Zappos.Com, Inc., and the Warehouse Decision

Amazon.com had purchased Zappos in 2009 and was making significant investments in warehouse infrastructure. By early summer 2012, Zappos, a dominant player in the crowded online retail apparel and footwear arena must decide whether to retain its warehouse complex in Kentucky, which it had maintained since 2002, or turn over the operations to Amazon. Should Zappos continue to operate as an entity external to its parent company? Or would advancements and changes in the market be disruptive enough to force Zappos to change in order to remain competitive? Excerpt UVA-S-0227 Rev. May 19, 2015 Zappos.com, Inc., and the Warehouse Decision In 1999, Nick Swinmurn partnered with venture capitalist Tony Hsieh to launch online footwear retailer Zappos.com, Inc. Hsieh soon left his angel fund to become the company's CEO. Despite an entrenched brick-and-mortar retail-footwear sector and numerous online competitors, Zappos was able to gain a foothold in the market by emphasizing superior customer service, most noticeably in its 365-day return policy and offer of free shipping both ways. By 2012, Zappos, with Hsieh still at the helm, had become a dominant player in the crowded online retail apparel and footwear business. Reporting sales of $ 2 billion, Zappos was a force to be reckoned with as it competed with Nike, Foot Locker, and Nordstrom; yet challenges and opportunities loomed ahead. Amazon.com, Inc., had purchased Zappos in 2009 and was making significant investments in warehouse infrastructure. Many observers predicted that Amazon could, within a matter of a few years, offer the holy grail of online retailing: same-day delivery. For Zappos, which had operated more or less autonomously from Amazon since its purchase, this possibility presented both an incredible opportunity and a potential challenge. In early summer 2012, Zappos had a decision to make: retain its warehouse complex in Kentucky, which it had maintained since 2002, or turn over the operations to Amazon. This warehouse location, which by 2012 had expanded to two buildings, was critical to Zappos' operations because it enabled one-day delivery to East Coast locations. The Zappos culture of highly engaged employees and focus on customer service was as strong at the Kentucky warehouses as it was at the warehouse and corporate offices on the West Coast. By turning over operations of the Kentucky warehouse complex to Amazon, Zappos would be leveraging Amazon's warehousing and delivery expertise as well as avoiding a future scenario whereby Amazon became a key competitor with faster delivery times than Zappos could manage alone. . . .