastic turn for the worse.

Have a look at this board, for example, where one star is the most common rating for the company.

"Initially Overstock was decent, but I've been shopping with them for more than a year now, and their service has lessened to a disproportionate disregard which warrants dismissal!," writes one customer. "Cannot reach them by phone and their email responses to my customer queries such as providing assembly instructions for assembling a piece of furniture, and replacing missing pieces of that same order have verged from infuriatingly rote to completely disinterested!! STAY AWAY FROM THIS COMPANY!"

"I preordered a book from them last month," writes another. "Uptil now... nothing has arrived. I called (4 times), email (2 times) and chat (2 times). Everytime I got different info about my item. All of info i got from customer service is lie. Terrible customer service... Big Liar. NEVER ORDER ANYTHING FROM THEM AGAIN!!!"

"The customer service department is utterly useless," writes another customer. I purchased a watch about 6 weeks ago; it arrived defective, just plain doesn't work. I have been trying to return it, but Overstock contuiously fails to follow through on their 'guarantee' to send me the return shipping labels. After multiple emails and phone calls, I continue to receive the same form letters, about how sorry they are for the inconvenience. Well apologies don't mean a thing if they're not followed through with results."

"Customer service NIGHTMARE," writes another. "They're beyond pathetic. I'll never buy from them again. STAY AWAY FROM THEM!!!!"

Time and again, Overstock customers complain about not being able to track their orders, only receiving partial orders and having trouble connecting with customer service representatives. During its most recent earnings call, Overstock admitted that a large technology problem had made it impossible to track orders. And later representatives confirmed to us that the company's phone lines were malfunctioning.

So, we posed a simple question to the company. Have you noticed an influx in complaints since the technology glitch occurred?

For two weeks, we called and e-mailed Overstock's PR man Scott Blevins, seeking an answer to this question. We received no reply. Blevins seems to have trained at the same academy as the customer service representatives.

Blevins did, however, have this to say.

"I can't speak to issues you've had at Overstock because you won't provide an order or account number. If you would, I will make it right."

It's always nice to see a company offer to help a poor journalist out. If only all customers could receive such service.

After much pressing, we finally got to CEO Byrne who said there was "no" influx in complaints following Overstock's IT disasters. We can't see how that's possible since message boards are littered with gripes from people not able to track their packages or find customer service representatives, but Byrne is sticking by his story.

Overstock informed us that the only accurate measure of customer satisfaction is the annual American Customer Satisfaction Index (ACSI) - a survey done by the University of Michigan Business School, the American Society for Quality (ASQ), and the international consulting firm, CFI Group.

In May of 2004, Overstock issued this release stating that it finished fourth among US retailers in the ACSI survey with a score of 81. That's the only ACSI-related data Overstock has ever released. We went hunting for more.

The ACSI study Overstock cites tracked consumers in 2003. The study the next year showed that Overstock had dropped to 6th place with a score of 77. It fell behind Barnes and Noble, Amazon, eBay, Buy.com and 1-800 Flowers. The only sites Overstock beat out were the travel sites such as Expedia and Orbitz that rounded out the top ten. Overstock didn't issue a press release about this score, and we wouldn't either. Out of the top ten companies, it suffered the most significant year-over-year drop in customer satisfaction.

Now to the good stuff.

This fire is out of control. I'm gonna Byrne this city

Without question, Overstock is going through some of the most massive growing pains that we've ever witnessed. When, for example, we pointed out that Overstock's customer service line hangs up on consumers, Blevins countered that eBay and Amazon don't even have phone lines, and Byrne said that "a huge spike in sales" caused "an unexpected minor technical issue to drop calls for a small number of our customers." We should have played lotto that week because Overstock dropped our calls 20 out of 22 times in a 7 day span.

Byrne does not appear to take Overstock's customer service problems seriously, downplaying the influx of complaints as minor issues here and small glitches there. "My bad" was his response to a horrible third quarter performance.

It's this attitude and Byrne's bizarre demeanor that have some financial analysts describing the CEO as a freak show.

On August 11, for example, Byrne hosted a teleconference with analysts to attack a group of people that he alleged were short selling Overstock's stock and causing damage "in the high hundreds of millions of dollars." To describe the call as odd would not do it justice. The far-ranging conference had Byrne discuss everything from his techniques for taping calls with reporters to whether or not he had done cocaine. Somehow, this all had to do with the conspiracy to destroy Overstock.

