Zappos

Inception

Zappos was founded in 1999 by Nick Swinmurn. Swinmurn launched the company with Tony Hsieh and Alfred Lin, who invested $2 million through their investment firm Venture Frogs. The company was officially launched online in 1999 as ShoeSite.com.

In July 1999, the company's name was changed from ShoeSite to Zappos after "zapatos", the Spanish word meaning "shoes". In 2000, Venture Frogs invested in the business and Zappos moved into their office space. In 2001, Hsieh came on board as co-CEO with Nick Swinmurn.

Growth

From 1999 to 2000, Zappos earned $1.6 million in gross sales. In 2001, Zappos brought in $8.6 million, a significant increase from the previous year. In 2004, Zappos reached $184 million in gross sales and received a $35 million investment from Sequoia Capital. That same year, they moved their headquarters from San Francisco to Henderson, Nevada. Over the next three years, Zappos doubled their annual revenues, hitting $840 million in gross sales. By 2007, the company expanded to include handbags, eyewear, clothing, watches, and kids’ merchandise.

In 2008, Zappos hit $1 billion in annual sales. One year later, they debuted at No. 23 on Fortune's Top 100 Companies to Work For. In the early 2000s, Zappos made the decision to move away from its original business model wherein the company does not manage any inventory. Hsieh noted, "Even though it was hard to walk away from sales at a time when nobody is offering you money, we couldn't distinguish ourselves in the eyes of our customers if we weren't going to control the entire experience. We had to give up the easy money, manage the inventory, and take the risk." In 2015 Forbes reported Zappos produces "in excess of $2 billion in revenues annually".

Amazon subsidiary

In 2009, Zappos announced an acquisition by Amazon. Within Zappos’ board of directors, two of the five—Hsieh and Alfred Lin—were primarily concerned with maintaining Zappos company culture, whereas the other three wanted to maximize profits in the 2008 financial crisis. Initially, Hsieh and Lin planned to buy out their board of directors, which they estimated would cost $200 million. In the midst of this, Amazon executives approached Zappos with the proposition of buying the company outright. After an hour-long meeting with Amazon CEO Jeff Bezos, Hsieh sensed that Amazon would be open to letting Zappos continue to operate as an independent entity, and started negotiations.

On July 22, 2009, Amazon announced that it would buy Zappos for $940 million in a stock and cash deal. Owners of shares of Zappos were set to receive approximately 10 million Amazon.com shares, and employees would receive a separate $40 million in cash and restricted stock units. The deal was eventually closed in November 2009 for a reported $1.2 billion.

On June 22, 2012, Zappos announced it would be handing operations of its Kentucky warehouse to Amazon on September 1, 2012. The outlet housed in the Kentucky warehouse remains open, but the name was changed to 6pm Outlet.

2012 hacking incident

On January 16, 2012, Zappos announced that its computer systems were hacked, compromising the personal information of 24 million customers. In response, the company required all of its customers to change their passwords on the site, though it noted that it was highly unlikely that password information was obtained due to encryption. This incident led to a class action suit In re Zappos.com, Inc., Customer Data Security Breach Litigation, with plaintiffs claiming that Zappos did not adequately protect their personal information. After the case was initially dismissed, plaintiffs appeal was upheld by the Ninth Circuit Court of Appeals. Zappos appealed the decision to the Supreme Court, but this was ultimately rejected. A settlement was reached in October 2019. Customers received a 10% discount on one order. Zappos denied wrongdoing, but is expected to pay $1.6 million in court costs.

As of 2010, shoes accounted for about 80% of Zappos' business. As of 2007, Zappos had expanded their inventory to include clothing, handbags and other accessories, which accounted for 20% of annual revenues. Zappos executives stated that they expected that clothing and accessories would bring in an additional $1 billion worth of revenue, as the clothing market is four times the size of the footwear market.

The company sells many different types of footwear, including vegan shoes. In 2004, they launched a second line of shoes called Zappos Couture.