Zappos Gets High Marks for Approach to Layoffs
By Tom Ryan
Known for its extensive
vetting process when hiring people, Zappos is
now earning praise for how it fires people. Beyond a generous severance
package, the shoe e-tailer is being commended for the comprehensive way
the layoffs were explained to workers.
The layoffs announced
in early November covered eight percent of Zappos’ staff. Affected employees
are being paid through the end of the year, and longer for those working
three or more years. The company is also reimbursing the cost of COBRA
– the short-term health insurance for people between jobs – for six
months for those affected.
In a lengthy letter to
employees that was posted on his blog, CEO Tony Hsiesh called
the layoffs "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."
He then expounded on
the reasons behind the layoffs. Investor Sequoia Capital on October 7 held
a meeting for all its portfolio companies and urged them to
"cut expenses as much as possible and get to profitability and cash
flow positive as soon as possible" in order to prepare for tough times.
He then pointed to an
article by well-known internet blogger and tech
exec Jason Calacanis about avoiding the "death
spiral" in difficult times.
He finally noted that Zappos’
revenues will reach about $1 billion this year, up from $840 million in
2007, but short of the more than $1 billion expected.
"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," wrote Mr. Hsiesh.
He then reassured employees
that "we’re in much better position than many other companies" and
still growing profitably. The strong financial position enabled the generous
severance packages that will "actually increase, not decrease" costs
for the year.
Finally, Mr. Hsiesh reassured
that although slowing, e-commerce is still growing and Zappos still
expects to outpace other e-tailers in 2009.
Many customers responded
positively to the blog entry. Another section
of the website was full of Twitter entries from Zappos’ employees expressing sorrow for co-workers who were
gone and gratitude for the ones still there.
On
November 12, another blog entry detailed how
another downsizing in the early years forced Zappos to focus on existing customers rather than new ones.
This transformed Zappos "from being just about shoes
to a company focused on customer service and company culture."
"Moving
forward, we have a similar opportunity," Mr. Hsiesh wrote. "We
have the opportunity to make our culture stronger than ever before."
Discussion Questions:
What’s the best way to conduct layoffs with the least negative impact
on the morale of employees who are left?
Smart move by a smart retailer at a difficult time (especially during the holiday season). Across industries, plenty of workers have been laid off, and it’s likely we’ll see plenty more layoffs in the future. Morale always takes a hit, but Zappos’ efforts prove there’s another path companies can take when laying off staff. Unfortunately, it’s unlikely we’ll see many companies taking this route because it’s a corporate culture that doesn’t exist across many companies.
That said, I also think there’s more at play here than employee morale. There’s also an element of being a good corporate citizen. Technology and word of mouth make companies’ internal operations virtually transparent. Zappos conducted it’s lay offs in a way that proves beyond doubt that they’re a good member of the community, that staff are more than just numbers, that they actually care. In the long term, the good feelings generated by these actions among former employees, shoppers, future employees, industry watchers, and others may return huge dividends.
Zappos is an extraordinary retailer. They continue to surprise me. Many entrepreneurial leaders start with a vision of what they want for the culture of their company. As they grow, I have observed that the vision begins to take a back seat to the perceived realities of most businesses.
It is very heartening to see that this company knows how important their people are to their business model. How easy it would be for management’s mindset to migrate from customer service to cost cutting–especially in the Zappos model.
I have been fortunate that I have never had to engineer mass layoffs, so my opinion may be more academic than experiential. But, I must agree with my colleagues in that whatever is done, it must show that people are treated with respect and value. There is a message in any actions involving employees. The employer must understand the message being sent.
Zappos’ message to those being laid off was that “We wish we didn’t have to do it. You are important to this company. We will take care of you the best we can, but we didn’t have any business choice.” Perhaps as valuable is Zappos’ message to the employees that did not get laid off. “You are important. You are an asset. We care about you personally. In the event bad things happen, we will do our best to ease the pain.” Imagine the loyalty that message engenders.
I agree with Janet. The most important thing is to tell the truth. Employees have a lot of understanding about how business works. Over the years, I’ve been amazed at how some strategy consulting firms can build tremendous loyalty in their alumni base despite firing (“counseling out”) a good number of those alumni. It pays huge dividends in the long term, creating a natural network of potential clients, advocates, and business partners.
It is easy to walk the talk when things are going well; it is another thing to walk the talk when things are not going as well.
Zappos is becoming the next Southwest Airlines of the HR community. A company that says we treat our employees the way we want our employees to treat our customers.
Yes, bad things happen to good people and bad things happen to good companies. But it is the way that you deal with the bad things that makes all of the difference.
I am sure that 1. Zappo will survive. 2. Their culture will be stronger. 3. People will keep writing about them. 4. They will continue to communicate with their employees, vendors and customers.