"It was the most bizarre hour and change I have ever witnessed on the Street," said Jeff Mathews, a hedge fund manager and close Overstock watcher, during a TV appearance.

Other pundits criticized Byrne's performance as well, but we'll, of course, let you judge for yourself.

Here are a few tidbits from that August call.

And I refused to talk to him without a tape recorder on because I’ve dealt with the Journal before and they’re just a bunch of dishonest reporters. Over and over and they’ll play this trick by the way where they say you - I mean - I’ll only talk to a Wall Street Journal reporter with a phone on because they’re such crooks, or with a tape recorder on.

And literally I’ve had them do that and then afterwards say - write me a little email that says oh, my tape recorder turns out to have been broken, but don’t worry, I took good notes. Well, they’ve done this once to a friend of mine and they did it once to me, so now I only talk to them with a tape recorder on.

And then a few minutes later.

Well, something else funny happened. My phone went dead, my phone went dead and a message came up in Spanish that said this has been diverted to some telephone company in Mexico and the line was out. The same hour that happened, you see, they got a hold of O’Brien’s cell phone record, they got a hold of O’Brien’s cell phone records and they started calling everywhere O’Brien had called.

And I know this sounds like a John Grisham novel, but bear with me. They started calling everywhere he had called. So for example, there is a woman, who she is a psychiatrist who has a patients only telephone number. That number started getting calls. Who was doing the calling?

Cooky cat, right? That's just the beginning.

And here’s the funny part. As this went on I started realizing that there was actually some more orchestration here being provided, by what I’m calling here is the Sith Lord or the mastermind. Now, can I tell you who that designated bottom feeder was who was supposed to end up with our company? Can I tell you? I can. But I’m not going to today.

The Sith Lord is, can I tell you who that is? Well, I could tell you it’s a name that everybody on the phone, every single person on the phone would recognize this person’s name. He’s one of the master criminals from the 1980s, and he’s back in business. But I’m not going to. I’ll just call him the master mind today.

During this call and on TV, Byrne keeps using two words that start with M to describe this "Sith Lord." In the call, for example, he placed emphasis on "master mind." Some have taken this to mean Bryne is referring to Michael Milken - the junk bond "king" who spent some time in prison. Why Bryne insists on making damning charges and backing away from them with childish words games is not clear.

We'll close on this note.

I want to go back a bit because I forgot to tell you about Kroll, how I tracked down Kroll. I had the feeling -- I’ve been seeing things that suggested in a very mild way somebody was intercepting communications. Now I’m going to tell a story that I’m not sure that this part was Kroll, but so... the way I tested that was I came up with one channel, Channel A I’ll call it, and I put information down there that I was gay.

And Channel B I put information down that I was a coke head. Now my apologies to my gay friends, both within and without, outside the company, I don’t mean to equate the two. I don’t care. I’m a libertarian and I don’t care at all. In fact I don’t give a hoot if anyone thinks I’m gay, but I thought that by keeping, by putting that information down on one channel and putting the coke head information down the other channel, I would then know if it leaked into the world that those channels were compromised and I know there’s no way that information.

I know that if that ever appeared it could only have come from channel A or channel B and I didn’t even mix the channels. Sure enough, within a short time I started seeing on the message boards, oh, Byrne’s gay, whatever.

Again, nothing decisive, but it was enough to peak my interest. On the coke head thing, and by the way, I’ve never, with one exception, I’ve never even seen cocaine in my life so in case you’re wondering, no, I’m not a coke head.

Anyone else have a tough time picturing eBay's Meg Whitman making a similar call?

Having exchanged a number of emails with Byrne - he wouldn't talk to us on the phone even though he has a recording device - and followed his statements, it's clear that the man is not traditional CEO material. Byrne now claims to have given up on pursuing the short-sellers day and night so he can better focus on his business. But even so, he seems easily distracted. Byrne claimed that Overstock had sent us five additional MP3 players on top of the seven we were already supposed to have received. This never happened, and no customer service representative claimed it had.

Only Byrne.

Now all companies have their rough times. Typically, though, the good ones try and counter mistakes by driving harder than ever to please customers. Overstock, by contrast, seems to take its customers for granted. The company's CEO does not appear to have the focus necessary to guide a company through the fast-paced online world.

Given Overstock's mounting losses, falling customer service quality and technology issues, the company has serious work ahead if it's to compete with savvy giants such as eBay and Amazon.

Web 2.0? Overstock isn't Web 0.35. ®