Delivering Happiness

Layoffs
2008 was a crazy year. We experienced some of our highest highs as well as
some of our lowest lows, both inside and outside of Zappos.
We began the year celebrating our prior year’s financial performance.
We had exceeded our 2007 operating profit goals, so we decided to surprise
all of our employees with a onetime cash bonus equal to 10 percent of their

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annual salary. It was our way of thanking everyone for helping us exceed
our goals.
Later that year, UPS invited Alfred and me to Beijing to watch the
Olympics, which turned out to be an amazing experience.
Then the stock market and housing market collapsed. As the global
economy tanked toward the end of 2008, our growth rate slowed. Even
though we were still growing, we realized that our expenses were too high
for the revenues we were bringing in. We had planned on faster growth and
instead found that we had overhired. I was amazed that things had changed
very quickly.
Just eight months after giving everyone their surprise bonus, we made
the tough decision to lay off 8 percent of our staff. It was one of the hardest
decisions we ever had to make for the company.
Rather than trying to spin the story as a “strategic restructuring” as many
other corporations were doing, we stuck by our core values and remained
open and honest, not only with our employees, but with the press as well.
I sent the following e-mail to all of our employees, which we also
publicly posted on our blogs:
Date: November 6, 2008
From: Tony Hsieh
To: All Zappos Employees
Subject: Update
To all Zappos employees:
Today has been a tough, emotional day for everyone at Zappos.
We made the hard choice of laying off about 8% of our employees.
The layoffs will affect almost every single department at Zappos. In
addition, we are also looking at closing some of our brick and mortar
outlet stores in Nevada and Kentucky.
This is one of the hardest decisions we’ve had to make over the
past 9.5 years, but we believe that it is the right decision for the long
term health of the company. The rest of this email will explain
why…
We feel fortunate that we have Sequoia Capital as an investor
who had the foresight to see the ramifications of the tough economic

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times that lie ahead for all of us. On October 7, Sequoia held a
meeting for all of their portfolio companies (including Zappos), with
one very clear message: Cut expenses as much as possible and get to
profitability and cash flow positive as soon as possible.
Jason Calacanis also has a well-written email that talks about
avoiding the “death spiral,” which I highly recommend reading.
Fortunately for Zappos, we’re in a much better position than
many other companies. Unlike many other companies, we are still
growing and already profitable and cash flow positive.
And we are also fortunate that we have a revolving line of credit
from Wells Fargo, US Bank, and KeyBank. This line of credit has
given us a lot of financial flexibility. However, given the current
economic uncertainty, we believe it’s prudent to reduce our reliance
on debt financing.
We’ve decided the right thing to do for the company is to be
proactive instead of reactive. We are proactively cutting back some
of our expenses today so that we can take care of our employees
properly, instead of being reactive and waiting until we are forced to
cut expenses.
Because we are still growing and are already profitable, we do
not have to take as drastic of a step as most other companies of our
size. Last year, we did $840 mm in gross merchandise sales, and this
year we are forecasting to do about $1 billion in gross merchandise
sales. However, when we first put together our 2008 plan at the end
of 2007, we were expecting our gross merchandise sales to be even
higher than $1 billion.
Because of all this, we are reducing our staff by 8%, but because
we are being proactive instead of reactive about it, we are able to
take care of our employees and offer them more than the standard 2
weeks severance (or no severance) that most other companies are
giving.
We are offering to pay each laid-off employee through the end of
the year (about 2 months), and offering an additional amount for
employees that have been with us for 3 or more years.
In addition, because our regular health benefits cover 100%
medical, dental, and vision for employees and 50% for spouses and

