A Shine On Their Shoes

Zappos.com's blue-ribbon customer service is winning market share

Tony Hsieh, CEO of e-tailer Zappos.com, became a serial entrepreneur earlier than most. At age 12, he ran a business making buttons by sealing photos between a sheet of plastic and a metal disk. After advertising in a directory aimed at other kids, he was soon bringing in a few hundred dollars a month. By college, Hsieh was selling pizzas out of his Harvard dorm. Another student, Alfred Lin, was equally enterprising: He bought whole pizzas from Hsieh and resold them by the slice.

So it's not surprising that, at 31, Hsieh is already on his second grown-up gig as CEO, with Lin as his CFO. His company sells shoes online, differentiating itself by its selection -- some 90,000 styles and more than 500 brands, from Bass to Givenchy -- and a near-fanatical devotion to customer service. Shipping and return shipping are free; most repeat customers get upgrades to free overnight or second-day delivery. "With Zappos, the shoe store comes to you," says Pamela Leo, a customer in Montclair, N.J. "I can try the shoes on in the comfort of my own home. I can tell if the shoes I want will really work with a particular suit. It's fabulous." Hsieh, loath to advertise, has relied on such word of mouth to help double Zappos' sales every year for the past six, to a projected $350 million this year. He says Zappos will become profitable next year.

Other retailers are just now seeing the dot-com in their rearview mirror. "The [footwear] industry was in shock when they found out the numbers Zappos is doing and how popular they are," says Miles Olson, an independent sales representative for Simple Shoes and UGG Australia. Zappos has plenty of fuel for further growth: In June, Sequoia Capital added $15 million to an earlier $20 million investment.

Hsieh's preoccupation with service started at LinkExchange, which he started in 1996 to let small Web sites barter for banner ads. At a time when many companies let customer e-mails go unanswered, Hsieh started a customer-service team to make sure every e-mail got a response.

A cold call from Zappos founder Nick Swinmurn brought Hsieh to the company. After selling LinkExchange to Microsoft Corp. (MSFT ) for $265 million in 1998, Hsieh and Lin formed a venture fund. Swinmurn left them a voice mail about Zappos, adding that shoes were a $40 billion market in the U.S., of which $2 billion were sold by mail order. That got Hsieh's attention. Over time, he and his fund invested about $11 million. After a stint as Swinmurn's co-CEO, Hsieh became CEO in 2000.


With Fred Mossler hired from Nordstrom Inc. (JWN ) to head up merchandising, Hsieh says a service emphasis "evolved very naturally." At Zappos, customer-service employees don't use scripts and aren't pressed to keep calls short. Hsieh says customer loyalty is so important to the company culture that the call center and headquarters have to be in the same place -- Las Vegas. Every new hire spends four weeks as a customer-service rep and a week in the Kentucky warehouse before starting work. Staff is treated well: Health insurance premiums are 100% company-paid (though employees contribute to dependents' premiums). All 650 employees, from execs to warehouse workers, get a free lunch every day.

That warehouse is open 24/7, so customers can order shoes as late as 11 p.m. and still get next-day delivery. "If customers know that they're going to get the best service from Zappos and they're going to get it overnight, then anytime we're going to add a product category, our customers will be loyal to us," says Hsieh.

Zappos tries to treat its vendors equally well. The company's extranet lets vendors see which shoes are selling and how profitably. "I can see my business from their point of view," says Tom Austin, who manages the California and Nevada territories for Clarks Companies North America. "Fred [Mossler] just says, 'I don't want to run out of shoes, you take care of us.' You can't believe how pleasant they are to work with." Zappos even holds a vendor appreciation party before the big industry trade show each year. And yes, the call center staff are all invited.

By Kimberly Weisul

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