Dear Customers,
This is a letter I had sent earlier today to the Motley Fool in response to questions posed to me. I am sending it to you in hopes that you will read to the end because it contains an offer for you. Everything I know as of now are laid out herein; please feel free to contact me with regards to any questions or comments you may have.
Your humble servant,
Patrick M. Byrne
CEO
Bill Mann
Motley Fool
Dear Bill,
Thank you for taking the time to write about me and the New York Times article regarding Tiffany pendants. Both these pieces raise no complaint from me regarding their fairness, and I thank you in particular for suggesting there might be an explanation from me worth listening to. Like you, I know that it is in their crisis moments that companies define themselves, choosing to be stand-up (like Johnson & Johnson with Tylenol) or hide-under-the-desk (as occurred with Perrier). So I recount here the facts so far and leave it to you to judge how stand-up we have been:
1. We stepped up for the customer as soon as we learned of this issue. On Friday October 3 and continuing over that weekend, a few dozen customers began writing me to say there was a problem in the quality and/or authenticity of a Tiffany pendant we had sold. By Monday night, October 6, we had prepared an email that was sent Tuesday to every customer who had purchase the Tiffany pendant, informing them of the potential problem. I wrote that we had been supplied an invoice that appeared to establish their legitimacy (which I attached), but suggested that, even if the goods appeared genuine, our re-inspection confirmed what some customers said, that some items appeared blemished. So I wrote, "if you are dissatisfied with your purchase in any way, contact our Customer Service department . to arrange a return. For returns on any of these pendants, blemished or clean, we will waive the returns fees and we will pay the costs of return shipping."
2. We exercised caution in buying our many thousands of luxury brand goods, devoting a lawyer full-time to man this filter. In the case of these pendants, samples (flawless, exquisite samples, I might add) of these pendants were shown to us 7 months ago by Canada's premier "jobber," a man with whom we had done previous good business. He came to visit us in Salt Lake City and I jumped up and down on one note: we will never, ever sell fugazi, that it is the worst thing that could ever happen. He swore up-down-and-sideways to me he would never send us anything about which he was not absolutely certain. He told us he was buying these out of the Tiffany store in Florence, one of three such stores in Italy.
3. We launched an internal investigation since this happened. We had bought, I learned, 2000 pieces. When the complaints came in we took the pendants off site, having sold 1,365 of them. In the last 24 hours, however, after a hard talk, I am coming to think that this may be only partially true, that our Canadian in fact got some of the pendants not from the Florence retail store, but from a manufacture in the Tiffany supply chain he is trying to protect.
4. We have been fair in our dealings with Tiffany. On October 10 we responded to a letter from Tiffany, saying, "Overstock.com understands and applauds your vigilance on behalf of your clients. [Yet we do] not believe that it has sold any counterfeit..Tiffany product. While Overstock.com has sold the Open Heart pendant specifically mentioned in your letter, it is with the understanding that the pendant was a genuine Tiffany product. Overstock.com's confidential source has repeatedly assured Overstock.com that the pendant was a genuine Tiffany product and that Overstock was authorized to sell it without any restriction on sale. . Overstock.com does not desire to sell any counterfeit or infringing products.. If you have information that indicates that Overstock.com is engaged in such acts or that the enclosed documentation is not accurate, please let us know and we will take corrective action immediately. Overstock.com sincerely wishes to be as cooperative as possible with your clients." We forwarded Tiffany documents we had received with the merchandise, and have been awaiting a response, neither putting the pendants back up on site, nor destroying them, nor returning them to our vendor.
Bill, it is hard to imagine how Overstock could have been more stand-up about this issue. We jumped on it as soon as came to our attention, and tried to make good for the customer; we exercised more than reasonable caution in buying the pendants, aggressively investigated their provenance since the issue arose, and supplied to Tiffany the documentation that was driving our decision, with a request that they notify us if they were false. Yesterday I read in the New York Times that Tiffany says the invoice was doctored or fake: that is news to me, as they have never told us this (incidentally, there is simply 0 chance that anyone at Overstock would do that or knowingly permit it). On the other hand, the Canadian supplier tells me that he can produce his agent who was physically in the Florence Tiffany store and made the buy. He also tells me that he has taken these into a Tiffany shop and employees there have selected them over known originals as being, "real Tiffany." If it is the case that Tiffany let one of its retailers or manufactures release these into the marketplace, they can hardly challenge their later sale. But I admit, at this point, the facts are not clear to me.
