Zappos.com laying off 8 percent of workers

Kyle B. Hansen

Outside Zappos.com’s Henderson headquarters.

By Jeremy Twitchell

Published Thursday, Nov. 6, 2008 | 3:51 p.m.

Updated Thursday, Nov. 6, 2008 | 5:19 p.m.

Zappos.com, one of Henderson's fastest growing companies, announced Thursday that it had laid off 8 percent of its 1,300-member workforce and plans to close retail locations in Nevada and Kentucky.

It was not immediately clear how many local workers were laid off or which stores would be closed. Zappos operates three outlet stores in the Las Vegas Valley, including one in Henderson near the Galleria at Sunset mall.

The online shoe retailer, which is based in Green Valley and recently expanded its headquarters campus, has been hailed for its business model and meteoric rise to success, starting from scratch in 1999 and reaching $840 million in gross sales in 2007.

But as the company's sales growth has slowed this year, Zappos CEO Tony Hsieh said the layoffs became necessary, despite how painful they were for a tight-knit company that buys its employees lunch each day and has a dodgeball room in its corporate headquarters.

"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," Hsieh wrote in an e-mail to employees that he also posted on the company's blog.

"I know that many tears were shed today, both by laid-off and non-laid-off employees alike," he continued. "Given our family culture, our layoffs are much tougher emotionally than they would be at many other companies."

Company officials declined to comment further on the announcement. But one section of the company's Web site, which allows its employees to use social networking site Twitter to keep in touch with one another and update each other about what they're doing at the moment, was full of employees expressing sorrow for co-workers who were gone and gratitude for the ones still there.

In his letter, Hsieh said Zappos had projected to break the $1 billion mark in sales in 2008, and though sales are still expected to be higher than in 2007, he said the company will not reach its goal and that investors last month directed Zappos to begin cutting costs.

Hsieh said that laid-off employees will be paid through the end of the year, and employees who have been with the company for three or more years will receive additional pay. He also said Zappos will pay for six months of health coverage for all laid-off employees.

"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," Hsieh wrote. "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."

Despite the downturn, Hsieh said he remained confident in Zappos' long-term profitability as online sales continue to grow overall and Zappos strengthens its position as market leader in online shoe retail.

"For the rest of 2008 as well as for 2009, we anticipate continuing to grow year over year," he said. "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."

Jeremy Twitchell can be reached at 990-8928 or jeremy.twitchell@hbcpub.com.