Seven Lessons From The Failure Of Shoes.com

When I interviewed serial entrepreneur Roger Hardy nine months ago for our Trep Talks series, the CEO of Vancouver-based Shoes.com was brimming with optimism. His first company, online contact lens seller Coastal.com, sold to Essilor, a French optical company, for $450 million, and Hardy made more than $100 million on the deal. While he was still at Coastal in 2012, colleague Sean Clark persuaded him to make a seed investment in a Canadian startup, SHOEme.com. After Coastal sold in 2014 and Hardy joined SHOEme full-time, he and Clark raised $30 million and spent a chunk of that buying the URL for US footwear ecommerce site Shoes.com. They also bought onlineshoes.com, another U.S. site.

The Canadian site did well but Hardy was most bullish on his U.S. business, which accounted for more than three quarters of 2015 company revenue of $176 million. How could he dream of competing with mega-popular Amazon-owned Zappos? Hardy’s answer: “I don’t think of us as competing with Zappos at all. We’re focused on the outdoor, athletic and comfort market.” But Zappos sells plenty of athletic and comfort shoes, I pointed out. In response, Hardy touted Shoes.com’s “proprietary, personalized shopping experience,” powered by an artificial intelligence shopping tool. When I told Hardy I’d tried the tool and found it crude, he said, “Crude is a good word.”

It seems the Shoes.com experiment was crude to the point of failure. In late January, the company announced it was going out of business, only paying staff for the few remaining days in the month. In early February, Footwear News reported that Shoes.com had declared bankruptcy, with debts serious enough to raise questions about whether all its creditors, including customers with outstanding orders, would ever be paid. Among them: Wells Fargo, who is owed $4 million and has first dibs on company assets.

Hardy has not returned a text message, email and call to his office at Hardy Capital Partners in Vancouver. But combing through clips and interviewing three retail and ecommerce analysts, plus the owner of Richer-Poorer, a California socks and underwear company Shoes.com first bought and then sold back to the co-founders, I’ve gleaned seven lessons Hardy should learn from Shoes.com’s failure.

1. Just because you’ve started and sold a successful business, doesn’t mean you can do it again. Coastal.com was a commodity business. By contrast, says Vancouver retail strategist David Ian Gray of DIG360, shoes are a fashion item, and demand a different kind of marketing expertise. Hardy and Clark had zero fashion experience, nor did anyone on their executive team, save one late hire, Nordstrom alum Bryan Galipeau, who joined Shoes.com as head of acquisitions last year.
2. Execution matters. Retail strategist Gray says he noticed mounting complaints from Shoes.com customers last year about botched orders, like shipments that contained two right shoes.
3. Satisfying customers is more important than fancy technology. Customers with botched orders then met with frustration when they tried to reach a customer service rep. Vancouver Sun writer Bethany Lindsay, who published an investigative piece on Shoes.com in September, reported waiting on hold for 48 minutes. Shoes.com had cut back customer service from 18 to 12 hours a day and fired more than 30 reps, according to the Sun.
4. It’s near-impossible to compete with Zappos/Amazon. Free shipping, free returns, excellent 24-hour customer service with no wait times, vast selection, algorithms that recommend similar products. Hardy’s answer was a clumsy product recommendation tool. Says Richer-Poorer CEO Iva Pawling: “Nobody is going to beat Amazon at being Amazon.”
5. Running a profitable ecommerce business in Canada is tough. Zappos stopped selling in Canada in 2011 because shipping was too costly in a country with a bigger land mass than the U.S. and a population smaller than California’s. “You lose money on free shipping and free returns up here,” says Gray.
6. Don’t ignore omnichannel competitors. Suthamie Poologasingham, senior advisor for ecommerce and omnichannel at J.C. Williams Group in Toronto, says that beyond Zappos, Shoes.com was also competing with the likes of Nordstrom and Montreal-based Aldo, the massively profitable shoemaker that sells its branded shoes in more than 2,000 brick and mortar stores as well as online. (Founder Aldo Bensadoun is on the Forbes billionaire list, at $1.01 billion). “Stores can be fulfillment points,” says Poologasingham. Shoes.com’s plans to add to its two brick-and-mortar stores foundered as its financial problems mounted.
7. Your story needs to make sense. The brand Shoes.com connotes an online store that sells a huge selection, not just the athletic and comfort brands Hardy said he wanted to emphasize. “What’s their story, other than, ‘We’re going to be like Zappos?’” says Gray.