Crocs has taken a bite out of the footwear industry. Its colorful slip-on shoes have gained popularity in the watersports arena and in mainstream fashion. Branded as Crocs, its shoes are made of proprietary closed-cell resin and designed for men, women, and children; Jibbitz are their decorative add-on charms. The company sells its products in more than 90 countries and operates manufacturing facilities in Mexico, Italy, and China and boasts distribution centers worldwide. Crocs sells through retailers such as Dillard's, Nordstrom, and Dick's Sporting Goods, as well as through about 180 of its own stores and kiosks worldwide. Crocs has expanded on both domestic and international fronts and through acquisitions.
For the first time in company history, Crocs reached $1 billion in revenue in 2011. Despite a continued difficult selling environment industrywide, the footwear maker boosted 2011 sales more than 26%, compared to the same period in 2010. The company attributes the spike to a 13% increase in average selling price for its shoes and a 12% rise in global footwear unit sales. As the company works to transform its brand from what the company calls its clog silhouette to an all-season footwear brand, Crocs upped wholesale sales 24% in 2011 vs. 2010, primarily driven by strong demand in all three operating segments, particularly Asia. Retail revenue rose nearly 32% by opening new stores. Additionally, Internet sales increased 28%, thanks to demand in the Americas and Europe.
After a multiyear restructuring, Crocs has heated up its licensing efforts. The company's products fall into four categories: Core-Comfort, Active, Casual, and Style. The footwear maker partners with the likes of Disney, Marvel, and Viacom, to sell Crocs-licensed shoes and Jibbitz-branded shoe charms. In keeping with its strategy to extend the reach of its brand, Crocs in 2011 began to license certain trademarks to third parties.
The company's road to $1 billion in sales has been rocky. Changing fashion tastes and the recession took a toll on Crocs. The shoe maker's aggressive expansion followed by the untimely economic downturn in 2008 saddled Crocs with growing debt. The recession also put the brakes on the revenue momentum the company had spent several years to build.
In an effort to react quickly as the nation headed toward a deeper downturn, Crocs in 2008 implemented a turnaround that continued through 2010. As part of its strategy, the shoe maker consolidated its global manufacturing facilities and distribution centers, reduced warehouse and office space, cut its global workforce by 33%, sold off discontinued inventories, and reduced other discretionary spending. Crocs, in turn, began to see improved year-over-year gross margins as early as 2009.
The company continues to look for ways to cut costs and pay off its debt. It found an answer to its woes through an initial deal inked in late 2009 with PNC Bank, a unit of the PNC Financial Services Group. The agreement, valued at about $30 million in revolving loans, was set to mature in September 2012. Subsequently, Crocs in December 2011 entered an amended and restated credit agreement with PNC that replaced its line of credit. The agreement provides for a $70 million revolving credit facility that can be used for working capital, capital expenditures, acquisitions, and stock repurchases; it's set to mature by the end of 2016.
Crocs in 2011 made 21% of its products and relied on third-party manufacturers in China and Bosnia to make the rest. For many years, Crocs has been working with its primary third-party manufacturers in China without written supply agreements. Crocs boasts an extensive distribution arm, too. It operates distribution centers in the US, Australia, Finland, the Netherlands, India, Japan, Mexico, Shanghai, and Singapore. And its third-party distribution locations reach outside the US in Brazil, Dubai, Hong Kong, Korea, and Taiwan.
Overall, Crocs' shoe business accounts for 96% of sales (up from 2008's 92% of sales). Crocs chases after adults, rather than children, for their deeper pockets. To reach into the accessories and sports businesses, Crocs looks for add-on products and technologies. It acquired family-run Jibbitz, which made items to decorate Crocs clogs, for about $10 million. Crocs also bought EXO Italia, maker of ethylene vinyl acetate-based finished products. The purchase gave Crocs the tools to compete in the popular performance footwear market against rivals the likes of Teva. – less