Founded in 1999 with the goal of having the best online selection of shoes, Zappos has quickly evolved into a company that seeks to provide the best online service across any merchandise category. Their vision, in their words, is:
- One day, 30% of all retail transactions in the US will be online.
- People will buy from the company with the best service and the best selection.
- Zappos.com will be that online store .
To say it simply, Zappos is a distributor. They procure goods from their vendors and ship to customers who order online or on the phone. To succeed with this business model, Zappos must excel in the following operating areas: distribution, vendor management, and customer service. Today, Zappos has effectively set the standard for other e-commerce operations and, with annual sales in excess of $2 billion dollars, it’s clear that Zappos has been able to align its business and operating models. However, as they continue to experiment in these operating areas, they should be wary of misalignment going forward.
Core to accomplishing their vision is speedy delivery, and the location of Zappos’ warehouses plays a significant role in accomplishing this goal. Zappos chose to open two warehouses just miles away from the UPS Worldport, the carrier’s global hub in Louisville, KY, allowing the company to quickly receive merchandise, update inventories for customer selection, ship merchandise and enable quick returns. Faster return processing encourages customers to purchase more, potentially even more impulsively, because they trust the reliability of the delivery and return process. Finally, whereas most distribution companies have UPS trucks picking up shipments once daily, Zappos is able to send multiple trucks to UPS throughout different times of the day. This significantly increases the likelihood that customers receive material next day whereas other companies would delay shipments for customers who did not meet their ordering cutoff time. 
Zappos Warehouse in Sherperdsville, KY
Customers must be satisfied with the breadth of product selection so Zappos must maintain solid vendor relationships. Zappos understands that by aligning incentives with their vendors, they both grow together. Unlike many retail companies, Zappos is completely transparent with information such as inventory levels, sales and profitability. As a result vendors become an integrated part of the supply chain, and minimize potential bullwhip effects with upstream parties. When inventories become low, vendors can suggest orders for buyers to approve. In addition, vendors can give merchandisers suggestions on website presentation and set up new marketing campaigns. Merchandisers benefit from understanding how well their items sell, and even get direction from the Zappos team on which direction to move their product lines. This positive relationship between vendors improves Zappos’ ability to provide the best breadth of selection for customers. 
Zappos is able to captivate customers through their customer loyalty team. Their team of 600 employees takes thousands of calls, texts, and web messages daily, which represents interaction with 3-4% of its customer base on a given day (of which they operate 24/7). Their customer service team is also not constrained by designated call times or requirements to up-sell their customers. Rather, they are empowered to make decisions that are best for their customer. Customers, as a result, consistently receive service that exceeds expectations and brings them to Zappos again. 
The company trains all of its employees to ensure that they stay close to the company’s core value. New hire training, regardless of job function, includes 2 weeks of taking customer service calls and all employees are required to take 10 hours of customer service calls annually to keep employees calibrated on what is most important to the company and help them drive innovations that are catered to customer needs. 
Success of Experimentation?
Zappos invests heavily on having a positive and quirky culture within the company. Positivity results in not only good decisions for customers, but experiments that change the way that Zappos operates. Zappos has experimented with ideas such as pop-up stores that act as a physical storefront that utilizes the company’s extensive inventory . Other ideas tackle how the company operates hierarchically. In 2014, the company embraced holacracy, an idea that there are no bosses and “everyone is a leader of their roles and a follower of others”. After changing to this new model, 14% of the workforce left. Zappos claims to have piloted this experiment and found success, however, many question the decision given such success in their operating model in the past. Only time, and the satisfaction of their customers, will tell if this change will keep Zappos’ operating and business models aligned.