Zappos.com Update - July 24, 2008

Dear Investors, Employees, Partners, and Friends of Zappos:

With the WSA shoe show coming up next week, I thought it would be
a good time to send out another company update.

As I mentioned in the last update at the beginning of this year,
our goal is to break $1 billion in gross merchandise sales for
2008. The economy has been tough, but so far we are still on track
to hit that number. Back in 2003, we had set a the goal of hitting
$1 billion by 2010, so we’re very excited that we’re on track to
hit the $1 billion milestone ahead of our original goal!

For those who don’t know, here are our historical gross
merchandise sales numbers:

1999: Almost nothing
2000: $ 1.6 mm
2001: $ 8.6 mm
2002: $ 32 mm
2003: $ 70 mm
2004: $184 mm
2005: $370 mm
2006: $597 mm
2007: $840 mm
2008: Over $1 billion (goal)

Here are some of the highlights so far for 2008:

  • We grew our customer base to a total of over 8.2 million paying

customers, meaning that almost 3% of the US population has
bought from Zappos.

  • With our focus on customer service, our customers continue to be

extremely loyal to us. On any given day, approximately 75% of
our sales are from repeat customers.

  • We now carry more than 4 million items in our warehouse!

  • We began our partnership with Merrell, and are now selling them

on our site.

  • We completed our magalog for fall, and will be dropping 1

million copies of it in a few weeks. We’re very excited about
this because the quality is a big step above our previous
magalogs. Special thanks to our vendor partners who
helped support our magalog project!

  • We continued to grow sales in all of our categories, especially

our non-footwear categories, including apparel, handbags,
sunglasses, watches — even cookware and electronics! Our
apparel category is up 250% from last year, making us a “head to
toe” destination for many of our partners and customers.

  • We’ve continued investing in our warehouse operations to handle

other product categories, including the implementation of
technology from Kiva Systems.

  • We ran a television ad campaign in the spring which has helped

with our branding efforts. You can see the commercial here:

http://www.youtube.com/watch?v=uxBWfqDAQkg

  • We’ve been doing a lot of work behind the scenes for our new

technology platform which we are internally calling “Zeta”.
Among many other things, Zeta offers better search and browsing,
and you can take a sneak peak at Zeta here:

http://zeta.zappos.com

  • Our “Powered by Zappos” program continues to grow and will soon

be moved over to our new Zeta platform, which will enable us to
help power more of our vendors’ ecommerce operations.

  • Our company blogs have taken a life of their own and have turned

out to be a great way for us to share our unique company culture
with the rest of the world:

http://blogs.zappos.com

  • The 2008 edition of our culture book has just arrived. Every

year, we ask all of our employees to write a few paragraphs
about what the Zappos culture means to them, and except for
typos, it’s unedited. This year’s edition is bigger and better
than ever before! Be sure to pick up a copy if you ever stop by
our offices!

  • We continued and improved our unique training program for new

hires in Las Vegas. All new hires in our Las Vegas office,
regardless of what department they were actually hired for, must
first go through 4 weeks of Customer Loyalty training (answering
phone calls from customers) upon joining the company.

  • We officially turned 9 years old as a company!
  • We were recently featured as the lead story on ABC Nightline:

http://abcnews.go.com/video/playerIndex?id=5328179

Our focus continues to be on building our brand and our culture
around providing the very best customer service and experience.
Our hope is that 10 years from now, people won’t even realize that
we started out selling shoes online. In fact, our business doesn’t
even have to be limited to just the online world.

If we can build Zappos so that our brand is simply about the very
best customer service and the very best customer experience, the
sky’s the limit as to what we can eventually accomplish. Right
now, we are just scratching the surface of what’s possible. In the
ABC Nightline story, there’s even a mention of the possibility of
a Zappos Airlines later down the road:

http://abcnews.go.com/video/playerIndex?id=5328179

Thank you everyone for all of your support and getting us to where
we are today! I’ll be sending out another update after the year is
over, and look forward to reporting on our progress!

——-
Tony Hsieh
CEO – Zappos.com

——-
Our lawyers want us to put in the following disclaimer, so here it
is:

This email contains forward-looking statements that involve risks
and uncertainties, as well as assumptions that, if they ever
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 of disaster
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.

——-