Overstock's CEO explains why the surprise decision to rename the brand after bankrupt Bed Bath & Beyond is actually a brilliant move

• Overstock.com acquired Bed Bath & Beyond's brand and digital assets for $21.5 million.
• The e-commerce company then announced it would adopt the iconic brand for its entire identity.

Bed Bath & Beyond is back, baby. Online, at least.

In an unexpected twist, Overstock.com said Wednesday that it would assume the iconic brand's identity across all of its e-commerce channels following court approval of a $21.5 million purchase of the bankrupt company's intellectual property.

Bed Bath & Beyond's Canadian website has already been refreshed, offering a preview of what's coming in August when shoppers on Overstock's US website and apps will be redirected to those for Bed Bath & Beyond – with orders fulfilled by Overstock.

On Thursday, CEO Jonathan Johnson laid out the strategy behind the move on a conference call with investors, explaining why it makes sense for Overstock.

"We have long looked for ways to rebrand, but wanted to do so in a way that wouldn't take years or cost hundreds of millions of dollars," he said.

Overstock.com launched in 1999 as a liquidation site where shoppers could get clearance deals on surplus and returned merchandise. The company soon shifted gears to sell new products, with an increasing emphasis on housewares, but Johnson said the original image of a clearance outlet stuck in the minds of shoppers.

Johnson also said some suppliers previously were reluctant to sell their goods to Overstock, but when news broke of the deal to buy Bed Bath & Beyond's brand, the company added more than 100,000 new items to its assortment in less than a week.

"While Overstock is a successful company, its brand name is nowhere near as well-known as that of Bed Bath & Beyond," GlobalData retail analyst Neil Saunders told Insider.

So, when the struggling housewares giant finally declared bankruptcy, Johnson saw a golden opportunity.

Equipped with a robust $375 million in cash on its balance sheet, Overstock assembled a bid for Bed Bath & Beyond's digital assets, customer lists, private-label trademarks, and more, while leaving aside the expensive stores, inventory, and other liabilities that were dragging the company down.

"Mismanagement can kill companies but doesn't kill brands," Johnson said. "There are lots of brands that have gone through bankruptcy that remain strong and iconic today. The Bed Bath & Beyond brand we think will be such a brand."

Bed Bath & Beyond deal brings strong brand, robust customer list

Despite the turmoil of the past few years, Johnson said the Bed Bath & Beyond brand remains so strong that his e-commerce company is going all-in, redirecting web addresses, updating mobile apps, and retiring the Overstock name across all customer-facing platforms later this year.

"In many ways, this is the most efficient way for Overstock to take advantage of their purchase of the Bed Bath & Beyond intellectual property," Saunders said. "They could have run a separate website or just redirected people looking for Bed Bath & Beyond to Overstock, but both options are inefficient and would not maximize commercial success."

Another key piece of the deal is an extensive customer list.

Johnson said the additional Bed Bath & Beyond shoppers — who accounted for more than $1 billion in sales last year — will triple Overstock's existing customer base.

And to keep the loyalists happy through the transition, he indicated that the company would likely lean on a familiar tactic: "our couponing may be a little bit more robust."