Zappos: Delivers Service … With Shoes on the Side Masha Zager
"Whenever I walk into the KY warehouse and see the maze of conveyor belts circling above, I am reminded of a giant roller coaster ride - for shoes. - And this makes me smile." - Cameron T., Zappos employee
Zappos doesn't do anything quite the way other companies do. It launched at an inauspicious time, in 1999, when Nick Swinmurn, a San Franciscan who was having trouble finding shoes in his local mall, came up with the unlikely idea of an online shoe store. Instead of vanishing in the dot-com bust that followed, Zappos took off like a shot and has grown exponentially every year, to $1 billion in sales for 2008. Recently the company added more categories of merchandise - clothing, handbags, accessories and more - which will amount to 12 percent to 15 percent of sales in 2009.
In 2000 Swinmurn brought in as CEO Tony Hsieh, a young Internet entrepreneur and venture capitalist who was an early investor in Zappos. Hsieh, who still heads the company, has built a unique corporate culture and maintains it by hiring and firing employees on the basis of their adherence to his "10 Core Values," which include precepts such as: "Create fun and a little weirdness."
Make the customer happy, no holds barred
People at Zappos will tell you it's a service company that happens to sell shoes, clothing and other products. All employees spend a month in the call center, or "customer loyalty team," where CSRs can take as much time with customers as they need and are empowered to "wow" customers, whether by resolving a shipping problem, sending flowers to a bereaved customer, or even helping a customer find the product she's looking for on a competitor's web site.
CSRs encourage customers to buy shoes in multiple sizes if they're not sure which size is right - there's a 365-day return policy with free shipping - and they don't try to upsell customers to more expensive products. "Surprise upgrades" to free overnight shipping happen regularly. "We want to make sure there are no barriers to shopping with us," says Aaron Magness, Zappos' business development manager.
The corporate culture - documented in an annual employee-written "culture book," from which the lead quotation was taken - encourages employees to be kind and helpful to each other. Impromptu parades, nerf-ball games, and free food (along with generous benefits and opportunities for advancement) keep employees enthusiastic and creative. "We believe in treating the employees well first," says Craig Adkins, vice president of fulfillment. "Then they treat the customer well."
Hsieh has embraced an ethos of transparency, using social networking tools such as Facebook, Twitter and blogging to share information, both good and bad, with employees, customers and anyone else interested in Zappos. He has 20,000 followers on Twitter and publishes all public tweets (Twitter messages) that mention Zappos on the Zappos website - an idea that might strike fear into the hearts of some retailers. But Magness points out: "You only need to worry if you have something to hide," and Zappos is prepared to take any criticism as a gift of free information. In any case, most of the messages seem to contain variations on "Thanks for the great customer service!" and "The best site to buy shoes from is Zappos."
Customer behavior analysis yields constant site improvements
Zappos isn't all hearts and flowers; robust systems are a requirement for delivering great customer service. Nearly all of the company's information technology is developed in-house - no off-the-shelf systems would meet its unique needs - and its storage and shipping systems are linked through a central database to the e-commerce site.
The site is designed to make the shopping experience smooth and trouble-free. Every page highlights the company's phone number, and online chat is also readily available. If the customer wants to return a purchase and no longer has the original box, she can print a label from the website and tape it onto any box. The label contains all of the information needed to credit the return properly.
Each item on the site is shown in multiple views and closeups. No special technology is involved here, says Magness - just lots of good photography. Zappos has its own photography studio in the distribution center, and it routes every new item by way of the studio before sending it to the shelves. Soon, the site will also feature videos of Zappos employees wearing and discussing the products. Magness expects this to be especially useful for technical apparel such as snowboarding jackets, to which still images don't do justice.
Customers can sign up online for a "notify-me list" to find out about new products from brands they like. Eventually, Magness says, Zappos will analyze customers' purchase histories, figure out what they like, and notify them proactively, without their having to sign up.
Already, the company analyzes customers' site navigation and uses the information to improve the site and its offerings. For example, it caught a problem with the search function by noticing that certain types of searches didn't seem to bring up the right information, and customers were exiting without buying anything. "That's the joy of e-commerce," Magness says. "You can find all this information right away. With bricks and mortar, you wouldn't know why people were leaving the store without purchasing. Also, if someone is searching for something we don't have, we know we'd better get it."
