||This article appears to be written like an advertisement. (April 2013)|
|Type||Subsidiary of Amazon.com1|
|Headquarters||Henderson, Nevada, United States
Warehouse: Shepherdsville, Kentucky, United States
|Key people||Nick Swinmurn, founder
Tony Hsieh, CEO
Chris Nielsen, CFO
|Products||Shoes, handbags, eyewear, accessories, apparel|
|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.456 Since its founding in 1999, Zappos has grown to be the largest online shoe store.7
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.6 That same year, Swinmurn approached Tony Hsieh and Alfred Lin with the idea of selling shoes online.8 Hsieh was initially skeptical, and almost deleted Swinmurn’s voice mail.9 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.9 The company was officially launched in June 1999, under the original domain name "ShoeSite.com."10
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.10 In January 2000, Venture Frogs invested additional capital, and allowed Zappos to move into their office space.11 During this time, Hsieh found that he "had the most fun with Zappos" and came on board as co-CEO with Nick Swinmurn.12 After minimal gross sales in 1999, Zappos brought in $1.6 million in revenue in 2000.1213
In 2001, Zappos more than quadrupled their yearly sales, bringing in $8.6 million.12 In 2002, they opened their own fulfillment center in Shepherdsville, Kentucky.12 Advertising costs were minimal, and the company grew mostly by word of mouth.14 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.15
In 2003, Zappos reached $70 million in gross sales and abandoned drop shipping, which accounted for 25% of their revenue base.12 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."16 In 2004, Zappos did $184 million in gross sales, and received their first round of venture capital, a $35 million dollar investment from Sequoia Capital.1217 That same year, they moved their headquarters from San Francisco to Henderson, Nevada.9
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.1819
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).2021
In 2009, Zappos started exploring an acquisition to Amazon.22 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.9 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.9 On July 22, 2009, Amazon announced that it would buy Zappos for $940 million in a stock and cash deal.232425 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.25 The deal was eventually closed in November 2009 for a reported $1.2 billion.23
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.
In 2013, Zappos will move their headquarters from Henderson, Nevada to the Old Las Vegas City Hall in downtown Las Vegas.262728 According to Hsieh, "I want 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."29 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."2930
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.31
Zappos’ primary selling base is shoes, which accounts for about 80% of its business.32 There are currently about 50,000 varieties of shoes sold in the Zappos store, from brands like Nike, Ugg boots, 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.33
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 apparel will bring in $1 billion worth of revenue by 2015, as the apparel market is four times the size of the footwear market.323435 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."34
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.36 Of its customers, 75% are repeat buyers.37
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."38
Zappos places great emphasis on company culture and core values. Hsieh's belief is that "if we get the culture right, then everything else, including the customer service, will fall into place."34 The company publishes an annual 480-page "Culture Book," which is composed of two to three paragraph entries from employees describing Zappos' company culture.39 The entries are unedited, and a copy of the Culture Book is given to all employees (although anyone can receive a copy of the book upon request).40
Employees enjoy free lunches, no-charge vending machines, a company library, a nap room, and free health care.941 Each department has its own decor, ranging from rainforest-themed to Elvis-themed, and employees are encouraged to decorate their work spaces (for example, Hsieh's desk, which is in the middle of a cluster of cubicles, features jungle vines and an inflatable monkey).842 Employees often lead spontaneous office parades, occasionally accompanied with cowbells, and managers are required to spend 10–20% of their working hours "goofing off" with employees outside of the office.9434445
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).10 Call center employees don't have scripts, and there are no limit on call times.46 The longest call recorded was over eight hours long.647
Zappos employees are encouraged to go above and beyond traditional customer service.4849 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.50 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.51
When hackers breached the company’s computer systems in January 2012, they gained access to the personal information of up to 24 million customers.55 Much of the personal information that was taken was available in an internet search. Due to Zappos’ prior planning, the hackers were unable to reach the most sensitive information, such as passwords and full credit card numbers, because they were secured and stored in a separate database. Zappos responded immediately by putting into effect its existing contingency plan for a data breach and trained all employees to pitch in and respond to customer inquiries related to the breach.
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.".56 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 1.85 million followers.57 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."51 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 blogs58 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.59 For $40/month, participants are offered access to a subscription video service that lets companies ask questions to Zappos employees.6061 Zappos Insights also offers a three-day bootcamp where participants visit the headquarters and have meetings with Zappos executives.6263
In 2007, Zappos acquired 6pm.com, which has bargain shoes, clothing, and accessories.646566 In May 2010, 6pm accidentally priced all their merchandise at $49.95, including items like GPS navigators.67 They honored the pricing glitch, taking a $1.6 million loss.68
Zappos sponsors the "Zappos Rock 'n' Roll Las Vegas Marathon and ½ Marathon," which draw 28,000 runners each year.6970 They also sponsor the Zappos WCC basketball championships.71 During the tournament, Zappos hosts "Kidz Day," which outfits local Las Vegas kids with a new pair of shoes and an event t-shirt.72
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.9672035737475767778
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