Amazon Gets a Good Zap

Let’s keep a good thing going.

That was the sentiment among footwear players last week following news of the mega-marriage between Zappos.com and Amazon.com, a deal that shook up the e-tailing world and will significantly alter the online playing field. The large majority of executives interviewed by Footwear News cheered the union — and the potential upside for the firms.

“Both of these companies are extremely visionary and strategic,” said Larry Tarica, president and COO of Great Neck, N.Y.-based Jimlar Corp., who said he wasn’t surprised by the news.

“Zappos has done a much better job than Amazon has in the shoe business,” added Chinese Laundry CEO Bob Goldman. “And Amazon has amazing resources and procedures, better than Zappos. The whole thing will be a better business model and they both have a lot to offer each other.”

Many vendors stressed that Amazon should tap into Zappos’ innovative business model, strong focus on customer service and out-of-the-box culture.

“While Amazon is by no means old or stodgy, Zappos is in many ways much younger, fresher and more flexible,” said Victor Hsu, marketing director for Jump USA. “The disadvantage would be if Zappos were to lose any of these special qualities once it’s assimilated into the larger organization … although I don’t see that happening.”

Zappos CEO Tony Hsieh, in an e-mail to his employees posted on his blog and Twitter page last Wednesday, said that Amazon supported Zappos’ growth as an independent entity (the firm will remain separate and operate out of its Henderson, Nev. headquarters). “We plan to continue to run Zappos the way we have always run Zappos … continuing to do what we believe is best for our brand, our culture and our business,” Hsieh wrote. (He declined to comment publicly beyond the e-mail, citing a quiet period.)

But not everyone was convinced that Zappos — which, according to Amazon, had $635 million in revenue last year — could maintain its strong sense of identity.

“When you take an independent player who was willing to buy a lot of different, independent [footwear] brands and styles and put it within the setting of a public company, you worry about how they will buy going forward and if the level of service will continue,” said Scott Krasik, an analyst at CL King & Associates.

“No matter how hard Zappos tries to keep it’s ‘culture,’ it becomes inevitable for it to change,” said Josh Willis, sales director at Creative Recreation, adding that it is up to Hsieh to control how the changes affect Zappos employees.

Beyond discussion of how well the e-tailers will mesh, insiders also weighed in on the financial terms of the deal, valued at $979 million at market close on Thursday. The transaction includes about 10 million shares of Amazon common stock and $40 million in cash and stock payouts to Zappos employees. The deal is set to close sometime this fall.

“It’s a fair price,” said Chistopher Svezia, an analyst at Susquehanna Financial Group. “Zappos seems to be growing at a reasonable clip. In the end, [Amazon] paid a little more than one times revenue, which is the usual rate for retailers. Since this is a dot-com, they may have paid a premium given opportunity for growth [in that structure].”

Brian Tascher, VP at BB&T Capital Markets, said that Zappos investors are likely pleased with the size and the terms of the buy-out. “It’s a great deal for Sequoia [Capital] and the other venture partners that were invested in Zappos,” Tascher said.

As for the future of Amazon’s others accessories sites, including Endless.com, the company’s CFO and SVP Thomas Szkutak told investors on a Thursday conference call that they all have different brands and customers and that he is “excited to have all the Websites.”

Still, Zappos has attracted a much stronger consumer following than Endless since the latter was launched in 2007. In June, for example, ComScore reported that Zappos racked up nearly 4.5 million visitors, while Endless totaled 777,000.

Tim Shimotakahara, VP of investment banking at D.A. Davidson & Co., suggested that Amazon could incorporate more upscale products into Endless, positioning it as a fashion and couture business, while keeping Zappos as more of a broadline retailer.

“It doesn’t seem like Endless has the same brand cachet that Zappos does when it comes to online shoes,” he said. “You have two brands that are essentially doing the same thing — one is well known for its product offering, the other is not.”

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