Project Report for Understanding and creating the busienss potential for Zappos keeping in view the E-commerce Footwear retail business in india

Synopsis:
Having seen the potential of e-commerce business in India, the internet user base is on the growth path. India being one of the fastest growing e-commerce markets shows a sign of business success.
Both Brick and Mortar and Online business have its own pros and cons however online business in on a trajectory growth trend. The market assessment talks positive about the online Footwear Business. It would be worthwhile to say Zappos has a right time to enter into the Indian market scenario as though he cannot enjoy the “ first mover advantage” , however it can capitalize the unknown and expected potential from e-commerce trade in India. The USPs which are tried and tested at other part of the globe can be replicated in Indian scenario with a clinch of Indian localization.
In the report, we have said that Zappos should opt for a “wholly owned subsidiary” with 50:50 debt equity ratios. Various models of revenue like Sales, affiliate, transaction, subscription and sales revenue have been suggested to increase the overall revenue base. The wide policies will be Free Shipping & returns (365 days) and creation of ZCLT (Zappos Customer Loyalty Team).
Keeping in view the emerging retail trends worldwide where Nike is creating Nike Runner's Lounge for athletes, Rocky debuts the shoes for nursing professionals, Road Runner Sports’ delighting customers with the in-depth knowledge of their feet & running/walking patterns, Tom’s selling shoe on the basis of experimenting the Moral values of the potential customer, Zappos also need to change the strategy in the near future to woo its customers.
We have studied the nearest competitor of Zappos namely, Showbuy.com, foot locker.com, JC Penny, DSW.com, Spartoo.com etc. to know the best approaches used by them. It gives an insight of others business and required learning for Zappos accordingly.

By
Devtosh K Jha

Before discussion any future of Zappos in India, facts of the e-commerce market dynamics.
As per the 2012 statistics, it is clearly visible that E-commerce is showing superior growth as compared to Brick and Mortar model.

Source: American consumer Satisfaction survey
Customer satisfaction with ecommerce sites improved in 2012, outpacing satisfaction ratings with traditional retail stores for the 11th consecutive year, according to the American Customer Satisfaction Index. The index for e-Commerce sites (encompassing internet brokerage, retail, and travel) rose a point from 2011 to a score of 81.1 on ACSI’s 100-point scale, with 80 considered the threshold for excellence. The index for retail trade (consisting of department and discount stores, gas stations, health and personal care stores, specialty retail stores, and supermarkets) inched up a half-point to 76.6, its highest level on record.

Comparison of e-commerce shoe retail business with the brick and mortal shoe retail business in India
Now let’s have a comparison in the context of shoe retail:
Latest Developments: In recent years, online shoe sales have been on the rise and are based on several factors. Online Business | Brick and Mortal Business | Style:Due to space limitations, many brick and mortar department and shoe stores simply cannot offer the style and color selections of many of the online retailers. | If the customer is against the idea of buying online, he actually doesn’t go for it. He is adamant to buy from a physical facility | Standard Sizing: While many of us have no trouble finding shoes to fit right "off the rack," there are probably more people who need something other than a standard width, or size. These options are more readily available online. | If you have special footwear needs, you may want to have a discussion about them with a footwear expert. This is not easily accomplished online. | Brand Name and Designer Merchandise - Between television, print and online media, we're bombarded with brand and designer names that are often difficult to find in local department stores. But running that name through any search engine brings usually returns several online retailers of the shoes you so covet. | Even overnight shipping isn't as quick as a car ride to the nearest shoe store. If you need your shoes in a hurry, and they have to be right, customers don’t take chances and buy from a store itself |

Current business model of Zappos
Zappos uses a loyalty business model and relationship marketing. The primary sources of the company's rapid growth have been a) repeat customers and b) numerous word of mouth recommendations of its customers, (75% are repeat buyers)