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dependents, we decided to offer to reimburse laid-off employees for
up to 6 months of COBRA payments.
In doing all of this to take care of laid-off employees, we expect
that it will actually increase, not decrease, our costs for 2008, but we
feel this is the right thing to do for our employees. It will put us in
the position of having a lot more financial flexibility in being able to
respond to potential changes in the economy in 2009.
E-commerce growth has slowed compared to its growth rate a
year ago, but the good news is that even in this tough economic
environment, e-commerce overall is still growing.
Within the footwear category, we are the online market leader.
When times are tough, the strongest players in any market have an
opportunity to gain even more market share, even if overall growth
may be slower. Historically, we have actually grown faster than the
overall e-commerce market, and we anticipate for that to continue in
2009.
For the rest of 2008 as well as for 2009, we anticipate continuing
to grow year over year. Our current forecasts are that we will
continue to be profitable and cash flow positive, as long as we are
proactive instead of reactive in managing our business and financials.
I know that many tears were shed today, both by laid-off and
non-laid-off employees alike. Given our family culture, our layoffs
are much tougher emotionally than they would be at many other
companies.
I’ve been asked by some employees whether it’s okay to Twitter
about what’s going on. Our Twitter policy remains the same as it’s
always been: just be real, and use your best judgment.
These are tough times for everyone, and I’m sure there will be
many follow-up questions to this email. If you have any questions
about your specific job or department, please talk to your department
manager. For all other questions, comments, or thoughts, please feel
free to email me.
—Tony Hsieh, CEO

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After the weekend had passed, I sent a follow up e-mail to our
remaining employees, which we also publicly posted on our blogs:
Date: November 11, 2008
From: Tony Hsieh
To: All Zappos Employees
Subject: Moving forward
Last week was a tough week for everyone, as we went through
the process of laying off 8% of the Zappos family. At the same time,
it was also heartwarming hearing all the stories of Zappos employees
and ex-employees getting together for drinks Thursday night after the
layoffs as well as over the weekend.
The economic environment we’re in right now is unlike any
we’ve ever witnessed in our lifetime. These are extraordinary times,
and America is not out of the woods yet. Many people expect 2–3
million Americans to lose their jobs before we hit the bottom of our
current economic cycle.
As difficult as times may be, if there’s one thing I’ve learned in
life, it’s that things are never as bad as they seem or as good as they
seem. In most cases, this perspective usually comes long after a
“bad” or “good” event has occurred.
This is actually the second time we’ve had to do layoffs across
the board at Zappos. We’ve been around for 9.5 years, and the first
time we had to do layoffs was during the early years of the company,
when we laid off about half our staff due to a bad economy and our
inability to raise funding. At the time, we still were not profitable.
However, the layoffs we did in the early days forced the team that
remained to become much stronger, and because we did not have a
lot of money at the time, it forced us to focus on servicing our
existing customers instead of trying to acquire a lot of new
customers. Ultimately, it was the catalyst for transforming Zappos
from being just about shoes to a company focused on customer
service and company culture. It started a domino effect that
ultimately made us who we are today.

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Moving forward, we have a similar opportunity. We have the
opportunity to make our culture stronger than ever before. It’s
something that will require everyone’s involvement and effort, but
based on our history, I know it can be done.
We also have the opportunity to make the company healthier than
ever before. As we come up with innovative and creative ways of
generating more revenue, profits, and cash flow, we will be
prioritizing them based on what will be most beneficial to our
company.
One question that has come up is whether we will be doing
another round of layoffs after the new year. There are currently no
plans to do so. When we laid off 8% of our employees last week, we
chose that number because we felt that it would cut our expenses
enough to get us through all of 2009, based on our current financial
forecasts. As mentioned in my previous email, our layoffs were done
proactively to ensure that we would be profitable and cash flow
positive in 2009.
As part of reducing our 2009 expenses, and to bring us all closer
together, we are in the process of moving people so that everyone in
our Las Vegas offices will be either in the 2280 or 2290 building,
which are next door to each other. The moving should be completed
over the next couple of weeks.
We’ve got a busy holiday season ahead, and while everyone will
be busy and working hard with their individual jobs, let’s also make a
conscious effort to think about how we can help each other out even
more than usual—not just within your department, but
crossdepartmentally and throughout the entire company as well.
Remember, this is not my company, and this is not our investors’
company. This company is all of ours, and it’s up to all of us where
we go from here. The power lies in each and every one of us to move
forward and come out as a team stronger than we’ve ever been in the
history of the company.
Let’s show the world what Zappos is capable of.
—Tony Hsieh, CEO

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We received a lot of media attention because we had been so public and
transparent with our layoffs instead of trying to keep everything quiet.
Going through such a dark period of time in the public eye really put our
culture to the test. But as with all challenges, our employees figured out
how to get through things and move on.
Looking back now, I’m incredibly thankful and grateful that we all
banded together and made sure that we didn’t lose our team and family
spirit. It really makes me feel proud of our employees.
I also hope that we never have to go through anything like that ever
again.