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The "Holacracy" of Zappos and the Future of Zappos Couture

Zappos's executive team discusses the company's new management structure and the future of their higher-end fashion division, Zappos Couture.

In the 15 years since Zappos was founded in San Francisco, the online retailer has gone from making "minimal" sales (in 1999) to an impressive $2.16 billion in revenue in 2011. Last month at C2MTL. a business conference focusing on commerce and creativity (hence the C2) in Montreal that is something like TED meets Cirque du Soleil, Zappos CEO Tony Hsieh said that the company owes its success to being “a customer service company that just happens to sell shoes.” Instead of putting money in marketing and advertising, Zappos invests those dollars in customer service and customer experience, which in turn drives customers to keep shopping at Zappos and to spread the word to their friends and families.

Not only is Zappos — which is based in Las Vegas and still operates independently from Amazon, which acquired it for $928 million in 2009 — a company that makes billions in revenue, it also ranked 31 on Fortune’s 2013 list of Best Companies to Work For. Hsieh said that's because of the four Cs: Clothing, Customer Service, Company Culture and Community. “Our number one priority is company culture, and our whole belief is that if we get the culture right, then most of the other stuff, like delivering great customer service, or building a long-term enduring brand in business, will just be a natural bi-product of that,” said Hsieh.

“Customers have told us that when they get that perfect outfit or pair of shoes, that Zappos is happiness in a box,” said Hsieh. With billions in revenue, a number of urban development projects, and offshoot businesses like Zappos Couture, how will Zappos continue its mammoth growth?

Hsieh said the most important thing is encouraging company culture, and no, not through the free massages and in-house chefs that tech companies are known for having in house. “Company culture is about building personal relationships and encouraging personal relationships,” he said. “It’s taking the team to go hiking or camping.”

A New Management Structure

We also asked Hsieh about holacracy, a new approach to running a business that concentrates on purposeful organization over a more traditional hierarchy.

“It’s a hierarchy around purpose, as opposed to a hierarchy around people, and the company has a purpose, and then to accomplish that, there’s these things called sub-circles which has a sub-purpose, and so on, and so part of the difference is, it’s about having employees fill roles where the roles have certain accountabilities and purpose, but it’s up to the employee or the role filler to figure out how to best to do that,” Hsieh said in a followup interview with Fashionista. “The traditional model is the manager is more managing for control purposes, what you need to do, and this is how you need to do it, where as in a holacracy these are the things that you’re accountable for, and it’s up to you how to figure out the best way to do it.”

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At the moment, only 25 percent of the company is actively participating in holacracy, but Hsieh said it should reach 100 percent by the end of the year, and that it would take six months before employees get the hang of it. “It’s kind of like playing poker,” said Hsieh. “It’s easy to learn the rules, but to actually play it well it will take a while.”

What's Next for Zappos Couture

As for Zappos Couture, Zappos’s luxury e-commerce site that doesn’t actually sell any couture, Hsieh said he wasn’t too hands-on with that division, but noted that it's planning on adding additional brands.

“Two designers that I’m very proud of that I bought to Zappos are Private Stock and Public School,” Zappos Couture Artistic Director André Leon Talley, who runs Zappos Couture’s editorial component ZeeCee, told Fashionista a few weeks ago at an event for the e-commerce site in New York. “We just got them, for the fall season. I’m bringing something new and something different.”

“New” and “different” are definitely the key words, considering that Zappos Couture has kept it safe by staying away from fashion-forward brands and instead carrying big-name luxury labels like Cartier, Fendi and Marc Jacobs. While there aren't too many up-and-coming labels to come in the near future, Melissa Costa, who works in marketing at Zappos Couture, said the division is continuing to grow its designer stable. “We look forward to watching Zappos Couture continue to grow its following of satisfied customers, as well as its inventory and assortment of designer footwear, bags, apparel and accessories,” she wrote in an email. “Some of the newest brands to our portfolio include Diane von Furstenberg, Zac Posen, Alexis Bittar, Helmut Lang, Oscar De La Renta, Vera Wang and Philipp Plein.”

One of the drawbacks of Zappos Couture is that its website is far more difficult to navigate than competitors like Net-a-Porter or Farfetch. Costa said Zappos Couture's strength is in its personalization capabilities. “It is as close to personalized and one-on-one as you could get to the ateliers in Paris….via the Internet of course.” We can’t wait to see what happens come fall. 

Above: Tony Zapos speaking at C2MTL. Photo: Allen McEachern/C2MTL