This makes for a great "wait and see" item for 2010

As long as we're speculating, here is my two cents worth.

Fortunately, Zappos has created such volume very quickly that they can call most shoe manufacturers, have them send them the whole Fall line (in massive size depth), sell through it, then either send it back or have the manufacturer absorb the markdowns to clean the line at the end of the season. This is referred to in retail as having inventory on wheels. The retailer has no exposure to markdowns. I can't confirm this, but I would be you that in most cases, Zappos only pays for the shoes they sold at the end of the season, so they have nothing invested in these shoes. As I see it, that is they only way they have made any money at all. This is the biggest advantage to doing large volume with a given brand of shoes. You can negotiate such a deal with the manufacturer.

Closeouts are another huge benefit of volume. If Brand Z is closing out a clog in 3 months, or New Balance closing out a shoe mid season like they are so famous for doing, these manufacturers will offer their entire inventory of the item to Zappos at closeout prices. They buy them then mark them down just enough to be a little less than everyone else and sell them until it is announced that the shoe is closed out, then they send them to 6pm and sell them at half price and still make decent margins on those shoes.

Early on, Nick Swinmurn hired some very smart and saavy shoe buyers away from big department stores (Macy's maybe, I forget). He soon gave them 400 Million in volume as a negotiating tool. I really think the buying advantages that Zappos has (over Mom and Pop shoe stores, or even over several department stores) is the key to what modest profitability they have maintained.

I think Hseih and his culture were bad for Zappos. He is no doubt a master promoter, but I really think there were avenues Zappos could have gone down that would secure profitability for them down the road, like manufacturing their own brand(s). With the reach they have, they could use their ability to create a buzz around a product where they control all facets and could make great margin and offer a superb product. I believe Swinmurn went down that path with apparel. Not sure how it worked out for him.