Their sales may be below their goal but I would bet money on it that the percentage of increase will be ahead of their competition.
Layoffs are always a difficult issue to handle. It’s not just the cost-cutting involved, it has far reaching effects within the company. A good example of lack of strategy is Circuit City. A year and a half ago, they turfed most of their senior associates and look where they are now.
Zappos has always had a positive engagement with its workers. Being up front and honest with employees will go a long way towards maintaining morale and productivity. Communication is the building block towards getting people on board with an idea.
There is no “good” way to fire people; however Zappos is taking a thoughtful approach. Employers, especially retailers and product vendors, need to keep in mind that not only are you firing an employee, but also a U.S. consumer and his or her family.
Kudos to Zappos for continuing to act and run like a different company even in bad times. It shows their culture is more than skin deep. It also makes it possible for them to hire back old employees when times are good (because they took care of them on the way out). Further, they’ve kept positive buzz and WOM which is critical to their brand image overall.
Most companies don’t seem to think about the culture they create this deeply and most people dread layoffs so much they just want to “rip the band-aid off” vs. spend time with people as people in what is an awkward and personally devastating time. Zappos provides an object lesson in how to lay off people without devaluing them as human beings–let’s hope others decide to follow suit.
It’s nice to see a company treat its employees like assets rather than liabilities. I think many others should follow suite.
I have to wonder though, how the cutbacks are affecting CEO Tony Hsieh’s salary.
Communication goes a long way here. I think the worst layoff situation is when employees are shocked. That typically happens when leadership has not shared with the employees the challenges that the company is facing. Make sure all of the employees are aware of the challenges of the market and get them involved in addressing the issues. Then if the market does not turn and layoffs are necessary, no one should be surprised.
Honesty is the best policy. Most people understand the basics of business. The basic money management is similar to running a household. If companies explain bad situations in a way that makes sense, people will respond more positively. In addition, their “planning in advance” does enable them to be more generous with the newly unemployed. That goes a long way towards maintaining morale. Employees feel better about working for a company that they trust.
Bottom line is, associates appreciate and need candid and regular communication about the status of the company. The more informed associates are and the more they feel that they are a part of the process, the easier the process. Let them see the details and the thought process. For those still at the company, help them see why this will position the company for long term stability, profitability and ultimately growth.
By now, layoffs should never be a complete shock at any company and helping affected associates through the transition will reflect positively on the associates sticking around.
Since its founding, Zappos has consistently operated in a transparent, authentic manner with both employees and customers. This is a fine example of a company firmly grounded in its values. It has the courage to address difficult issues in an honest manner, coupled with the solid business acumen of forecasting its resource needs and cash flow position in a proactive manner. Online and offline retailers alike would be wise to learn from the Zappos manner in handling layoffs–this is the gold standard in employee stewardship and corporate responsibility.
Sounds like a dose of Novocain before the layoffs. Zappo’s may have been too generous and it might have been a slap in the face to their investors. Still a nice gesture. If there is a good way to lay off workers, then Zappos has found it.
But does it really make good business sense? How does paying workers through the end of the year benefit the investors? Even if Zappos had them all tossed out on their rears by security with no warning or severance, as long as they keep delivering my shoes at my door the next day as usual, that’s what will keep me as a customer. Consumers usually couldn’t care less about minor personnel issues behind the scenes.
Picture it this way:
Mary the stock handler gets called into the manager’s office.
The manager says, “I’m terribly sorry Mary, but after you’ve been with us for over ten years, and barely making sustainable wages, with no benefits and lousy hours, part time at that, we’re going to have to lay you off. Sales are just not enough to allow us to keep you on. But as a consolation, we’ll let you use your employee discount until the end of the week”
Mary says, “But it’s the Christmas season, and my husband got laid off too, what are we going to do?”
Exactly how do you get a morale booster out of that?
Zappos isn’t your standard brick and mortar business, and they pay much better than the majority of retailers do. They also probably give more scheduled hours to employees as well.
It is very difficult for a low wage earner getting twenty to twenty five hours a week to get by as it is. To lose even what little they have, and believe one can boost a companies morale at the same time just doesn’t make sense.
Let’s see what would happen if the big chains, like Walmart, Target, Sears and so on started widespread layoffs, shall we?
I think Zappos should feel proud of the way they handled this situation. I know of many of my friends who would have welcomed being treated the way Zappos treated their associates. I’m sure if things improve, these affected people will be asked to rejoin Zappos.
It is high time that companies treat their employees with the respect and honesty that the company heads expect from their employees themselves. Yes, honesty is and always will be the best policy. Showing a little empathy to an employee being laid off would do all companies well. Good for Zappos. Their actions will strengthen their remaining employees’ resolve in seeing these difficult times through. We should all copy their lead.