Amazon.com (NSDQ: AMZN) is acquiring online shoe retailer Zappos.com for $807 million in stock and $40 million in cash. The companies said Zappos will retain its brand, management team and Las Vegas headquarters after the closing, which is expected this fall. What’s less clear is just how much Zappos will have to do with Amazon’s existing shoe and apparel businesses, including Endless.com.
It seems like Zappos’ social media-friendly corporate culture has already rubbed off on Amazon, as CEO Jeff Bezos has posted a YouTube video about the deal. In it, he talks up the company’s synergies—not to mention Zappos’ success at building a phenomenal online brand.
So if Zappos was doing so well on its own, why agree to the acquisition? Sources tell peHUB that principal backer Sequoia Capital pushed for the deal because it wanted “more liquidity” and the profits from an immediate sale as opposed to a future IPO.
From a less arbitrary standpoint, there’s the decrease in competition. At some point, Amazon and Zappos would have started to cannibalize each other’s sales—if it wasn’t happening already—and with little-to-no growth in e-commerce sales across the board (per comScore) Zappos would have the Amazon cushion if consumer cutbacks started slicing into its sales.
There’s also the possibility for shared product storage and distribution; though Zappos will remain semi-independent, the two companies can save money by sharing warehouses and shipping costs. And in a memo to employees, Zappos CEO Tony Hsieh shares his excitement about being able to take advantage of the larger Amazon infrastructure. In keeping with the Zappos social media spirit, Hsieh tweeted the deal to his million-plus followers, along with a link to the explanation on the company blog.
It’s all about the shoes—and the clothes. Zappos is bringing in roughly $1 billion worth of annual revenue—mostly from its core shoe business—though, in an interview with the Las Vegas Sun, Hsieh recently set similar revenue goals for both its spin-off site 6pm.com and its apparel business.
Meanwhile, Amazon has its own shoe section, as well as Endless.com, the standalone shoes and handbag site it launched in 2007. Whether Endless.com—created as a Zappos competitor—will remain a solo brand remains to be seen, but it would make sense for Zappos o take it over at the very least.
Amazon didn’t break out shoes and apparel sales during its last earnings report, but overall North American revenues grew 21 percent during the previous quarter to $2.58 billion. Amazon’s shares were down slightly (less than one percent) in after-hours trading after the news broke; the company reports its fiscal Q1 earnings tomorrow. Release.
By Tameka Kee