Plastic fantastic: the croc snaps back
The former 'one-trick pony' is back in profit with a diversified range, says James Thompson
Tuesday 05 April 2011
After it was founded in 2002, the rise of Crocs, the retailer of brightly coloured beachwear foam-resin clogs, was simply meteoric. Around the time of its initial public offering on the Nasdaq at $21 in early February 2006, Crocs was adored by celebrities, including the actors Jack Nicholson and Ben Affleck, and the masses. Its shares soared to $75, it went on an acquisition spree and launched in countless countries.
But then the wheels started to come off the Crocs bandwagon in a similarly spectacular fashion. Shares in Crocs, which also designs and makes its shoes, slumped as low as 79 cents in November 2008 and it came close to becoming extinct.
In a near-death roll befitting its name, Crocs was hit by an ill-advised and rapid expansion at the same time as consumers tired of its appeal, which had given birth to a plethora of lookalike products. But Crocs, whose founder George Boedecker Jr originally developed it as a spa shoe, is now back in business and last year delivered four profitable quarters for the first time since 2007. And despite the slowdown in UK consumer spending this year, Crocs says it has delivered like-for-like sales growth in the UK so far this year, boosted by an increasingly diverse product offer including sneakers, Wellington boots and its trademark clogs.
John McCarvel, the chief executive of Crocs since March 2010, pulls no punches in describing how the group lost its way. He said: "We did not stay in control of the business at times."
Mr McCarvel, who first started working with Crocs as a consultant in 2004, added: "Greed drives orders and sales and you think there is no end to consumer demand and guess what happens? Consumer demand goes away, you have got over-inventory and you have a lot of product on order and so what you do with it, you just liquidate it any way you can or want." The company was particularly bitten by partners in the US cancelling orders.
To arrest its decline, Crocs embarked on a huge shift in its distribution away from value chains and non-fashion retailers, such as the huge greeting card and gift chain Hallmark in the US, to more upmarket fashion and footwear partners. For example, Crocs' products are now sold in fewer than 300 Hallmark outlets in its home market, compared with 4,200 in 2007.
Crocs has also driven its recovery by strengthening its own retail offer. Globally, Crocs now has about 700 retail stores, including 400 company-owned shops and 300 run by franchise partners. This gives it more control over how the brand is sold and marketed, while company-controlled shops deliver better margins.
However, arguably the most important step in its recovery has been Crocs diversifying its offer, dampening the fire of critics who called it a "one-trick pony" with its foam-resin clogs. Of its new ranges, Crocs is selling sneakers, translucent shoes for children and "tone" shoes, which have a curved sole that provide a rocker-effect that encourages key muscle activity. Crocs also recently launched a 249-gram sneaker.
Mr McCarvel says: "The sneaker lines open up a whole new channel. Men may not want to wear that clog outside of the house." Whatever the strategy at Crocs, it seems to be working. Over the year to 31 December 2010, Crocs grew net income to $67.7m, compared with a net loss of $42.1m the previous year. It grew strongly in the Americas and Asia, while Europe was up by 21 per cent to $127.7m.
Scott Lucas, the UK and Ireland country manger at Crocs, was bullish about its recent performance and said that pre-booked orders for spring and summer are "significantly up".
After launching in the UK in 2005, Crocs now has five retail shops in the UK and sells its products through 650 stockists, including Schuh, John Lewis and Next. Despite a long series of UK retailers posting woeful trading figures so far this year, Mr Lucas says: "We are tending to buck the trend. All of our retailers we have grown with over the past 12 to 18 months have seen significant increases with Crocs selling through."
In terms of its global expansion, Mr McCarvel believes the opportunity stretching from Europe to Russia is "huge" if Crocs could capture just 1 per cent of the regions 800 million consumers. Crocs is also powering ahead in other territories, as shown by its fastest-growing country Brazil – which went from revenues of $8m in 2009 to $38m in 2010.
Mr McCarvel, who had been chief operating officer at Crocs before taking the helm, now appears to have a very different challenge to that he faced in the dark years of 2008 and 2009.
He explains: "The biggest challenge that we have is that 41 per cent of our business in the first half of the year is all [from] new products. It is this rapid evolution from this idea that we only sell clogs in 5,000 colours to a footwear brand that is all about comfort, colour and fun."
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