Zappos, the online shoe and clothing retailer, is known for its exceptional customer service and innovative culture. But how much does Zappos invest in research and development (R&D) to stay ahead of the competition and create new products and services?
In this article, we will compare Zappos’ R&D expenditure as a percentage of revenue with the average R&D expenditure of other UK and US industries based on the latest available data. We will also explore some of the benefits and challenges of investing in R&D for online retailers.
What is R&D expenditure, and why is it important?
R&D expenditure refers to the money spent by a company on activities that aim to create new or improved products, processes, services or technologies. R&D expenditure can be classified into capital expenditure (CAPEX) and operating expenditure (OPEX). CAPEX includes fixed assets such as buildings, equipment and software, while OPEX includes salaries, materials, utilities and other costs related to R&D activities.
R&D expenditure is important for companies because it can help them gain a competitive advantage, increase their market share, improve their profitability, enhance their reputation and foster a culture of innovation. R&D expenditure can also generate positive spillovers for society and the economy, such as creating new jobs, boosting productivity, stimulating growth and addressing social and environmental challenges.
How much does Zappos spend on R&D?
Zappos does not disclose its R&D expenditure separately in its financial statements, but it is part of its parent company Amazon’s R&D expenditure. According to Amazon’s annual report for 2020, its total R&D expenditure was $42.7 billion, which represented 12.8% of its net sales of $386.1 billion. This was an increase of 28.6% from its R&D expenditure of $33.2 billion in 2019, representing 12.7% of its net sales of $280.5 billion.
However, Amazon’s R&D expenditure includes spending on various segments such as online stores, physical stores, third-party seller services, subscription services, cloud computing services and other activities. Therefore, isolating Zappos’ R&D expenditure from Amazon’s total R&D expenditure is impossible.
One way to estimate Zappos’ R&D expenditure is to use its revenue as a proxy and apply its industry’s average R&D intensity (R&D expenditure as a percentage of revenue). According to Forbes, Zappos’ revenue was $2 billion in 2019. Assuming that its revenue grew at the same rate as Amazon’s net sales in 2020 (37.6%), we can estimate that Zappos’ revenue was $2.75 billion in 2020.
According to the Office for National Statistics (ONS), the average R&D intensity of the retail trade industry in the UK was 0.4% in 2019. Applying this ratio to Zappos’ estimated revenue in 2020, we can estimate that Zappos’ R&D expenditure was $11 million in 2020.
How does Zappos compare with other industries?
To compare Zappos’ R&D expenditure with other industries, we can use data from the ONS for the UK and Nasdaq for the US. The ONS provides data on gross domestic expenditure on research and development (GERD) by sector of performance for 2019, while Nasdaq provides data on R&D spending as a percentage of revenue by the industry for 2020.
The following table compares Zappos’ estimated R&D intensity with the average R&D intensity of other UK and US industries.
| Industry | UK GERD (% of GDP) | US R&D (% of revenue) |
| Retail trade | 0.4 | 1.3 |
| Information and communication | 1.8 | 12 |
| Manufacturing | 1.5 | 4 |
| Professional, scientific, and technical activities | 1 | 10 |
| Health and social work activities | 0.7 | 14 |
| Education | 0.6 | N/A |
| Construction | 0.2 | N/A |
| Zappos (estimated) | N/A | 0.4 |
The following are some of the benefits and challenges of investing in R&D for online retailers:
Benefits
- Innovation: R&D investment can help online retailers to develop new products and services, improve existing products and services, and reduce costs.
- Customer satisfaction: R&D investment can help online retailers to develop products and services that better meet the needs of their customers.
- Market share: R&D investment can help online retailers to gain a competitive advantage in the market.
- Profitability: R&D investment can help online retailers to increase their profits by developing new products and services that are more profitable.
Challenges
- Cost: R&D investment can be expensive, especially for small and medium-sized online retailers.
- Risk: R&D investment can be risky, as new products and services are not guaranteed to succeed.
- Time: R&D investment can take a long time to generate results, which can be a challenge for online retailers that need to generate results quickly.
Despite the challenges, R&D investment can be a valuable asset for online retailers. By investing in R&D, online retailers can develop new products and services that better meet the needs of their customers, gain a competitive advantage in the market, and increase their profits.