An offer for customers: Oy vey. You now know everything I know about this. It is a muddle, but it is a muddle among companies, and consumers should be protected from muddles among companies. So far, I have sought to protect the consumer from this brouhaha by saying, if you like it, keep it; if not, send it back at our expense for a refund."
What I would love to do is go out and buy 1,365 of the pendants from a Tiffany store with my own wallet, and send them to the concerned customers. I think, alas, that Tiffany is not going to let me do that.
In lieu of that, I have another idea. We will put in the accounts of all who bought this a gift certificate for $47, equal to the amount that they originally spent, if they return the pendant. Customers can return their pendant, get a full refund, and have another $47 to spend. That way the customer is twice as well off in this transaction as he was before, and Tiffany sees these sucked out of the market. If it turns out that these pendants were not genuine, then I will have a beef with our Canadian supplier. If they were genuine after all, then I will have a beef with Tiffany. In either case, however, the customer will be insulated. And we will have acted in a stand-up fashion.
Overstock goes to great lengths to verify that all of the goods we sell are genuine and of high quality. We sell thousands of products and have filters in place to protect against counterfeit goods being sold on our website. At this point we don't have all the facts on this Tiffany case: however, should these pendants turn out to have been counterfeit, I sincerely apologize to our customers. In fact, I apologize to them now for putting them through this.
I hope you will agree, however, given the behind-the-scenes history I disclosed here, and our efforts to rectify the situation, we've been stand-up guys in any case.
Sincerely yours,
Patrick M. Byrne
A note from the COO: If you have already returned your pendant, no need to take further action - our Customer Service staff will place a $47 coupon in your Overstock.com account.
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New York Times
October 20, 2003
E-COMMERCE REPORT
Surprise, It's Not Tiffany's
By BOB TEDESCHI
BUDGET-CONSCIOUS romantics looking to score easy points with their beloveds were enraged early this month when the discount Tiffany heart-shaped pendant necklaces they bought from the bargain Web site Overstock.com arrived.
The clasp was stamped "Tiffany & Co.," but the quality said "knockoff," according to many of those who bought them. Overstock insists the jewelry was indeed from Tiffany, even if it concedes the necklaces were of occasionally suspect quality. But Tiffany claims Overstock sold counterfeit goods and said late last week that it would file suit. Customers, meanwhile, are grumbling about having to return items they hoped would win them affection at a fraction of the going rate.
The Tiffany heartburn makes clear the difficulties of selling, and buying, luxury goods online. For the brand owners, it is hard to protect their name and goods in an online market awash in fakes. For online discounters trying to operate legitimate businesses, counterfeiting is no less of a problem. And for online shoppers, the Tiffany episode is yet another reminder that anything that looks too good to be true, probably is.
The issue came to light on FatWallet.com, a comparison shopping Web site that also includes discussion boards. Late last month, a FatWallet user posted a message alerting other users to the Tiffany heart pendant necklace selling on Overstock for $47 - less than half the price of what was supposedly the same item on Tiffany's Web site.
The discussion board was soon crowded with grateful buyers, mostly men shopping for anniversary and birthday gifts, and a fellow who bought one to stash away "just in case I screw up big time and need to buy some forgiveness."
But just as quickly came skeptical messages doubting the necklaces' authenticity - doubts evidently borne out when the necklaces arrived, to scathing reviews. Customers complained on FatWallet and to Overstock that the silver lacked luster or was gouged, and that the "Tiffany & Co." lettering was illegible. And they complained that the jewelry arrived in boxes of a different hue from Tiffany's famous robin's-egg blue.
Overstock offered refunds to dissatisfied customers and stopped carrying the item after the first batch of 1,200 had been sold and shortly after it began receiving complaints. But the company sent e-mail messages to buyers of the necklaces, saying it had bought the items from a distributor in Canada, who in turn - according to Overstock - had bought them from Tiffany's Italian division. Overstock posted a copy of that invoice on its site.