The company's customer service reputation has been augmented through viral spreading as well: "Shoe merchant Zappos has benefited from Internet wildfire. When Zappos offered special return shipping assistance, beyond their company policies, the good word about the company spread quickly throughout the blogosphere.
Zappos’ primary selling base is shoes, which accounts for about 80% of its business. There are currently about 50,000 varieties of shoes sold in the Zappos store, from brands like Nike, Ugg boots, ALDO Shoes, and Steve Madden heels. They also serve the niche shoe markets, including narrow and wide widths, hard-to-find sizes, American-made shoes, and vegan shoes. In 2004, they launched a second line of high-end shoes called Zappos Couture.
In 2007, Zappos expanded their inventory to include clothing, handbags, eyewear, watches, and kids’ merchandise, which currently account for 20% of annual revenues. Zappos expects that clothing and apparel will bring in $1 billion worth of revenue by 2015, as the apparel market is four times the size of the footwear market. The CEO, Mr. Hsieh states that "our whole goal is we want to build the best brand of customer service. Hopefully, 10 years from now, people won’t even realize that we started selling shoes."

A snap shot of the website looks like below:

Success of Zappos to come to India Depends on the several factors:
Let us study the India potential customer first: 1) Indian ONLINE audience has grown by over 41% is past 12 months. It is one the FASTEST GROWING ONLINE MARKETS in the world.

2) India with over 5.7% of Internet users is the 3rd largest online country in the world

3) India has added over ~ 120 million users in the past decade and is growing at a consistent pace.

4) The E-Commerce Market is growing at a very fast pace with over 100% growth is the past few years. However at the present value ~ 75% of e-commerce is related to travel (ticketing / hotels etc.)

5) In the Sports Category, over 60% business generated in in footwear, followed by 30% apparel.

Entry Options to India:
Setting up a non-corporate entity * Liaison office: A liaison or a representative office can be opened in India subject to approval by Reserve Bank of India. Such an office can undertake liaison activities on its company’s behalf. A liaison office can also undertake:

* Representing parent/group companies in India * Promoting import/export in India * Promoting technical/financial collaborations on parent company/group’s behalf * Coordinating communications between parent/group companies and Indian companies * Branch Office: Foreign companies can conduct their business in India through its branch office which can be opened after obtaining a specific approval from Reserve Bank of India. A branch office can undertake following activities: * Import & export of goods * Rendering professional or consultancy services * Carrying out research work in area which its parent company is engaged * Promoting technical/financial collaborations on behalf of parent company/ overseas group company * Representing parent/group companies in India and acting as buying/selling agent in India * Providing IT services and developing software in India * Providing technical support for products supplied by parent company/group

Setting up a corporate entity * Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary companies in India in form of private companies subject to FDI guidelines. A wholly owned or a subsidiary company has the maximum flexibility to conduct business in India when compared with a liaison or branch office and has following salient features: * Funding can be done via equity, debt (foreign as well as local) and internal accruals * Indian transfer pricing regulations apply * Repatriation of dividends is allowed without approvals * Joint Venture with Indian partner: Foreign companies can also set up joint venture with Indian or foreign companies in India. There are no separate laws for joint ventures in India and laws governing domestics companies apply equally to joint ventures. * Foreign Institutional Investors: FII’s can invest in India in financial markets such as pension funds, mutual funds, investment trusts and asset management companies or their power of attorney holders. FII’s can invest in all securities in primary and secondary markets including the equity and other instruments of companies which are listed or are to be listed on stock exchanges of India.

Existing Model in India are as Follows:
Standard Model:

Own Subsidiary:
Example: Rocket International:

Venture Capitalist: Ex Flip Cart:

Market Place: E-bay .com

Critical evaluation of Business Model:
Though it seems that all e-retailers are doing well In India, however we should not ignore the following: 1) Major vendors of brands are selling their merchandise on cash & carry basis, hence no credit limit. 2) The kind of investments expected are very huge, Zappos should have ample amount of money to enter. A major part of the investment goes into advertisement spent. 3) Zappos would fight with the established players like Myntra, Jabong, Bestylish, Yebhi and Flipkart. These players are already established in the market. The Unique Selling Proposition (USP) now should be different from these players. 4) Policies like Relationship and Loyalty marketing works with India Context however the customer should be benefitted with price gain also. 5) Special return assistance of 365 days may not work here as the customer may use the product for some time and may expect that Zappos will take this back without any assistance. 6) Overnight shipping to all the sectors (Specially rural areas which contribute to a significant business ) would be costly in India, so this may not be exercised here.

