Can DSW Catch Up To Zappos?

There are women who buy shoes and then there are Women Who Buy Shoes. For the latter, the launch of DSW.com -- DSW Shoe Warehouse's online store -- comes as super news. Is it too late to blunt the impact of online shoe pusher Zappos.com?

The bricks-and-mortar side of DSW operates 259 stores that its 10-k describes as "a sea of shoes" -- 30,000 pairs in 2,000 styles under a typical roof, far more than the department stores DSW counts as its primary competitors. Its clearance racks are legendary (a $200 pair of Yves St. Laurent kitten heels for $18); President Peter Horvath describes its ideal employees as "fellow shoe lovers who are enablers." But comps were flat last year on $1.41 billion in revenues and down 1.7 percent in the first quarter. DSW could improve its 2008 outlook if it can wring the e-commerce site's projected $12 million first-year revenue out of new sales and not cannibalize store visits from loyal customers.

As one commenter on SeekingAlpha.com noted after DSW declined to forecast anything other than gloom for 2008, "If women are not buying shoes you know economic issues are serious."

Analysts weren't expecting DSW.com to open until the second half of 2008, but the $26.3 million project soft-launched April 23. DSW plans no marketing other than promotional flyers and e-mails to its 8.6 million loyalty card holders. That may be enough. Early users reported that the site was overwhelmed with traffic. At Papierdoll.net, Meghan Hart reports, "That cheering heard is the collective happiness of women everywhere."

But Zappos.com has an eight-year head start, the Internet in its DNA (behold its employees' Twitter log) and a fanatically loyal customer base that boosted sales from $1.6 million in 2001 to $800 million last year. CEO Tony Hsieh, speaking at the ANA convention this spring, described Zappos as "a service company that happens to sell shoes." Along with shoes from 1,500 brands, it offers a 365-day return policy, free shipping for both sales and returns and phone reps who will search three other shoe sites if Zappos doesn't have what you want in your size.

Zappos doesn't do a lot of advertising, but what it does is brilliant. When you take off your shoes in the TSA line at 15 airports around the country, they go into bins with Zappos ads on the inside. Says Denver Post columnist Al Lewis, tipped off to the ads by his well-shod wife Susan, "Advertising does not get any more self-reinforcing than this."