Institute of Business Forecasting, Demand Planning and Forecasting: Best Practices Conference

Amanda Nevins

Chief Accounting Officer & VP Finance

Zappos.com

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Introduction to Zappos.com

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A Little About Me (Amanda)My Background

• Graduate from the University of Southern California

• Found my love for retail and ecommerce!

• Worked at companies such as:

GSI Commerce Inc

The Pep Boys

Genuardi Family Markets

DFS North America

Zappos.com

• Experience in Finance, Accounting, Treasury, Acquisitions, System Implementations, and Operations

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Zappos at a GlanceCorporate Background

• Founded in 1999

• 1400 employees (half in Las Vegas headquarters, half in our Kentucky DC)

• Zappos is “Powered by Service” Providing the best online shopping experience possible.

Fast, Free Shipping. Free return shipping. 365-day return policy.

Fast fulfillment. Expedited delivery. Fast, friendly & expert customer service.

• Best selection Over 1200 brands, over 200,000 styles, over 900,000 unique UPCs.

4 million items in warehouse

Photography in multiple angles.

100% of products inventoried (no drop ship).

• Zappos is a service company that happens to sell clothing, shoes, handbags, eyewear, watches (and eventually a bunch of other stuff).

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Recent Recognition:Nice, but we pay more attention to our customers

• TV Stories

• Oprah (2008/2009)

• ABC Nightline (2008)

• 60 Minutes (2007)

• Fortune “100 Best Companies to Work For”

• #23 (2009) – Highest ranking newcomer to list

• Fast Company “50 Most Innovative Companies”

• #20 (2009)

• BusinessWeek Top 25 “Customer Service Champs”

• #7 (2009)

Slide 6

Customer service value proposition in action…Zappos is committed to WOWing each and every customer.

• Customers come…

9.9M total purchasing customers (3.3% of US population)

4.1M have purchased in the last 12 months

• Customers come back…

On any given day, about 75% of purchases from returning customers

Repeat customers order >2.5x in the next 12 months

• Customers come back, order more and order more often…

Repeat customers have higher average order size

$123.86 – first time customers in Q407

$156.27 – returning customer in Q407

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Power of repeat customers and word of mouth...

2000 2001 2002 2003 2004 2005 2006 2007 2008

Gross Sales 1.6 8.6 32 70 184 370 597 841 1014

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Customer Service:What customers first see

• 24/7 1-800 number on every page

• Free shipping

• Free return shipping

• 365-day return policy

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Customer Service:What customers experience

• Fast, accurate fulfillment

• Most customers are “surprise”-upgraded to overnight shipping

Create WOW

• Friendly, helpful “above and beyond” customer service

• Occasionally direct customers to competitors’ web sites

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Customer Service:What we do internally

• No call times, no sales-based performance goals for reps.

• The telephone is one of the best branding devices available.

• Run warehouse 24/7. Inventory all product (no drop-shipping).

• 5 weeks of culture, core values, customer service, and warehouse training for everyone in Las Vegas office.

• We’ll pay you $2,000 to quit.

• Culture Book

• Interviews & performance reviews are 50% based on core values & culture fit.

• Twitter helps build company culture.

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Zappos is about the 3 C’s:Clothing, Customer Service, Culture

Customer Service

Clothing

Culture

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Zappos delivers happiness in a box: outfitting our customers from head to toe packaged with great customer service.

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Customer Service

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Culture

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CULTURE“Committable Core Values”

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Culture: establish “committable core values”…Every employee is asked to live & breathe the core values and inspire the culture in others.

1. Deliver WOW Through Service

2. Embrace and Drive Change

3. Create Fun and a Little Weirdness

4. Be Adventurous, Creative, and Open-Minded

5. Pursue Growth and Learning

6. Build Open and Honest Relationships With Communication

7. Build a Positive Team and Family Spirit

8. Do More with Less

9. Be Passionate and Determined

10. Be Humble

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Finance team and family-Mt Charleston Camping trip

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Halloween fun and wierdness

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Systems & Planning

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Sales Growth is great but it has to be planned for...

2000 2001 2002 2003 2004 2005 2006 2007 2008

Gross Sales 1.6 8.6 32 70 184 370 597 841 1014

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The Planning process

• We have a very sophisticated home grown system that we refer to as Site Manager. This allows us to provide great customer service (our CMS, WMS and MMS are all proprietary) However, for planning, surprisingly, we use Excel.

