1. Does Zappos effectively focus on stakeholder happiness, and how does this approach affect the ethical culture?
2. Has Zappos developed long-term relationships with customers and employees that provide a competitive advantage in the purchase of shoes and other products?
3. Has Zappos effectively managed ethical risk, and what are potential ethical risks in the
future?

Can a company focused on happiness be successful? Zappos, an online retailer, is proving it can. Tony Hsieh, CEO of Zappos says, “It’s a brand about happiness, whether to customers or employees or even vendors.” Its zany corporate culture and focus on customer satisfaction has made Zappos both successful and a model for other companies. Zappos has built a culture of integrity in all of its activities. The company provides an incredible example of managing ethics and social responsibility by addressing challenges and responding to stakeholder issues.

This case examines how the company’s focus on stakeholder happiness contributed to its success. First, we examine the history of Zappos, its core values, and unique business model. Next, we analyze its corporate culture and how it influences its relationships with employees, customers, the environment, and communities. We then look at some of the challenges the company faced and how it plans to move into the future.

Nick Swinmurn founded Zappos in 1999 after a fruitless day spent shopping for shoes in San Francisco. After looking online, Swinmurn decided to quit his job and start a shoe website that offered the best selection and best service. Originally called ShoeSite.com, the company started as a middleman, transferring orders between customers and suppliers but not holding any inventory (a “drop ship” strategy). The website was soon renamed Zappos, after the Spanish word for shoes (zapatos).

In 2000 entrepreneur Tony Hsieh became the company’s CEO. Hsieh, 26 at the time, was an early investor in Zappos, having made $265 million selling his startup company to Microsoft in 1998. Hsieh was not initially sold on the idea of an Internet shoe store, but he could not help but become involved. After becoming CEO, Hsieh made an unconventional decision to keep Zappos going, even selling his San Francisco loft to pay for a new warehouse and once setting his salary at just $24.

Zappos struggled for its first few years, making sales but not generating a profit. The dot-com crash forced Zappos to lay off half its staff, but the company recovered. By the end of 2002, Zappos had sales of $32 million but was still not profitable. In 2003 the company decided in order to offer the best customer service, it had to control the whole value chain—from order to fulfillment to delivery—and began holding its entire inventory. Zappos moved to Las Vegas in 2004 to take advantage of a larger pool of experienced call center employees. The company generated its first profit in 2007 after reaching $840 million in annual sales. Zappos started to be recognized for its unique work environment and responsible business practices, as well as its approach to customer service.

In 2009 Amazon bought the company for $1.2 billion. Although Hsieh rejected an offer from Amazon in 2005, he believed this buyout would be better for the company than management from the current board of directors or an outside investor. Amazon agreed to let Zappos operate independently and keep Hsieh as CEO (at his current $36,000 annual salary). Hsieh made $214 million from the acquisition, and Amazon set aside $40 million for distribution to Zappos employees. After the acquisition, the company restructured into 10 separate companies organized under the Zappos Family. Zappos was able to keep its unique culture and core values.