Zappos.com
By:
Stephanie DeSantis
Rachel Stankis
Contents
1
Timeline
2
Three Cs
3
Distribution
4
Financials
5
Opportunities & Challenges
6
Discussion & Questions
Zappos Mission
Mission
Provide the best customer
service possible.
WOW philosophy
Company History
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1999-Nick Swinmurn launched shoesite.com
End of 1999-offered free shipping & 100+ brands
2000-Zappos reached 50 brands & 400,000 shoes
PC Data Online-ranked Zappos #1 online footwear retailer
2001-Tony Hsieh’s $1.1 Million put him as Co-CEO
End of 2001-Zappos grew to $8.6 Million in gross sales
2002-Set goal to reach $1 Billion by 2010
2005-Received $35 Million & moved to Vegas
2006-Zappos was a $597 Million company
2008-Became a $1 Billion retailer
2009-Ranked #23 on "100 Best Companies to Work For“
July 17, 2009-Zappos merged with Amazon
2010 – Ranked #15 by Fortune Magazine
2011-Ranked #6 by Fortune Magazine
Three Cs
Company
Culture
Clothing
Customer
Service
Company Culture
 Differentiator that gave them competitive advantage
 2005 they debuted their core values
 Value # 7 – employees are encouraged to sped 1020% of their free time socializing outside of work
 2008 created culture book
 Started a pipeline
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225 hours of core training
160 initial/new hire training
Additional courses: effective communication, coaching,
overcoming conflict, & managing stress
39 Opt hours: Inspiring Great Teams, Leadership Zappos Style,
& Cultivating Culture
Core Values
 Deliver WOW through customer service
 Embrace & drive change
 Create fun & a little weirdness
 Be adventurous, creative, & open- minded
 Pursue growth & learning
 Build open & honest relationships
 Build a positive team & family spirit
 Do more with less
 Be passionate & determined
 Be humble
Application Process
 Personal theme song
 Rate themselves on a weirdness scale
 Assess how lucky they consider themselves
 Two interviews: skill based & culture based
 10-15 questions based on core values
 4 weeks paid training focused on call center training,
offered $2000 to leave
Application Process
Customer Service
 Believe rapid growth was due to customers’ loyalty
 CLT team receives an average of 5,100 calls
 Goal is to wow customers & establish personal
connection
 Calls times are not measured
 Call center turnover in 2009 was only 7% whereas
industry average was 150%
 Help customers find shoes regardless if Zappos carries
them or not
 Strive to beat customer expectations
Customer Service
Fulfillment Center
 Located in foreign trade zone so vendors can ship directly,
bypassing customs
 License Plate Codes & 100% Random
 Three storage areas
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Static racks – Freestanding shelving units
Carousels – Ferris wheel type shelving system
Kiva – Automated storage & retrieval system using inventory pods
 Do not implement a pay-per-performance or reward system
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Computers set up in internet café
Karaoke, Wii guitar hero & rock band, free drinks, lunch & vending
machines
Employees know the job itself isn’t great but all the perks really make a
difference
Fulfillment Center
Kiva System
Distribution
 Originally conducted drop shipping
 Brought inventory in house in 2000
 Purchased shoe store in Willows, Ca
 Purchase abandoned building across the street & used
as distribution center
 Tried third party fulfillment center
 Within 6-8 weeks, developed their own fulfillment
center
 2003-75% of orders shipped from fulfillment center
 Cut 25% of its business in short term, but provided to
be the best decision
Clothing
 2006 – pursued additional lines of business
 U.S. clothing market was four times larger than
footwear market
 Within 1 year Zappos had 130 different apparel brands
 2007 clothing reached 5% of Zappos sales
 2008 Zappos sold $31 Million in apparel
 Challenge was to get customers to see Zappos as more
than just a shoe retailer
Shopping Experience
 Most sales online but offers toll free telephone support
 Average call is answer within 20 seconds
 Free shipping & returns 365 days
 Online experience as close to retail store as possible
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Print shoe sizing template
Live chat sessions with product experts
Product photographs were from nine different angles
More detailed descriptions of style, fit, & materials
 Customers purchase several pair for fit
 Returns about 35% of gross sales
Financials
 Less than $10 Million invested in first 5 years
 Lacked adequate funding in beginning
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Focused on operating efficiency
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Avoided excess
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Went months without paychecks
 Secured $1.1 Million in V.C. funding
 Sequoia eventually invested $54 Million
 Percentage of repeat customers grew
 Became profitable in 2006
 Late 2008 reached 9million customers
Gross Sales in Millions
1200
1,014
1000
841
800
597
600
370
400
184
200
1.6
8.6
32
70
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Market Value in Millions
38,148
40,000
35,000
30,000
25,000
20,000
7,856 11,261
15,000
10,000
5,000
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5,249 5,329
202
958
1,669
Other Services Offered
6pm.com
Offers discontinued & past season merchandise
Powered by Zappos
Designs, hosts, and fulfills a partners web site
Zappos Insights
Subscription based online resource center
Opportunities
 Supply chain inefficiencies
 Shoe production in China
 Direct shipping from manufacturer to distribution
center
 Deliveries – partial truck loads
 Should have own fleet of trucks to organize shipments
 International expansion
Challenges
 2008 had to lay off 8% of workforce
 Margins were decreasing
 Customer behavior changed
 Increase growth rate for apparel lines
 Reduce capital expenditures & improve cash flow
 Be seen as service provider rather than just a shoe
retailer
Multiple Choice Questions
What type of
distribution model did
Zappos originally use?
When did Zappos
become a $1 Billion
retailer?
A. Third Party Fulfillment
Center
B. Drop Ship
C. In House Fulfillment
D. Brick and Mortar
A.
B.
C.
D.
2007
2008
2009
2010
Topics for Discussion
 How long can Zappos survive relying sole on company
culture?
 Company culture is so ingrained, how will they be able to
create the same environment if they expand
internationally?
 Will future growth mean more involvement from Amazon?
 How will Zappos handle competition with aggressive
advertising campaigns?
 How will they handle an increase in transportation costs
with the increase of gas prices?
 Should Zappos grow their Kiva system even though static
shelves & carousels were built to last 15-20 years?
 How should Zappos address the challenge of being seen as
more than just a shoe retailer?
Thank you