The Early Stage
Zappos was established in the year 1999 by Nick Swinmurn , who recalls that the idea was as a result of disappointment he experienced when he could not find a pair of Airwalks at his local mall.
That same year, Swinmurn met with Tony Hsieh and Alfred Lin, both Harvard graduates with the idea of selling shoes online.
The due were founders of Venture Frogs, a venture capital funds set up from the proceed from the sales of Link Exchange to Microsoft for whooping sum of $295 million.
Hsieh was initially skeptical, and almost deleted Swinmurn’s voice mail.
After Swinmurn mentioned that “footwear in the U.S. is a 40 billion dollar market in 1998 and 5% of that is already being sold by paper mail order catalogs,”
Hsieh and Lin decided to invest $2 million through their investment firm Venture Frogs.
The company was officially launched with the domain name “Shoesite.com” which was later changed to zappos.com(an alteration of “zapatos”, Spanish word for “shoes”) this is of course not to limit the brand to selling only footwear.
In 2001,Zappos revenue increase to $8.6 million, a significant increase from the previous year,sales was $70 million in 2003,$184 million in 2004,by the year 2005 revenue skyrocketed to $370 million, although the company is still borrowing money to buy inventory.
Frog Venture initially invested $500,000 in 1999. By 2001,Tony became and some Venture Frog staff joined Zappos, and Tony invested a total of $15 million of his own money into the company.
He had 11 apartments in San Francisco and kept selling them to keep Zappos open.
They also received a $35 million investment from Sequoia Capital. The company Headquarters moved from San Francisco to Henderson , Nevada.Over the next three years,Zappos doubled their annual revenues,hitting $840 million in gross sales.
In 2003, observing that the only reason the company recorded all the feats was due to the direct result of customer satisfaction, through repeat business and word-of-mouth, Tony Hsieh then focused every aspect of the company on a delivering of an exceptional great service and WOWing the existing customers.
The same year, Zappos decided to manage its delivering through their own staff instead of the using a third party.This of course is to maximize customers experience rather than maximising short term profit.
Even though this move was more costly and less efficient, Hsieh wasn’t concerned with traditional business metrics.
This extreme attention to wow customers has even led Zappos employees to help customers order shoes from competitors when they were out of stock.
In his address,Hsieh said, “Even though it was hard to walk away from sales at a time when nobody is offering you money, we couldn’t distinguish ourselves in the eyes of our customers if we weren’t going to control the entire experience. We had to give up the easy money, manage the inventory, and take the risk.”
By 2007, the company included to included other categories like handbags, eyewear, clothing, watches, and kids’ in its merchandise.
Zappos announced that its computer system was hacked on January ,2012,making concessions of the personal information of about 24 million customers. In response, the company informed all of its customers to change their passwords on the site, though it noted that it was highly unlikely that password information was obtained due to encryption that was put in place.
Hsiesh’s long-term, customer-based strategy paid out, bringing Zappos to $1 billion in sales in 2008, two years ahead of schedule.
Zappos was at No.23 on Fortune’s Top 23 Companies to Work.The year that was dubbed as the worst Financial crises in global history by Ben Bernanke, former Head of Federal Reserve. In 2009,Zappos started discussing acquisition by Amazon.
Although, both Hseih and Alfred Lin were concerned with maintaining zappos culture,however the remaining Board of Directors preferred to maximize profit in a down economy.
Both Hsieh and Lin initially thought about buying out their Board of Directors, an amount they estimated will cost them $200 million. In the midst of this, Amazon executives approached Zappos with the proposition of buying the company outright. After an hour-long meeting with Amazon CEO, Jeff Bezos, Hsieh believed that Amazon would be open to letting Zappos continue to operate as an independent entity, and started negotiations.
On July 22, 2009, Amazon announced that it would buy Zappos for $1.2 Billion in a stock and cash deal. Owners of shares of Zappos were set to receive approximately 10 million Amazon.com shares, and employees would receive a separate $40 million in cash and restricted stocks units.
The deal was eventually closed in November 2009 for a reported $1.2 billion.
On June , 2012, Zappos announced it would be transferring its operations of its Kentucky warehouse to Amazon on September, 2012,the warehouse was however rename 6pm Outlets while it remain open .
Zappos currently run as an independent company and retain its distinct culture. Rather than spending money on big advertising budget and major marketing schemes Zappos continues to align its efforts on what made them successful which is establishing long term customer relationships by continuing to WOW them with every interaction.