Zappos Case Study

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Case Description:

If you like shoes and shop online, you probably have heard of Zappos.com. Nick Swinmurn was inspired to found the firm after a frustrating shopping excursion in San Francisco where he failed to find a properly fitting pair of shoes in the right size, style and color. Swinmurn translated his unpleasant shopping experience into new business expressly designed to meet the demanding needs of serious shoppers. As a result of his entrepreneurial zeal and his shrewd exploitation of the tools of e-commerce, Zappos grew from its start in 1999 to over $1 billion in gross annual sales by 2008, and was such a success that Amazon.com decided to acquired the firm for $ 1.2 billion in 2009.

In 1999, the U.S. shoes industry was estimated to be a $40 billion market. As of that date the shoes industry was heavily dependent on direct retail channels such as established chain stores. It is also noteworthy that approximately 1 in 3 retail sales were lost due to out of stock issues, including: inventory limitations, constrains on the number of brands sold in a given location, the number of sizes and styles carried in each store, and so forth. Like its now parent company Amazon had done with books, Zappos overcame these limitations through the stocking of a vast inventory of all makes, styles, colors, and sizes, displayed and sold through their e-commerce platform.

From Idea to Business Venture

In 1999, there was no web site that had a large enough scope of shoes online. To his surprise, Swinmurn found that there was no major online retailer who focused primarily on selling shoes. Knowing little about shoe retailing, he decided to test the idea of an online shoe retailing web site by approaching brick and mortar shoe retailers close to his home and he asked for permission to photograph their shoes. He posted his pictures to a modest eCommerce Web site. To fulfill orders that were placed through his Web site, Swinmurn would physically go to the store that carried the product buy the pair of shoes and ship it to the customer. This prototype of an eCommerce shoe business provided Swinmurn with the proof of concept he needed to build a real online business. Soon, he signed a collaborative relationship with three major shoe distributors, whereby they would drop ship shoes to customers who ordered them off Swinmurn’s Web site. Zappos.com grew out of this initial set of activities – a new eCommerce giant was born.

As Zappos rapidly grew, order fulfillment became a challenge. The firm could not always guarantee the timeliness of supplier drop shipments to individual customers. To meet the expectations of its online retail clientele, Zappos began to open its own warehouse and fulfillment centers, employing approximately 1,600 workers. By 2004, these centers carried in excess of 3 million shoes, handbags, and other clothing items and accessories, drawing on over 1,100 different brands. As a result, Zappos.com offered the best selection of shoes available anywhere online. Customer Service

While the original idea behind Zappos was to create a web site that offered a huge selection of shoes, the founder also believed that to compete in the eCommerce marketplace, the firm must provide the “best service” as well as a vast product mix. Therefore, like Amazon, Zappos’ fulfillment focused on fast and accurate order processing and speedy delivery to the customer. The firm offered free deliveries and returns as well as a guaranteed 4-day delivery window and a 365-day return guarantee. Furthermore, Zappos allowed its fulfillment center personnel broad latitude in addressing customer needs and complaints. The focus was on customer satisfaction and hence there were no call center scripts, time limits on calls, or predefined responses to customer issues. Every employee was given four-weeks of training in the company's business strategy, culture, and customers focus. New employees were paid their full salary...
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