The search function is constantly "tweaked" to adapt it to the way customers shop. For shoes, customers may want to search by heel height, or color, or size or price. And when new categories are added, new search criteria must be added, too. "When we're selling laptop computers, size seven and a half isn't relevant anymore," Magness says.
The extensive customer reviews on the site address one of the hindrances to e-commerce: the social aspect of shopping. Even if reading reviews isn't quite like shopping with a friend, customers feel more comfortable knowing what others think about a product. It's difficult to tell how reviews influence sales, but they certainly influence Zappos. Magness says, "We use those reviews to see if a product is not good for us."
Creating a site where customers love to shop wasn't enough for Zappos. The company is in the process of redesigning the entire front end. Customers have been given the opportunity to test and comment on the new site as it is developed.
Inventory philosophy: don't show it if you don't have it
Zappos' distribution center is, if anything, more unusual than its e-commerce site. Located in Louisville, Kentucky, close to the UPS air cargo hub (and to the population center of the continental United States), the building, on the surface, "looks like every other distribution center in the world," Adkins says. But the differences are apparent at close glance. The center doesn't use forklifts, which Adkins considers dangerous and risky. It also doesn't have reserve storage, in which entire cases are kept on shelves until they're needed.
Rather, every item is decased immediately and placed on pickable shelves. "We don't have a lot of depth of inventory," Adkins explains. "There are a million individual SKUs and 4 million items in inventory, so there's no need for a deep level of reserve storage. If you see it on our web site, it's on our shelf. If the last item sells out, it comes off the web site automatically. We don't do back orders. It's a live inventory system, which almost nobody does."
Zappos' approach to inventory is directly related to its customer service philosophy: "We don't want customers to be frustrated by ordering something and it's not there to ship." When a customer abandons an online shopping cart, the items are emptied from the cart, because chances are they will no longer be in the distribution center - or on the web site - when the customer comes back to the site.
At the dock doors are conveyors that telescope into the truck, and employees unload the truck onto the conveyor. Each case is conveyed to a receiving table where an employee opens the case and scans the purchase order, physically and virtually entering the items into inventory. At the same time, another bar code is created for each item - what's called a "license plate number," which carries the individual history of the item. The license plate number allows the company to track who picked, received, bought and returned any particular item. It's what makes the no-hassle return policy possible. "We don't know anyone else who does this," Adkins says.
After attaching the license plate number, the receiver pushes the item onto another conveyor that takes it to storage. Shoes are randomly assigned to either a static shelving area, where workers put items away and scan them to record their location, or to a carousel storage area. In static storage, pickers walk 12 miles a day; in the carousel area the items come to them and they can pick at about twice the speed. The downside of the carousel is that it is mechanically delicate and breaks down frequently.
Robots take control
Inventory items other than shoes are sent to a newer area where Kiva robots - soft, small machines that scurry along the floor - pick them off the shelves. Adkins says the robot area gets about twice the storage density and twice the labor efficiency of the other storage areas and uses only half the electricity. (Conveyors consume electricity constantly, robots only when they're working; also, robots can work in the dark.)
Another advantage of robot-operated storage is that the shelving is easily reconfigurable, so Zappos can change its product mix easily - a big advantage now that it's moved beyond shoes and is adding new categories all the time.
Robot storage also has advantages when it comes to picking and packing. In the older parts of the warehouse, packing multiple-item orders (about half of all orders) is a complex process involving a holding area and several people. In the robot area, robots bring multiple items in an order to the picker at the same time, so that the picker can also be the packer. This translates into enormous time savings. When an online shopper buys a pair of shoes, they are in the UPS truck 48 minutes later; multiple orders take closer to three hours. But if a shopper buys apparel, which is handled by robots, it is in the truck 12 minutes later. "It causes a funny kind of problem," Adkins says. "If a customer changes his mind half an hour later, it's too late to undo it online. It's hard for them to believe it's on the truck already!" (Of course, because Zappos is dedicated to customer service, call center employees will recall the item from the truck.)
As Zappos expands, Adkins says, new storage areas will all be robot-operated. And at some point in the next few years, it will probably become worthwhile to replace existing shelving with the Kiva system.
That's a day Adkins is looking forward to.
Masha Zager is a New York City-based free-lance writer who specializes in business and technology.
Fast Facts Format: e-commerce "service provider" of shoes, apparel, handbags accessories and more, representing about a thousand brands. Zappos HQ: Henderson, NV, with DC in Louisville, KY 2008 Sales: $1 billion Inventory: 4 million items at any given time Return policy: 365 days - with free shipping
