Zappos has a new ad campaign. Mullen, a unit of Interpublic Group, has hit on the radical strategy of using images of nude models to move clothes.
As a turnaround and restructuring professional ad campaigns rarely interest me, but I find the evolution of Zappos to be fascinating. A company that was once focused, as CEO Tony Hsieh put it, on the three C’s of “clothing, customer service, and company culture” seems to be drifting.
Perhaps that should not be a surprise. Tony Hsieh spoke openly about the need for his company to grow in order for a broader movement to spread happiness to occur. Competition on such bases in the early stages might be easy, as the market embraces novelty and competitors struggle to find a response to an asymmetric advantage based in large part on wildly superior customer service.
But there are costs to the old Zappos approach, and the new ad campaign might be a strong signal that Amazon, which acquired the company in 2009 for $790 million in cash and $40 million in stock, has come to appreciate that reality. In 2008 Zappos had net sales of $635 million and operating income of $10.8 million, for an operating margin of 1.7%. A private company chasing growth can afford those kind of anemic profitability numbers for a while (though reading Tony Hsieh’s recap of his decision to sell the company, it seems that a liquidity squeeze was going to force some drastic changes if a sale did not go through).
Perhaps this is just a corporate strategy version of revision to the mean. Zappos was fun and quirky and fought well (and differently) when it was smaller, but it was only marginally profitable and now has been acquired by a public company that actually wants a respectable level of profitability. Maybe competition on the level of nude models on scooters is easier. Sigh.
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