Zappos.

com
By: Stephanie DeSantis Rachel Stankis

Contents
1 2 3 4 5 6

Timeline Three Cs Distribution Financials Opportunities & Challenges Discussion & Questions

Zappos Mission

Mission

Provide the best customer service possible. WOW philosophy

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 Hsiehs $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
  

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 Computers set up in internet caf Karaoke, Wii guitar hero & rock band, free drinks, lunch & vending machines Employees know the job itself isnt great but all the perks really make a difference

 Do not implement a pay-per-performance or reward system

 

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

1200 1,014 1000 800 597 600 370 400 200 1.6 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 8.6 32 184 70 841

Market Value in Millions

38,148 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 202 958 1,669 5,249 5,329 7,856 11,261

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?
A. Third Party Fulfillment Center B. Drop Ship C. In House Fulfillment D. Brick and Mortar

When did Zappos become a $1 Billion retailer?

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