March 25, 2011

A Lesson from Zappos

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In 1999, Nick Swinmurn approached Tony Hsieh and Alfred Lin at Venture Frogs about an idea for an online shoe portal. Nick grew tired of bad service and poor quality.

Tony was originally sceptical that the idea would work and almost deleted Nick’s original voice mail. Swinmurn discovered that in the U.S. alone, footwear was a $40 Billion annual industry. Lin and Hsieh agreed to give Nick half a million bucks in venture capital. Both became members of the company's board of directors. Nick became Chairman.

Later that year, ShoeSite was changed to Zappos – which comes from the Spanish phrase "los zapatos". The company brought in $1.6 Million in 2000 which grew to $8.6 Million in 2001. By 2003, annual revenue hit $70 Million. Then $184 Million in 2004 and Zappos received another $35 Million VC that same year. Revenue doubled each year after that and reached $840 Million in gross annual sales in 2007 when they expanded their inventory to include handbags, eyewear, clothing and accessories. Zappos execs aimed to hit the $1 Billion mark by 2010, they reached it two years early.

The Buy-Out

In 2009, Zappos began entertaining the idea of being acquired by Amazon. Hsieh (now CEO) wanted to ensure the infectious internal culture wasn’t affected and the great customer service they had created was not compromised. Amazon assured the board that Zappos would remain independent and the very reason the purchase was attractive was why nothing would change inside the company. The deal worth $1.2 Billion in cash and stock options was finalized on July 22, 2009.

That sounds like a Cinderella story and from afar one could see it that way. But there were no guarantees it would work and Zappos could have crashed and burned a few times. Tony summed up the company perfectly when he said “Back in 2003, we thought of ourselves as a shoe company that offered great service. Today, we really think of the Zappos brand as about great service and we just happen to sell shoes”.

Canada No More

On April 1, 2011, Zappos will discontinue their Canadian website and distribution channels. On the surface, that could appear like a company that is no longer interested in a country of 34 Million people with the 9th largest GDP but that is not why they made the decision.

Here is the note from the company:

Hey, everyone. While we often have fun things to talk about in this space, we sometimes have less pleasant topics to share. We have made the difficult decision to shut down the canada.zappos.com site and stop shipping to Canada. One of our core values is to “deliver WOW through service”. That means the best selection of brands and products that can meet just about every individual’s needs as well as fast, free shipping and free returns, all at competitive pricing. Our Canadian customers know that we have not lived up to these service levels.

Product selection on canada.zappos.com is limited due to distribution agreements with the brands we sell in the United States. In addition, we have struggled with general uncertainty and unpredictability of delivering orders to our Canadian customers given customs and other logistics constraints.

We would like to thank our loyal Canadian customers and are sorry that we will not be able to serve you in the same way. Beginning April 1, 2011, we will no longer ship orders from canada.zappos.com. Some of you may have electronic certificates with open balances. If that is the case, please be sure to redeem them prior to April 1, 2011. Of course, as always, we will still be accepting your orders placed from Canada and shipping to US addresses on zappos.com. Customers can always reach us 24/7 by calling 1-800-927-7671 or emailing cs@zappos.com.

Chris Nielson, CFO/COO, Zappos Inc.

Eye on the Ball

I don't hold shares or have any other interest in the company. In fact, I have never purchased an item from them. I'm just impressed with their business model, success and guts to stick to it. And like many, I have been impressed by their ability to get product into customers' hands FAST and they have been committed to the social web.

This is not a company that is hiding, this is a company that is not able to deliver on their promise so they are being straight up with customers. And to prove it, Chris included his personal email address. It will be interesting to see how Canadian customers react. It will be equally interesting to see if a solution can be found.

What can you learn from Zappos and apply to your business?

Kneale Mann | How can I help?

image credit: shoeaholic
 
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