Case Study Zappos
For the exclusive use of F. LAN
9-610-015
REV: JUNE 27, 2011
FRANCES X. FREI
ROBIN J. ELY
LAURA WINIG
Zappos.com 2009: Clothing, Customer Service, and
Company Culture s On July 17, 2009, Zappos.com—a privately held onlin e retailer of shoes, clothing, handbags, and accessories—learned that Amazon.com, Inc.—a $19 bill ion multinational online retailer of books, electronics, toys, and other merchandise—had won its bo ard of directors’ approval to offer to merge the two companies. (See Exhibits 1, 2, 3, and 4 for selected financials for both compa anies.) Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft-line retail catego ries such as shoes and apparel—categories o the company considered strategically important to its b usiness growth.1 While Amazon’s interest e intrigued Zappos’ CEO, Tony Hsieh, and chairman, C OO, and CFO, Alfred Lin, the two senior executives had not felt the time was right until now. A mazon’s offer—10 million shares of stock
(valued at $807 million),a $40 million in cash and restricte d stock units for Zappos’ employees, and a promise that Zappos could operate as an independen t subsidiary—was on the table. Zappos’ financial adviser, Morgan Stanley, estimated the future eq uity value of an initial public offering to be between $650 million and $905 million; this estimate ske wed the Ama azon offer—at least in financial terms—toward the high end of Zappos’ estimated marke t value. (See Exhibit 5 for market values of comparable online and footwear retailers.) Hsieh and Li n knew that much of Zappos’ growth, and t hence its value, had been due to the company’s strong c ulture and obsessive emphasis on customer service. In 2009, they were focusing on their three Cs— clothing, customer service, and company culture—the keys to the company’s continued growth. Hs ieh and Lin had only a few days to consider n whether to recommend the
9-610-015
REV: JUNE 27, 2011
FRANCES X. FREI
ROBIN J. ELY
LAURA WINIG
Zappos.com 2009: Clothing, Customer Service, and
Company Culture s On July 17, 2009, Zappos.com—a privately held onlin e retailer of shoes, clothing, handbags, and accessories—learned that Amazon.com, Inc.—a $19 bill ion multinational online retailer of books, electronics, toys, and other merchandise—had won its bo ard of directors’ approval to offer to merge the two companies. (See Exhibits 1, 2, 3, and 4 for selected financials for both compa anies.) Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft-line retail catego ries such as shoes and apparel—categories o the company considered strategically important to its b usiness growth.1 While Amazon’s interest e intrigued Zappos’ CEO, Tony Hsieh, and chairman, C OO, and CFO, Alfred Lin, the two senior executives had not felt the time was right until now. A mazon’s offer—10 million shares of stock
(valued at $807 million),a $40 million in cash and restricte d stock units for Zappos’ employees, and a promise that Zappos could operate as an independen t subsidiary—was on the table. Zappos’ financial adviser, Morgan Stanley, estimated the future eq uity value of an initial public offering to be between $650 million and $905 million; this estimate ske wed the Ama azon offer—at least in financial terms—toward the high end of Zappos’ estimated marke t value. (See Exhibit 5 for market values of comparable online and footwear retailers.) Hsieh and Li n knew that much of Zappos’ growth, and t hence its value, had been due to the company’s strong c ulture and obsessive emphasis on customer service. In 2009, they were focusing on their three Cs— clothing, customer service, and company culture—the keys to the company’s continued growth. Hs ieh and Lin had only a few days to consider n whether to recommend the