• Back in 2006 we had grown our financial systems with the growth of the company by moving from mom and pop financial software to a larger package without integration.

• Since we had grown to well over $500M at that time we made the decision to move to SAP Financials with the vision of having integrated 3 way AP matching and more sophisticated planning and financial reporting systems. We had a successful implementation in only 5 months!

• We recently made the decision to purchase the SAP Retail solution which will allow us to integrate with our SAP Financial Systems.

Slide 22

The Planning process

• For the planning process, we primarily use historical data, trends, and buyer/ financial experience to set financial and operating plans using excel.

• The Finance team starts the process by setting the planning calendar. We then complete a top down and bottoms up plan making sure they both tie out. There is a lot of collaboration during the process with everyone in the company.

• At Zappos, it is really all about working together, our core values, and trying to deliver great customer service by having the right product, at the right time which we try to facilitate through the planning process!

• We have to plan well in order to keep our fulfillment center operating efficiently!

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Operations

Slide 24

Some Facts about our Fulfillment Center

• We operate two fulfillment centers in Shepherdsville, KY (which is located near the UPS hub)

• We run our fully automated warehouse 24/7, which is actually not the most efficient way to run a warehouse, but it gets the orders out to our customers as quickly as possible. With our surprise upgrades to overnight shipping, a lot of customers order as late as midnight Eastern Standard Time and their orders show up on their doorstep 8 hours later, which creates the WOW experience and generates word of mouth.

• We have a great relationship with UPS. 1 out of every 60 OVERNIGHT packages shipped by UPS is a Zappos box

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More about our Fulfillment Center

• We have a very large carousel system – between 3 and 5 levels high, depending on the area. It rotates similar to a dry cleaning system. Typically with static racking, they pick about 85 units an hour. With the carousel system, it enables them to pick 200 units an hour. This system is much more efficient.

• KIVA system – Robots will bring the shelves to the pickers. Our pickers stay on the ground, and KIVA will take their own elevators up into the “lofts” to retrieve product racks and bring them back down to the pickers. This is more efficient than static racking or the carousel system.

• LPN SYSTEM- We use a license plate to identify each product which allows us to know for the entire life of the product where it is, where it has been and what it cost. This is great from a customer service perspective!

• 4 floors of a static rack, much like a book shelf.

• We take all of our own photos and have 17 photo studios. We shoot every single style in every single color from 8 different angles.

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KIVA systems!

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Questions and Answers

Email me – anevins@zappos.com for:

• A copy of this presentation

• Answers to any additional questions not addressed today

• Copies of our culture book (need physical address)

• Tour of our offices when you’re next in Las Vegas

• Job Opportunities

Check out these links:

• http://blogs.zappos.com

• http://about.zappos.com

• http://www.zapposinsights.com

Follow me on Twitter:

• http://twitter.com/anevins

Slide 37

Legal and Financial Disclaimer

P.S. You might be wondering why we need to have a legal and financial disclaimer in this presentation, but you are still reading, so our lawyers, auditors and accountants would really like to make sure we make the following clarifications.

Although an audit was underway and almost done, the financial information presented in this slide show was unaudited. We made every effort to present the best information we had at the time.

Gross merchandise sales is a non-GAAP metric. We use it to express the total demand across all of our web sites and stores. This number measures the dollar value of the orders placed in the year before accruing for certain items such as returns, and itignores certain timing cut-offs that are required by GAAP for revenue recognition purposes. If we were a public company, we would have to reconcile gross merchandise sales to the nearest GAAP metric (net sales), but we are currently a private company so the gross merchandise sales number should be viewed just as an interesting number that we want to share with our friends.

This presentation contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if theyever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by the forward-looking statements and assumptions. These risks and uncertainties include, but are not limited to, the risk of economic slowdown, the risk of over or underbuying, the risk of consumers not shopping online or at our web site at the rate we expected, the risk of supplier shortages, the risk of new or growing competition, the risk of a natural or some other type ofdisaster affecting our fulfillment operations or web servers, and the risk of the world generally coming to an end. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements of expectation or belief; and any statement of assumptions underlying any of the foregoing. Zappos.com assumes no obligation and does not intend to update these forward-looking statements.

Congratulations on making it through all the fine print. If you enjoy fine print, look for openings on our legal and finance team at jobs.zappos.com.