Zappos.com By: Stephanie DeSantis Rachel Stankis

Timeline Contents 1 Three Cs 2 Distribution 3 Financials 4 Opportunities & Challenges 5 Discussion & Questions 6

Zappos Mission Provide the best customer service possible. WOW philosophy Mission

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 Company Culture Customer Service Clothing

Company Culture  Differentiator that gave them competitive advantage  2005 they debuted their core values  Value # 7 – employees are encouraged to sped % 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  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  % 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

Market Value in Millions

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.2007 B.2008 C.2009 D.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 years?  How should Zappos address the challenge of being seen as more than just a shoe retailer?

Thank you