If you were to launch a shoe e-commerce business in India, what will you do?
I would follow the below steps:
#1: Choosing a domain name
Choosing a domain name is very important when launching an ecommerce site but before registering business, we need to check first whether a suitable domain name is available. At the same time, we should also see whether the same name is also available on business pages on social media platforms such as Facebook and Twitter. If they are available, secure them all straight away for your online business.
#2: Picking the right ecommerce platform
Doing the groundwork in researching an ecommerce platform that will grow with the business will pay dividends. Put together a list of must-have functionality that we require and a wish list such as easy upload of images, an easy to use content management system and layered and faceted navigation. Ask for recommendations of ecommerce software from fellow business people, forums, business networking groups and other contacts.
#3: Creating a bespoke design
We would choose a website design company who can create an ecommerce site that is a culmination of both form and functionality, is Search Engine-friendly and can grow and develop with your business. Ecommerce sites have specific requirements so to find a design team which have proven experience in creating bespoke websites for companies that are unique, distinctive and reflect your brand image.
#4: Hiring an SEO company
Search Engine Optimization (SEO) for ecommerce websites requires quite a different approach to SEO for a static or information-based website. An ecommerce website by nature has a lot of pages and is harder to optimize so it is best that we hire an SEO company who has in-depth knowledge in this area. Again, I will ask my business contacts for recommendations and referrals for SEO agencies that ideally has an understanding and experience in your specific industry.

#5: Choosing a hosting company
The hosting of your website is also an important consideration when launching an ecommerce website. There is little point in having a beautifully designed website if it is constantly offline. Firstly, the server location is important from an SEO perspective
Other features to consider include: * reliability and speed of access * amount of bandwidth allowed * amount of storage * multiple domain hosting and subdomains * level of customer support * level of backup * Scalability.
#6: Supplying your own images
It’s a cliché but, in the online space, a picture really does say a thousand words. Again like copywriting, we should not just download images from a manufacturer’s site or use stock images. Upload clear, large and professional images to our site that do justice to your product and services. We would try and take photos at every angle and if possible, include videos on your site to add another dimension to your site for potential customers.
#7: Market Survey of Brands
I would perform an in-depth search of which footwear sells, which has a good sell thru, how can I maximize my returns with as little options as possible.
#8: Buying Stocks:
I will Order shoes from my supplier when people place orders. Pay the supplier only the wholesale cost for the shoes.
#8: Appointing 3 PL systems:
I will appoint a 3PL service which is already experienced in this domain. Would try to negotiate and have the best possible prices to operate.
#8: Developing Infrastructure:
A strengthened and dedicated infrastructure for the required resources and output.

Emerging shoe retail business models globally:
Nike Runner's Lounge:
NIKE is hitting the road with the Nike Runner's Lounge, a temporary location where athletes can, among other things, rendezvous for a run, get free massages, drinks and snacks and perhaps most significantly, test-drive Nike's line of running shoes. Its first lounge, in Vancouver, which was slated to stay open only from 12 January to 11 February, and was strategically located along Vancouver's Seawall, a major running route in the city, coincided with the preparations for the Vancouver half marathon.
Rocky:
Debuts of the Rocky S2V outdoor performance brand and Rocky 4EurSole that targets nursing professionals
Road Runner Sports’ business model:
Road Runner Sports offers a new twist on guru advice – a computerized assessment based on a video of the shopper running on a treadmill, a pad measuring where the runner places the weight of his feet and runner-provided information. A customer tried it, and the assessment was insightful and correct, his right leg is shorter than his left. The associate then advised him the shoe, an insert, the sock, etc., to address recent knee discomfort.
Road Runner Sports turned a product sale into a high-value experience that made customer happy. The company deploys what innovation expert Henry Chesbrough calls “Open Services Innovation.” By working with the runner, plus treadmill, video and shoe insert companies and software engineers, Road Runner Sports fulfilled its value promise of providing the best solution.
At present, Road Runner Sports’ business model is selling shoes and gear with just one value-added service created through the platform

