SUCCESS STORY
Zappos.com: These Boots Were Made for E-Commerce

Among dreamy startups and salty e-commerce veterans alike, Zappos.com appears to be the golden grail -- certainly one blessed, at least, with heavenly rewards. "Zappos is the Amazon (Nasdaq: AMZN) of the shoe business, and its model is extremely difficult to mimic," Gene Alvarez, vice president of research at Gartner (NYSE: IT) (and former employee of shoe-biz powerhouse, Nine West Group), told the E-Commerce Times.

While Zappos started as a shoe-specializing online retailer, and currently holds the title of world's largest, it stocks more than 3 million shoes, handbags, clothing items and accessories from more than 1,100 brands. Future plans include continued additions to the product offerings including electronics and cookware.

Critics damn Zappos to an early fate, claiming many of its competitors have long since added similar features to their shopping sites, such as multiple search options, 360-degree product views, and user comments and ratings. But these criticisms fall flat, as do copycats' aspirations, because these site comparisons barely scratch the surface of what makes the e-commerce giant shine.

"Zappos has built a dot-com model specifically for dot-com and have invested a great deal of time, money and effort into combining superior shoe business knowledge with a great supply chain, business process, and retail policy," says Alvarez. "Zappos is not immune to competition, but it certainly has set the bar extremely high."

Not Your Typical Dot-Com Story

While the company ultimately moved the bar above head level, it got its start after stubbing its toe on the bar's initial level.

In 1999, Nick Swinmurn, the founder of Zappos, became frustrated shopping for a pair of shoes among retailers in a San Francisco mall. None had the right combination of size and color, so he went home and shopped online, only to find there was no major shoe specialist there -- only big box retailers and mom and pop shoe stores with limited lines populated the Web retail space.

Since it was 1999, and all dot-com ideas seemed a sure path to fortune, Nick decided to quit his day job and start an online shoe retailer: Zappos.

While that all sounds easy, it was anything but. "Our biggest challenge was and continues to be finding enough great people to grow with the company and help take the company to the next level while improving the culture of the company." Zappos CEO Tony Hsieh told the E-Commerce Times.

At Robot Speed

Certainly technology hasn't posed much of a problem. Two major tech moves Zappos has recently undertaken are sidling up close to Google (Nasdaq: GOOG) to build a highly customized and efficient search function on its site, and installing the Kiva Mobile Fulfillment System in its warehouse.

Zappos physically warehouses everything that it sells, unlike most other online retailers, which typically make an item available for sale even though they don't actually own the inventory. This is a shrewd, albeit costly, strategy , as it allows Zappos to fill orders at near supersonic speed -- well, OK, at USPS, UPS and FedEx speeds. Since Zappos doesn't have to wait on product from a vendor to arrive before it ships to the customer , nor is it subject to product availability from a manufacturer, orders ship almost as fast as credit cards clear.

Pallets, cases, and orders are stored on inventory pods that are picked up and moved by a fleet of mobile robotic drive units. Any product can go to any operator as needed. There are no forklifts or dashing warehouse workers afoot. Each order gently whizzes to the operator and right out to shipping.

"We're always looking at ways to improve our efficiencies in the warehouse, but probably none of them are as 'cool' as the Kiva robots," laughs Hsieh.

On the customer facing side of things, Zappos has been using Google Product Search and has seen a 400 percent increase in traffic and an 11 percent ROI improvement, according to Google.

"Zappos does have excellent search capabilities. Tabs allow quick and easy search narrowing and a simple click brings the precise product in front of the customer quickly," says Alvarez.

Economic Threats

While things are all aglow at Zappos for now, challenges do exist. "Among obstacles Zappos faces are a tough economy for discretionary purchases, continued growth from core customers who may be affected by the economy, a high cost structure given that they carry most of their inventory in their warehouses and they offer free shipping both ways, and a very generous customer service operation," Sucharita Mulpuru, principal analyst of retail at Forrester Research, told the E-Commerce Times. In other words, the very things that make Zappos great could make them not so great in the current economic climate.

"If they have figured out how to make the economics of their business work and drive profitable customer interactions, they're in great shape," concludes Mulpuru. "If all the great things they're offering are coming at a steep cost, they're on a very difficult road ahead."

Of course, that's true of virtually all companies at the moment, and no one's even thinking about counting Zappos down for the count anytime soon.

"They have a powerful brand in e-commerce and customers love them," says Mulpuru.

As to potential and existing competitors threatening Zappos for the number spot in shoe e-tailing: not bloody likely.

"I've seen sites add shoes as a category, but not one has stepped into it solely," grins Alvarez. Pun not intended, he says. Uh, huh.