Case Study Zappos

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REV: JUNE 27, 2011

FRANCES X. FREI
ROBIN J. ELY
LAURA WINIG

Zappos.com 2009: Clothing, Customer Service, and
Company Culture
s
On July 17, 2009, Zappos.com—a privately held onlin e retailer of shoes, clothing, handbags, and accessories—learned that Amazon.com, Inc.—a $19 bill ion multinational online retailer of books, electronics, toys, and other merchandise—had won its bo ard of directors’ approval to offer to merge the two companies. (See Exhibits 1, 2, 3, and 4 for selected financials for both compa anies.)

Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft-line retail catego ries such as shoes and apparel—categories o
the company considered strategically important to its b usiness growth.1 While Amazon’s interest e
intrigued Zappos’ CEO, Tony Hsieh, and chairman, C OO, and CFO, Alfred Lin, the two senior executives had not felt the time was right until now. A mazon’s offer—10 million shares of stock (valued at $807 million),a $40 million in cash and restricte d stock units for Zappos’ employees, and a promise that Zappos could operate as an independen t subsidiary—was on the table. Zappos’ financial adviser, Morgan Stanley, estimated the future eq uity value of an initial public offering to be between $650 million and $905 million; this estimate ske wed the Ama azon offer—at least in financial

terms—toward the high end of Zappos’ estimated marke t value. (See Exhibit 5 for market values of comparable online and footwear retailers.) Hsieh and Li n knew that much of Zappos’ growth, and t
hence its value, had been due to the company’s strong c ulture and obsessive emphasis on customer service. In 2009, they were focusing on their three Cs— clothing, customer service, and company culture—the keys to the company’s continued growth. Hs ieh and Lin had only a few days to consider n

whether to recommend the merger to Zappos’ board at th eir July 21 meeting. r

Zappos and the Rise of Online Footwear Re tailing
In late 1998, Nick Swinmurn, a 26-year-old marketing manager for an online car-buying service, went to a San Francisco–area shopping mall to purchase a pair of Airwalk shoes but could not find any in the color, style, and size he wanted. Swinmurn tur ned to the Internet but was frustrated by the r

a Stock value based on the average closing price of Amazon shares for th e 45 trading day s ending July 17, 2009.

________________________________________________________________ ______________ __________________________________ _
Professors Frances X. Frei and Robin J. Ely and Senior Researcher Laura Wini , Global Research Group, prepared this case. HBS cases are ig
developed solely as the basis for class discussion. Cases are not intended to serv e as endorsements , sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2009, 2010, 2011 President and Fellows of Harvard College. To or der copies or req uest permission to reproduce materials, call q
1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.h arvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, wi ithout the permission of Harvard Business School.

This document is authorized for use only by Frank Lan in Economics of E-commerce and Technology taught by Simon Board from September 2012 to March 2013.

For the exclusive use of F. LAN
610-015

Zappos.com 2009: Clothing, Customer Service, and Company Culture

lack of online footwear-only retailers: “[There were] a bunch of little sites but nothing that jumped out at you,” he said.2
His experience inspired him to create an online footwear retail site, and in June 1999, Swinmurn launched ShoeSite.com. “We are taking a more dynamic approach to what has been a poorly presented category online,” said Swinmurn, who soon...
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