Tom’s- One for one business model:
This is a business model in place with a noble cause. Tom Sells shoes in 50 countries and from a part of its profit, they help the blind people to get their sight in 13 countries.

Business Plan for Zappos:
The Indian market figures about the Zappos’s potential Customer has already been discussed in the document above. Let’s plan the business model for Zappos now:
Business Model Choice:
I would recommend choosing a model of “Own Subsidiary” to Zappos. Below is the example for Rocket International.

Wholly owned subsidiary: Foreign companies can set up wholly owned subsidiary companies in India in form of private companies subject to FDI guidelines. A wholly owned or a subsidiary company has the maximum flexibility to conduct business in India when compared with a liaison or branch office and has following salient features: a. Funding can be done via equity, debt (foreign as well as local) and internal accruals b. Indian transfer pricing regulations apply c. Repatriation of dividends is allowed without approvals
The steps of creating an e-commerce business can be drawn as follows: 1) Picking the right ecommerce platform 2) Creating a bespoke design- already created at original platform, just need to localize this and take forward. 3) An SEO Company in India/International to be hired or given a contract. 4) A hosting company in India/International to be chosen. 5) Market Survey of Brands to be kept on site. 6) Developing vendors and Buy stocks at the maximum possible margin.
Market assessment: 1) Search (Google), Social Networking (Facebook & Yahoo) & News continue to be the TOP categories. 2) Over 75% of online audience under the age of 35 years; one of the youngest online population in the world, Over 39% online population is female 3) Average Transaction Size in E - Retail ~ $20 – 25 4) To selling brands are Puma, adidas, Nike in Sports Category. 5) Major of these brands area working on cash & Carry basis. 10% correction Policy. 6) The market share of the nearest completion is as follows: Partner Name | Website | 2011 Turnover | 2012 Turnover | YoY Growth | Contribution of Sports in 2012 | % of Sports in 2012 | Myntra | www.myntra.com | 15 | 59 | 300% | 28 | 47% | Big Shoe Bazaar | www.yebhi.com | 20 | 28 | 36% | 6 | 20% | Style Genie | www.bestylish.com | 6 | 18 | 220% | 5 | 26% | Jade E Services | www.jabong.com | - | 17 | - | 6 | 39% | Flipkart | www.flipkart.com | 93 | 333 | 260% | 9 | 3% | | | 133 | 455 | 241% | 54 | 12% |

Data source: Comscore
Finance Model:
Proposed model is 50 % debt and similar would be equity .i.e. 50%.
Choice of Source of revenue models: 1) The advertising revenue model-derives its profit by displaying paid advertisements on a Web site. The goal is to convince advertisers that the site has the ability to attract a sizeable viewership, or a viewership that meets a marketing niche sought by the advertiser 2) The subscription revenue model- offer users access to some or all of their content or services for a subscription fee 3) The transaction fee revenue model-Firms that use the transaction fee model derive profit from enabling or executing transactions. For instance, transaction fees are paid to eBay when a seller is successful in auctioning off a product, and e-Trade receives a transaction fee when it executes a stock transaction for a customer 4) The sale revenue model- companies draw profit directly from the sale of goods, information, or services to consumers 5) The affiliate revenue model- sites receive referral fees or a percentage of the revenue from any sales that result from steering business to the affiliate.
Other policies will be as follows: * FREE Shipping: all states of India * FREE Returns: •You can return your purchase for up to 365 days from the purchase date. * Creation of Zappos Customer Loyalty Team (ZCLT) * Customer to pay the minimal logistic cost for a particular product, the cost shall be reimbursed at the time of product delivery. * 2% cash back for the people paying online upfront payment.

