||This article appears to be written like an advertisement. (April 2013)|
|Type||Subsidiary of Amazon.com|
|Headquarters||Las Vegas, Nevada, United States
Warehouse: Shepherdsville, Kentucky, United States
|Key people||Nick Swinmurn, founder
Tony Hsieh, CEO
Chris Nielsen, CFO
|Products||Shoes, handbags, eyewear, accessories, clothing|
|Revenue||US$1 billion (2009)|
In July 2009, the company announced it would be acquired by Amazon.com in an all-stock deal worth about $1.2 billion. Since its founding in 1999, Zappos has grown to be the world's largest online shoe store.
Zappos was founded by Nick Swinmurn in 1999. The initial inspiration came when he couldn’t find a pair of brown Airwalks at his local mall. That same year, Swinmurn approached Tony Hsieh and Alfred Lin with the idea of selling shoes online. Hsieh was initially skeptical, and almost deleted Swinmurn’s voice mail. After Swinmurn mentioned that "footwear in the US is a 40 billion dollar market and 5% of that is already being sold by paper mail order catalogs," Hsieh and Lin decided to invest $2 million through their investment firm Venture Frogs. The company was officially launched in June 1999, under the original domain name "ShoeSite.com."
A few months after their launch, the company's name was changed from ShoeSite to Zappos (a variation of "zapatos," the Spanish word for "shoes") so as not to limit itself to selling only footwear. In January 2000, Venture Frogs invested additional capital, and allowed Zappos to move into their office space. During this time, Hsieh found that he "had the most fun with Zappos" and came on board as co-CEO with Nick Swinmurn. After minimal gross sales in 1999, Zappos brought in $1.6 million in revenue in 2000.
In 2001, Zappos more than quadrupled their yearly sales, bringing in $8.6 million. In 2002, they opened their own fulfillment center in Shepherdsville, Kentucky. Advertising costs were minimal, and the company grew mostly by word of mouth. It was around this time that Hsieh and Zappos executives set long-term goals for 2010: achieve $1 billion in sales and receive inclusion on Fortune’s list of The Best Companies to Work For.
In 2003, Zappos reached $70 million in gross sales and abandoned drop shipping, which accounted for 25% of their revenue base. The decision was based on supplying superior customer service, as Hsieh says "I wanted us to have a whole company built around [customer service] and we couldn’t control the customer experience when a quarter of the inventory was out of our control." In 2004, Zappos did $184 million in gross sales, and received their first round of venture capital, a $35 million investment from Sequoia Capital. That same year, they moved their headquarters from San Francisco to Henderson, Nevada.
Over the next three years, Zappos doubled their annual revenues, hitting $840 million in gross sales by 2007. They expanded their inventory to include handbags, eyewear, clothing, watches, and kids’ merchandise.
Acquisition by Amazon
In 2008, Zappos hit $1 billion in annual sales, two years earlier than expected (one year later, they fulfilled their other long-term goal, debuting at No. 23 on Fortune’s Top 100 Companies to Work For).
In 2009, Zappos started exploring an acquisition to Amazon. Within Zappos’ board of directors, two of the five—Hsieh and Alfred Lin—were primarily concerned with maintaining Zappos company culture, whereas the other three wanted to maximize profits in a down economy. Initially, Hsieh and Lin planned to buy out their board of directors, which they estimated would cost $200 million. In the midst of this, Amazon executives approached Zappos with the proposition of buying Zappos outright. After an hour-long meeting with Amazon CEO Jeff Bezos, Hsieh and Lin sensed that Amazon would be open to letting Zappos continue to operate as an independent entity, and started negotiations. On July 22, 2009, Amazon announced that it would buy Zappos for $940 million in a stock and cash deal. Owners of shares of Zappos were set to receive approximately 10 million Amazon.com shares, and employees would receive a separate $40 million in cash and restricted stock units. The deal was eventually closed in November 2009 for a reported $1.2 billion.
On June 22, 2012 Zappos announced it would be shedding their Kentucky warehouse on September 1st, 2012. Hsieh had mentioned that "Even though it was hard to walk away from sales at a time when nobody is offering you money, we couldn't distinguish ourselves in the eyes of our customers if we weren't going to control the entire experience. We had to give up the easy money, manage the inventory, and take the risk." Even in spite of his commitment to controlling the customer experience by managing inventory, this announcement meant that Amazon would now be controlling that part of that customer experience. Over 3,000 employees in Zappos' Kentucky warehouse will now be in the care of Amazon on September 1, 2012.
2012 hacking incident
On January 16, 2012, the company announced that its computer system was hacked, compromising the personal information of 24 million customers. In response, the company required all of its customers to change their passwords on the site. The company also shut down its customer service phone lines, requiring its customers to email questions instead. This incident led to a class action suit In re Zappos.com, Inc., Customer Data Security Breach Litigation, with plaintiffs claiming that Zappos did not adequately protect their personal information.
