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

Abstract:     
On July 17, 2009, Zappos.com, a privately-held online retailer of shoes, clothing, and other soft line retail categories, learned that Amazon.com, a $19 billion multinational online retailer, had won its Board of Directors' approval to offer to merge the two companies. Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft line retail categories. While Amazon's interest intrigued Zappos' senior executives, they had not felt the time was right, until now. Amazon's offer-10 million shares of stock (valued at $807 million), $40 million in cash and restricted stock units for Zappos' employees and a promise that Zappos could operate as an independent subsidiary-was on the table. Zappos' financial advisor, Morgan Stanley, estimated the future equity value of an IPO to be between $650 million and $905 million; this estimate skewed the Amazon offer-at least in financial terms-toward the high end of Zappos' estimated market value. Hsieh and Lin, Zappos' CEO and COO respectively, knew that much of Zappos' growth, and hence its value, had been due to the company's strong culture and obsessive emphasis on customer service. In 2009, they were focusing on the three C's-clothing, customer service and company culture-the keys to the company's continued growth. Hsieh and Lin had only a few days to consider whether to recommend the merger to Zappos' board at their July 21st meeting.

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