Develop detailed profiles of the big 5 players internationally in this segment including their growth estimates, market shares and revenues, as well as strengths and weaknesses.
Shoebuy.com, Inc.
Shoebuy.com sells shoes, apparel, and accessories through its eponymous website. It offers more than 800,000 footwear products from more than 1,000 brands, including adidas, Clarks, ECCO, Johnston & Murphy, New Balance, and NIKE. The company also operates Bagsbuy.com, which markets branded backpacks, purses, luggage, baby gear, and accessories (including belts, hats, and sunglasses). Time-pressed shoppers look to sister site ProductExpress.com, which makes some 10,000 of Shoebuy's footwear, bags, eyewear, and accessories available for free overnight shipping. The company was formed in 1999 by Scott Savitz, and today it is owned by IAC/InterActiveCorp.
Foot Locker, Inc.
Foot Locker leads the pack in the race to capture the biggest share of the global athletic footwear market. The company is a leading retailer of athletic shoes and apparel, with more than 3,320 specialty stores in 20-plus countries in North America and Europe, as well as Australia and New Zealand. Its 1,900-store namesake Foot Locker chain is the #1 seller of name-brand (NIKE) athletic footwear in the US. The company also operates stores under the Lady Foot Locker, Kids Foot Locker, Footaction, Champs Sports, and CCS banners. In addition to its bricks-and-mortar business, Foot Locker markets sports gear through its direct-to-customer unit, which consists of catalog retailer Eastbay and Footlocker.com.
J. C. Penney Corporation, Inc.
A century-old name in retailing, J. C. Penney is reinventing itself to modernize its iconic but sagging department store business. The company's chain of some 1,100 JCPenney department stores in the US and Puerto Rico has found itself squeezed between more upscale competitors (Macy's) and major discounters (Kohls, Target, Wal-Mart). There are 300-plus Sephora shops inside JCPenney locations, and specialty menswear is available at Foundry Big & Tall Supply stores. Once one of the nation's top catalog operators, Penney has exited the catalog business and is expanding its e-commerce presence. J. C. Penney Corp. is a subsidiary of holding company J. C. Penney Company (created in 2002), which is publicly traded.
Dsw.com
DSW Shoes mainly sells shoes, all types of shoes for women, men and kids. They carry name brand shoes, boots and sandals for every category including:
Shoes for women: All types of sandals, flats, pumps, heels, boots, clogs, casuals, sports casual, comfort, sneakers, athletic, work and safety and slippers.
Shoes for men: Dress, casual, sneakers, athletic, sport casual, comfort, boots, work and safety and slippers. * Boot Shop for men and women. * Shoes for kids, teens and toddlers. * Handbags
DSW Shoes sells hundreds of name brands to choose from online or at one of their retail stores.
Spartoo.com
Spartoo is a European online retailer of shoes and footwear.
Spartoo.com is the European leader in internet footwear sales with over 600 000 regular customers and over 4 million unique visitors (Nielsen, November 2009). In a European market estimated at over 50 billion, Spartoo.com has seen its turnover multiply by 70 over the past three years and has recently been nominated amongst the fastest growing companies in Europe by GP Bullhound Media Momentum.
Spartoo operates in France, Belgium, Luxembourg, the UK, and Italy.

References: www.hoovers.com www.wikepdia.org http://www.crunchbase.com/company/spartoo http://www.plantescompany.com/blog/business-model-innovation-best-practices/more-than-running-shoes-%E2%80%93-a-business-model-innovation-best-buy-should-model/ http://www.toms.com/our-movement/l http://www.smallbusinesscomputing.com/emarketing/14-essential-steps-to-launching-an-ecommerce-business.html http://www.businessweek.com/articles/2012-08-23/shoes-rule-when-it-comes-to-store-profits http://www.practicalecommerce.com/blogs/post/840-eCommerce-Business-Valuation