Zappos!

Zappos is an e-commerce shoe company that delivers much more than just shoes. This paper expands on the company overview, the path to the Zappos we know today, its journey to success, its acquisition, and lessons learned.

Company Overview

In 1999, the business vision known as Zappos started when Nick Swinmurm experienced a very unsuccessful and disheartening shoe-shopping experience at a mall. Not only did he leave frustrated and shoeless, but he also left with a new mission and problem to solve. Shortly after that experience, he left his job to pursue this business vision. He knew that the shoe industry was huge, the demand was very high, and he understood that e-commerce would only grow. Swinmurm met with an investor named Tony Hsieh, who saw the promise of this investment and invested millions of dollars of his own money towards this vision (IWD Agency, 2020).

The Path to Zappos

Hsieh became co-CEO with Swinmurm in 2000 and launched ShoeSite.com, which quickly changed to Zappos. The name Zappos comes from the Spanish word for shoes, zapatos. Hsieh’s leadership and vision put Zappos on the success trajectory due to establishing its core values early on and staying true to them. The company’s mission was to deliver WOW to customers and happiness. The target customers were anyone who wore shoes, liked saving money, and had a good shopping experience (IWD Agency, 2020). Zappos is built on ten core values that are more than words; they are a way of life for the company. Those core values are: Deliver WOW through service; embrace and drive change; create fun and a little weirdness; be adventurous, creative, and open-minded; pursue growth and learning; build a positive team and family spirit; do more with less; be passionate and determined; and be humble. They, indeed, are a service company at heart. With the core values in mind, they deliver happiness through “commerce, customer service, company culture, and community” (Zappos, n.d.).

Zappos caused significant disruption to the shoe and e-commerce industries at that time. This disruption raised the bar significantly for customers, and that baseline remains strong today (IWD Agency, 2020). Hsieh pushed for these changes in customer service, shipping fees, and returns. Zappos was proud of its customer service availability 24/7, and the service reps were not pushed to upsell or rush off the phone; they were focused on something Hsieh referred to as personal emotional connection, also called PEC. In a Harvard Business Review article, he wrote, “We care only whether the rep goes above and beyond for every customer” (Hseih, 2010). Zappos did not charge fees for shipping, which, for them, was an investment but one that would be worthwhile if they were going to stay true to their core values.

The money that Zappos would have made from charging for shipping would have been put towards more marketing efforts, but Hsieh believed that eating this cost would help them in the long run because happy customers love to share with others. Word of mouth can be a powerful marketing strategy, allowing the customers to market for you. Zappos's marketing was centered around its fun, playful brand that customers could easily resonate with. They utilized television ads, website ads, and social media channels to advertise their products (Jacobson, 2023). Regarding returns, the return window was one year from purchase, with no questions asked. This was quite a recipe for a happy customer, and these business practices set them apart from their competitors like Amazon. At that time, Amazon was not offering free shipping and would not establish Amazon Prime until early 2005 (Envision et al., 2022). Zappos stood amongst a giant like Amazon and held its own.

Journey to Success

Zappos's path to success was not linear; it took almost six years to break even and make a profit (Ordonez, 2018). During that time, the business model underwent many changes and updates. When it started, staying lean was the goal to validate the idea. That meant they utilized drop shipping, enabling it to avoid the expensive costs of having an inventory and everything involved in a company like that. Following a similar model as a concierge minimum viable product meant doing manual work for something initially, with plans to streamline and automate later. Which helped validate Zappos' business vision (Ponomarev, 2019).
As they grew, they pivoted away from drop shipping. They invested in warehouses because outsourcing with vendors had become a problem—another growing pain involved customer service, a significant core value. Instead of outsourcing customer service, Hsieh recognized the need to invest in making the whole company focus on customer service. This meant supplying his call center to ensure the employees aligned with the vision for customer happiness (Hseih, 2010). Along with that decision came the added hiring focus to hire employees passionate about service. This led to a four-week employee training that ensured the new hires were genuinely passionate about customer service (IWD Agency, 2020).

The realization of needing to invest in more and better customer service caused Zappos to relocate its headquarters from San Francisco to Las Vegas. This decision was not taken lightly and was backed by much research. In Havravard Business Review, Hsieh discusses their research on where to relocate. While Las Vegas was not the cheapest, it was an "all-night city" where working at any hour of the day was not uncommon, the city's economy was focused on hospitality, and the cost of living was significantly cheaper than San Francisco. The relocation happened in 2004, and over 75% of their employees moved to Las Vegas (FN Staff, 2009; Hseigh, 2010).

Zappos continues to grow, but it is important to note that it has stayed true to its core value, which is customer service. Zappos is predominately an e-commerce company; however, in 2004, it opened an outlet store in Kentucky near its fulfillment center, bought after deciding to take its own inventory back in 2002 (FN Staff, 2009). The founder, Nick Swinmurm, left the company about two years after the relocation, causing Hsieh to become the sole CEO.

The Acquisition

In 2009, Amazon finally acquired Zappos for 1.2 million dollars. Jeff Bezos had been offering to buy since 2005, but he was always turned down due to the worry about losing the unique Zappos brand. This acquisition happened because of one condition: Zappos would stay an independent brand from Amazon (Ordonez, 2018). Zappos has been highly successful, even with Hsieh's unfortunate and shocking death in late 2020 (Hussey & Streitfeld, 2021). In 2023, Zappos's global net sales were documented at 1.06 billion dollars (ECDB, 2023). Today, Zappos is still known and loved by customers and has a loyal fan base. As with any acquisition and loss of the founding CEOs, some things start to change, but Zappos is still customer service-focused (Grind, 2023).

Lessons Learned

Zappos is a company that has experienced many ups and downs and many different growing pains. It is important to note how this company has always maintained its core values, regardless of obstacles and growing pains. This shows that loyalty to the brand pays off in many ways and that success is always dynamic. Figuring out your core values and staying true to them is an investment worth making, and Zappos is a testament to that. In McKinsey Quarterly, Hseih talks about this, saying that what your values are does not matter, but what does matter is your commitment to them and building your organization around them (Hsieh et al., 2017, pp.112-122).

ECDB. (2023). Zappos Revenue. ECDB. https://ecommercedb.com/store/zappos.com

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Jacobson, O. (2023, March 15). How Tony Hsieh and Zappos Competed with Amazon. Soon. https://soon.works/blog/how-tony-hsieh-and-zappos-competed-with-amazon

Ordonez, L. (2018, February 21). Successful eCommerce Case: The History of Zappos. OleoShop. https://oleoshop.com/en/blog/succcessful-ecommerce-case-the-history-of-zappos

Ponomarev, A. (2019, Dec 9). How Zappos Built a Product by Faking it. Medium. https://medium.com/rocket-startup/how-zappos-built-a-product-by-faking-it-d3fd692a1fed

Zappos. (n.d.). About Zappos. Zappos. https://www.zappos.com/c/about