5 looming questions about the Amazon-Zappos deal

Summary:Amazon's acquisition of Zappos is notable on a few fronts. The combination is largely complementary, but there are a few questions hanging.

Amazon's acquisition of Zappos is notable on a few fronts. The combination is largely complementary, but there are a few questions hanging. With any luck there will be a few answers on Amazon's second quarter earnings conference call.

Among the questions about Amazon's $847 million purchase of Zappos (Techmeme):

Will Endless.com end? Amazon has its own shoe store in Endless.com and analysts estimate that it is losing money. Ultimately, analysts reckon that Amazon will put an end to Endless.com. Cowen analyst Jim Friedland writes:

It is likely Amazon will eventually shut down Endless.com, its late-to-market Zappos competitor, which we believe is loss making.

Can Amazon lower Zappos shipping costs? Analysts say that Zappos had razor-thin profit margins due to its free shipping both ways. In addition, consumers would buy two pair of shoes and send the one that didn't fit back. That adds up. Goldman Sachs James Mitchell notes:

Amazon can use its wider fulfillment network and better delivery terms to reduce Zappos’ shipping costs, which we believe are onerous due to many customers purchasing two pairs of shoes and then returning the less-well fitting at Zappos’ expense. Assuming Zappos ships around 10 million pairs of shoes out and back per year, then Amazon reducing costs per shipment by $1 would improve Zappos’ earnings by 50%.

Also see Marshall Kirkpatrick's take on the Amazon-Zappos supply chain at ReadWriteWeb.

Will Zappos customers boost Amazon Prime subscriptions? Analysts expect Amazon to target Zappos' 8 million customers to become Amazon Prime subscribers. It'll be interesting to see whether there is any overlap between Amazon Prime customers and consumers from Zappos.

Can Zappos boost the average ticket size for Amazon? With Zappos, Amazon becomes a much larger shoe and apparel player. Mitchell says that Zappos customers have a $130 average order value compared to Amazon's $22. Over time, Zappos could boost Amazon's overall number.

Will Zappos management stick around? CEO Tony Hsieh and the gang are staying put, but a few years from now may be an entirely different story. Tom Steinert-Threlkeld expects Hseih to be gone in 18 months. That may be a safe bet. Or not. It will depend on how independent Zappos remains over time.

Also see:

Topics: Banking, Amazon

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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