Zappos.com

By:Stephanie DeSantis

Rachel Stankis

Timeline

Contents

1

Three Cs 2

Distribution 3

Financials4

Opportunities & Challenges5

Discussion & Questions 6

Zappos Mission

Provide the best customer service possible.

WOW philosophy

MissionMission

Company History

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

CompanyCulture

CustomerService

Clothing

Company Culture

Differentiator that gave them competitive advantage 2005 they debuted their core values Value # 7 – employees are encouraged to sped 10-20%

of their free time socializing outside of work 2008 created culture book Started a pipeline

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

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 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 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 Focused on operating efficiency Avoided excess 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

2000 2001 2002 2003 2004 2005 2006 2007 20080

200

400

600

800

1000

1200

1.6 8.6 3270

184

370

597

841

1,014

Market Value in Millions

DSW

Payles

s

Foot

lock

er

Nords

trom

Mac

y's

Sear

sGap

Amaz

on -

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

202 958 1,669 5,249 5,329

7,856 11,261

38,148

Other Services Offered

6pm.comOffers discontinued & past season merchandise

Powered by ZapposDesigns, hosts, and fulfills a partners web site

Zappos InsightsSubscription 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 ofdistribution model didZappos originally use?

A. Third Party Fulfillment Center

B. Drop ShipC. In House FulfillmentD. Brick and Mortar

When did Zapposbecome a $1 Billionretailer?

A. 2007B. 2008C. 2009D. 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