On September 9, 2013, Zappos moved their headquarters from Henderson, Nevada to the former Las Vegas City Hall building in downtown Las Vegas, after an extensive $48 million effort to renovate and make major improvements to the building. CEO Tony Hsieh, who also leads the Downtown Project, an effort to revitalize downtown Las Vegas as a vibrant cultural and economic hotspot, has said he wants "to be in an area where everyone feels like they can hang out all the time and where there’s not a huge distinction between working and playing." The move was lauded by Las Vegas mayor Oscar Goodman who said "this will be a game changer for Southern Nevada. This move will bring about a critical mass of creative persons to the inner core of Las Vegas in addition to causing a significant shot in the arm for the economy and for new jobs."
Zappos’ primary selling base is shoes, which accounts for about 80% of its business. There are currently about 50,000 varieties of shoes sold in the Zappos store, from brands like Nike, Ugg boots, ALDO Shoes, and Steve Madden heels. They also serve the niche shoe markets, including narrow and wide widths, hard-to-find sizes, American-made shoes, and vegan shoes. In 2004, they launched a second line of high-end shoes called Zappos Couture.
In 2007, Zappos expanded their inventory to include clothing, handbags, eyewear, watches, and kids’ merchandise, which currently account for 20% of annual revenues. Zappos expects that clothing and accessories will bring in an additional $1 billion worth of revenue by 2015, as the clothing market is four times the size of the footwear market. Hsieh states that "our whole goal is we want to build the best brand of customer service. Hopefully, 10 years from now, people won’t even realize that we started selling shoes."
Zappos uses a loyalty business model and relationship marketing. The primary sources of the company's rapid growth have been repeat customers and numerous word of mouth recommendations. Of its customers, 75% are repeat buyers.
The company's customer service reputation has been augmented through viral spreading as well: "Shoe merchant Zappos has benefited from Internet wildfire. When Zappos offered special return shipping assistance, beyond their company policies...the good word about the company spread quickly throughout the blogosphere."
On average, Zappos employees answer 5,000 calls a day, and 1,200 e-mails a week (except in the holiday season, when call frequency increases significantly). Call center employees don't have scripts, and there are no limit on call times. The longest call reported is 10 hours 29 minutes.
Zappos employees are encouraged to go above and beyond traditional customer service. In particular, after a late night of barhopping and closed room service, Hsieh bet a Skechers rep that if he called the Zappos hotline, the employee would be able to locate the nearest late-night pizza delivery. The call center employee, although initially confused, returned two minutes later with a list of the five closest late night pizza restaurants. Inc. Magazine notes another example when a woman called Zappos to return a pair of boots for her husband because he died in a car accident. The next day, she received a flower delivery, which the call center rep had billed to the company without checking with her supervisor.
CEO Tony Hsieh encourages his employees to use social media networks to put a human face on the company and engage with customers, following their core value #6: "Build Open and Honest Relationships With Communication.". Zappos employees maintain an active presence on:
- Twitter: Zappos run its own Twitter microsite for its 500 employees registered on Twitter. Among them, Tony Hsieh is one of the most followed persons on Twitter with 2.75 million followers. Employees are encouraged to use their Twitter accounts for casual communication rather than promotions or marketing pitches, in an effort to humanize the company, like when Hsieh tweeted before going onstage at a tech conference: "Spilled Coke on left leg of jeans, so poured some water on right leg so looks like the denim fade." He also encourages customers to use Twitter to give positive as well as negative feedback.
- YouTube: Zappos' content on YouTube supplements its other networks, hosting videos that primarily highlight the work culture at Zappos headquarters including behind the scenes clips, humorous sketches by employees, and contests for customers.
- Facebook: Its Facebook page provides an effective route for feedback and discussion with customers.
- Corporate blogs: Zappos runs several blogs covering many topics related to its business: CEO blog, COO blog, Couture blog, Fashion Culture
In 2008, Zappos launched Zappos Insights, which aims to help other businesspeople refine their company culture and customer service. For $40/month, participants are offered access to a subscription video service that lets companies ask questions to Zappos employees. Zappos Insights also offers a three-day bootcamp where participants visit the headquarters and have meetings with Zappos executives.
In 2007, Zappos acquired 6pm.com, which has bargain shoes, clothing, and accessories. In May 2010, 6pm accidentally priced all their merchandise at $49.95, including items like GPS navigators. They honored the pricing glitch, taking a $1.6 million loss.
Zappos sponsors the "Zappos Rock 'n' Roll Las Vegas Marathon and ½ Marathon," which draw 28,000 runners each year. They also sponsor the Zappos WCC basketball championships. During the tournament, Zappos hosts "Kidz Day," which outfits local Las Vegas kids with a new pair of shoes and an event t-shirt.
Zappos has been featured in many publications, including the New Yorker, USA Today, CNN, New York Times, Inc. magazine, the Washington Post, CBS News, the Los Angeles Times, the Chicago Tribune, and Forbes.
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