ARTICLE: Zappos.com: The Multiple Challenges of Growing an Unusual Company
"Imagine a retailer with service so good its customers wish it would take over the Internal Revenue Service or start up an airline. It might sound like a marketing fantasy, but this scenario is reality for Zappos.com." Headquartered in Henderson, Nevada, just a twenty-minute drive from the Las Vegas Strip, Zappos (a word play on zapatos, the Spanish word for shoes) is an "e-commerce 'service provider' of shoes, apparel, handbags, accessories and more, representing about a thousand brands." Zappos also has a distribution center in Louisville, Kentucky where it maintains an inventory of approximately 4 million items and from which it provides rapid shipment to its customers.
In 1999, Tony Hsieh (pronounced shay), the CEO of Zappos, invested $500,000 in a start-up online shoe store known as Shoesite.com that was founded in San Francisco by Nicholas Swinmurn, who was having trouble finding shoes that would fit him in his local mall. In 2000, Hsieh became co-chief executive with Swinmurn. When Swinmurn left the company in 2006, Hsieh became the sole chief executive.
Zappos wasn't Tony Hsieh's first entrepreneurial venture. Prior to Zappos, he cofounded LinkExchange, an online advertising cooperative, which Microsoft bought in 1998 for $265 million. Then he cofounded a venture capital investment firm called Venture Frogs.
In its early days, Zappos could not afford to spend money on marketing; consequently, the company's "sales strategy involved making customers so happy that they bought again or told their friends or both. The defining aspect of the Zappos customer experience free shipping and free returns was concocted out of necessity. Hsieh figured that there was no other way to get people to try the [online] site."
In 2004, Zappos, relocated from San Francisco to Las Vegas because "attracting and keeping high-quality customer service representatives was too difficult and expensive in the Bay Area." Las Vegas, with lower real estate prices and an abundant labor pool, seemed to be an ideal location.
Zappos doesn't do anything quite the way other companies do. For instance, the three company's headquarters, which is located in a nondescript office park, are quite modest on the outside. But inside is a different story! "There are the outlandish decorations adorning walls and cubicles, including jungle creepers that hang from the ceiling and a menagerie of toy monkeys and other creatures. There are the boisterous employees, some of whom rattle cowbells, shake pompoms and bellow greetings as visitors pass their desks. But this is no exercise in nostalgia. Instead, Zappos is the site of an ambitious business experiment [with] a corporate culture that allows Zappos to prosper by providing world-beating customer service, no matter what business it is involved in." Emulating Amazon.com, Zappos has expanded beyond selling shoes, venturing into clothes, bedding, toys, cookware, electronics, and more.
Zappos gets rave reviews for "its fast, free shipping 90% of orders arrive the next business day and a 365-day return policy that allows footwear fans to order a bunch of shoes, try them on and return those that don't suit or fit. Three-quarters of sales are from repeat customers." Hsieh views "customers as human beings, not just 'consumers,' and so makes customer service the defining feature of the brand."
To gain another perspective on how Zappos differs from other companies, consider the unusual experience of one shopper, a clear reflection of how Zappos employees deal with customer challenges: "A shopper visited the site to order a pair of shoes as a gift for her husband. Tragically, he was in a fatal car accident later that evening. [Subsequently,] [t]he Zappos call-center representative working on the order return was so touched by the story that she sent the customer a sympathy bouquet of flowers." Hsieh says the Zappos "philosophy is to do what's right for the customer even if it doesn't relate to a sale or if it costs a little bit more. We just want to go above and beyond for our customer."
Hsieh believes that the success of Zappos is a direct reflection of the culture he has built and nourished. "A fun-loving, change-embracing culture drives the Zappos engine. Carefully nurtured by Hsieh, it provides a new workplace template for the future." Hsieh's advice to other businesspeople: "Chase the vision. The money and profits will come."
In 2000, Zappos had sales of $1.6 million; in 2008, the company's sales surpassed $1 billion. After several years of breaking even, Zappos turned a profit in both 2007 and 2008. Tony Hsieh explains Zappos' growth this way: "We're aligned around one mission to provide the best customer service possible. Rather than focus on maximizing short-term profits, we focus on how we can maximize the service to our customers. We are a service company that happens to sell shoes." Hsieh sees the emphasis on customer service "as creating a platform for future growth."
As Advertising Age writer Natalie Zmuda observes, "It seems that Zappos is really the poster child for this new age of consumer companies that truly are customer focused. A lot of companies like to say they are, but none of them is as serious as Zappos."
This case was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business Administration, Valparaiso University.
1. What lessons about leading people and managing organizations does Zappos and its CEO, Tony Hsieh, provide? Explain your conclusions.
2. Each of the management challenges-globalization; leading a diverse workforce; and ethics, character, and personal integrity-have had an important impact on the evolution of Zappos. How has Zappos CEO Tony Hsieh addressed the management challenges of globalization; leading a diverse workforce; and ethics, character, and personal integrity? Describe the impact and give examples for each of the following challenges.
? leading a diverse workforce
? ethics, character, and personal integrity
3. Natalie Zmuda, a reporter for Advertising Age, concludes: "It seems that Zappos is really the poster child for this new age of consumer companies that truly are customer focused. A lot of companies like to say they are, but none of them is as serious as Zappos." Do you agree or disagree with Zmuda's assertion that Zappos is much different than other consumer companies? Explain the reasoning behind your answer.
4. What particular aspects of Zappos would other organizations do well to emulate? Explain your answer.
The solution contains approximately 200-215 words per question with additional information.