Crocs snaps back from feared death roll

Crocs' clogs have been part of the fashion landscape since 2002 despite some tough times. File photo / NZ Herald

Crocs' clogs have been part of the fashion landscape since 2002 despite some tough times. Picture / Bloomberg

The rise of Crocs, the retailer of brightly-coloured beachwear foam-resin clogs, was simply meteoric. Around the time of its public offering on the Nasdaq at US$21 ($27) in early February 2006, Crocs was adored by celebrities, including the actors Jack Nicholson and Ben Affleck.

Its shares soared to US$75, it went on an acquisition spree and launched in countless countries.

But then the wheels started to come off in a similarly spectacular fashion. Shares in Crocs, founded in 2002 and which also designs and makes its shoes, slumped as low as US79c in November 2008 - 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 jnr 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 British consumer spending, Crocs says it has delivered like-for-like sales growth in Britain so far this year, boosted by an increasingly diverse product offer including sneakers, gumboots and its trademark clogs.

John McCarvel, chief executive since March 2010, pulled no punches in describing how the group lost its way. He said: "We did not stay in control of the business at times."

McCarvel, who 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, but when that 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."

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. Crocs' products are now sold in fewer than 300 Hallmark outlets in its home market, against 4200 in 2007.

Crocs has also strengthened its own retail offer. Globally, it now has about 700 stores, including 400 company-owned shops and 300 run by franchisees. 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. Crocs is now selling sneakers, translucent shoes for children and "tone" shoes with a curved sole that provide a rocker-effect that encourages key muscle activity.

Whatever the strategy at Crocs, it seems to be working. Over the year to 31 December 2010, Crocs grew net income to US$67.7 million, compared with a net loss of US$42.1 million the previous year. It grew strongly in the Americas and Asia, while Europe was up by 21 per cent to US$127.7m.

Scott Lucas, the Britain and Ireland country manger at Crocs, was bullish and said pre-booked orders are "significantly up".

After launching in Britain in 2005, Crocs now has five retail shops there and sells its products through 650 stockists, including John Lewis.

Despite a long series of British retailers posting woeful trading figures, 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 region's 800 million consumers.

Crocs is also powering ahead in other territories, as shown by its fastest-growing country Brazil - which went from revenues of US$8 million in 2009 to US$38 million in 2010.

McCarvel, who had been chief operating officer at Crocs before taking the helm, now appears to have a very different challenge to 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 5000 colours to a footwear brand that is all about comfort, colour and fun."

- INDEPENDENT