Overstock's chief executive, Patrick M. Byrne, said last week in a telephone interview that a "few dozen" of the necklaces had been returned. The company is obsessive about "screening out any knockoffs from our site," he said. "Now, can I really swear these came from Tiffany? All I can say is, I've seen the invoices on Tiffany letterhead. And we've dealt with one of the most reputable guys in this field, who swears up and down he bought them from Tiffany."
"What could've happened," Mr. Byrne continued, "was that this was a group of factory seconds that someone from Tiffany dumped into the market" - industry jargon for manufacturers' disposal of excess or flawed items by selling them to liquidators rather than selling at full retail prices to customers. "But when our guy sampled 5 or 10 percent of them," he said, "he didn't notice blemishes."
A Tiffany spokesman, Mark L. Aaron, said the company's Italian division researched the invoice and concluded that it had been doctored. "The thing was a fake," Mr. Aaron said. And so were the necklaces, he added.
Tiffany "does not sell overstocked items, and our vendors aren't allowed to, either," Mr. Aaron said. "You only buy authentic Tiffany product at our stores and boutiques and on our Web site and catalog."
Mr. Aaron said late last week that Tiffany was preparing to file suit against Overstock over the matter. Mr. Aaron would not specify the nature of the complaint, but it could be similar to the trademark infringement suit it recently won against Finest4Less.com, a seller of luxury goods. Tiffany sued Finest4Less in June after determining its Web site was selling counterfeit silver jewelry marked "Tiffany & Co." Earlier this month the United States District Court in Manhattan awarded Tiffany $574,000 in damages from Finest4Less, which no longer displays items on its Web site.
The owner of Finest4Less, Milton Luban, said in a telephone interview that he would very likely begin selling branded clothing on the site next month, but would no longer sell gray-market goods.
Although difficult to quantify, counterfeiting is a growing problem for Tiffany, Mr. Aaron said, with the proliferation of Internet sellers. "It's all about the integrity of the brand and our product," he said.
Tiffany has stepped up efforts to pursue online counterfeiters. Besides filing lawsuits, the company has worked with law enforcement agencies and has ended eBay auctions of suspected counterfeit merchandise.
An eBay spokesman, Chris Donlay, said if that company "sees items that on their face violate" a company's intellectual property rights, it will remove them.
But because of the volume of merchandise on eBay, he said, the site relies on businesses to help monitor auctions and report any suspect goods. "They inform us, and we take it down pretty quickly," he said.
While luxury goods makers have been particularly vulnerable to online counterfeiters, the problem confronts a wide range of manufacturers, according to analysts and industry executives. In fact online counterfeiting has spawned a cottage industry of businesses that help manufacturers track down counterfeiters.
Companies like Cyveillance, Net Enforcers, NameProtect and others scan the Web on behalf of manufacturers and retailers, looking for fake items or so-called gray-market goods - products that are meant to be sold in foreign countries or to corporate clients but are instead made available for sale to consumers in this country. While it is legal to sell gray-market goods, it is not legal to use the manufacturer's photos, logos and text descriptions to sell the products without the maker's permission - even though gray-market sellers frequently do so.
Such sales can anger mainstream consumers who paid much more than customers of the gray-market sellers, and they also vex so-called authorized resellers, who cannot compete on price with the unauthorized sellers and are often stuck explaining to buyers of gray-market goods that they cannot service the merchandise. (Gray-market items typically come with different warranties from conventional goods, or no warranty at all for purchasers in the United States.)
Retailers can also be victims, said Mr. Byrne at Overstock. Sometimes, he said, a manufacturer will make too much merchandise and sell it to liquidators, rather than discard it. But if consumers tell store employees they saw the same item for much less on a liquidator's site, he said, the employees will, under instruction from management, tell consumers the product is a counterfeit, to maintain the perceived value of store-bought items.
Mr. Byrne says Overstock screens the 30,000 or so items it displays each year to ensure their authenticity and the validity of the wholesaler's agreements with manufacturers. In addition to comparing items with known originals, Overstock devotes "a full-time lawyer to looking at the papers and only taking deals that are 100 percent certain."
Mr. Byrne, who holds a doctorate in philosophy from Stanford, said he had heard nothing of Tiffany's plans to file a suit. In any case, he said: "It's a strange moral dilemma. The last thing we want is to have any knockoff products. A, it's wrong. B, it'd be terrible for us. So I am taking this very seriously."