Three friends – Lyndon Duke Hanson, Scott Seamans, and George Boedecker, founded Crocs Inc. in the year 2002 in Colorado, USA. As the firm grew, it acquired Foam Creations in Canada to own manufacturing operations, under the leadership of Ronal Snyder in 2004, and gained sole rights.
Crocs is a designer, manufacturer and retailer of molded, casual footwear for men, women and children. All Crocs footwear feature a proprietary closed-cell resin called ‘Croslite’ that provides the wearer with extreme comfort by taking the shape of the feet of the wearer due to heat. The company boasts the footwear as being ideal for casual use as well as for professional and recreational uses viz. boating, hiking and hospitality. The product is claimed to be lightweight, slip-resistant, and odor-free, and is available in several bright colors.
Crocs shoes are sold across 129 countries and come in 250 styles. The company has also diversified into apparel and accessories. One major acquisition has been of that of Jibbitz show charms, for which the company has also acquired licensing agreements with Disney, Nickelodeon, Warner Bros. and DC Comics.
The case discusses the phenomenal supply chain management of the company that has been a major reason for the success of the company, besides of course the popularity of the shoes. The achievement of an extremely flexible supply chain was the vision of Ronal Snyder, CEO, to meet customer’s demand based on the exact same principle followed by software giants. This supply chain provided Crocs with a competitive advantage in the footwear industry.
Crocs had the highest profit margin in the industry at 56.5% in 2006, considerably higher than that of its competitors. Crocs created a blue ocean by creating differentiation and low costs and breaking out of the red ocean. This resulted in global expansion and quick growth. Profits increased from $10.9million in 2004 to $763.3milion in 2007.
Later in the case study, we will see the Industry Analysis to understand the competitive scenario. This reveals that Nike is the market leader, followed by Adidas.
A look at Porter’s Model shows that consumer’s bargaining power is a major threat in the industry.
We also see the standard manufacturing practices in the industry compared to Crocs’ manufacturing techniques.
The SWOT Analysis gives an understanding of the potential threats and rising opportunities. Customer’s changing tastes and threat of substitutes pose immediate threat to the firm, but it can capitalize on its unique product range and supply chain in order to gain a majority market share.
The global footwear market has grown from $153.2 billion in 2004 to $189.3 billion in 2007. Although the footwear industry is in the maturity stage, it is known that the demand for the product will not decline. Hence, global sales are forecasted to reach $238 billion in 2013. Footwear industry is a highly fragmented market. The industry experiences intensive competition led by major firms such as Nike, Reebok, Adidas, and Converse. Nike is the industry leader, followed by Reebok and Adidas; Nike has a market share of 47%, Reebok – 16% and Adidas – 6%.
Nike is the world’s largest designer and marketer of athletic footwear and apparel. The stores are located over 180 countries. Nike is based in Oregon. It runs its manufacturing operations primarily in Asia. Nike’s footwear accounted for 60% of the company’s total net sales in 1999, after which the firm attempted to become more diversified. Nike’s largest share of sales comes from United States. Nike is one company to have crossed the $5 billion mark. Nike’s target consumers were 18-44 aged people, with six-digit income.
Adidas is in the second position in the global market. It is based in Germany and sourced 97% of its footwear from Asian. Its main market is the Europe region. The firm had only a 3% market share in 2005, but after the acquisition of Reebok in 2006, the share jumped up to 9%. Footwear sales accounted for 45.5% of the total sales for Adidas in 2007. Adidas target slightly young aged, 18-44 and was especially popular among Hispanics and African Americans.
Other competitors include Puma (Germany), New Balance (USA – largest privately held manufacturer), and C&J Clark (UK-based) nearing the $2.0billion mark.
Porter’s Five Forces Model
Threat from Existing Competition
The industry is characterized by easy entry and exit. The market is competitive, with the industry being described as red ocean, often. The market has reached maturity stage, and the growth is slow-paced. Firms are always attempting to lower costs and manage supply chain effectively to meet the changing demand. There is always a potential threat of a competitor eating into the market share.
Threat from New Entrants
The footwear industry is an easy market to enter for new players. Investments required are not huge, and raw materials are easily available. Legal policies are not strict, except in cases of imports in some countries. However, human rights issue is a major cause for concern in the footwear industry. Manufacturing/outsourcing decisions are used for low costs.
Threat of Substitutes
As entry is easy, substitutes are a major threat. Pricing becomes a key concern. Knock-offs also pose a great threat to companies even though certain designs are proprietary.
Bargaining Power of Suppliers
Shoes are mostly made from similar raw materials that are easily available. So, most firms manage to get materials at low costs. However, for Crocs, this is not a problem because it owns the manufacturing units and has a proprietary right over croslite.
Bargaining Power of Consumers
Consumers have the greatest power in the footwear industry due to availability of substitutes. Price and quality are major attributes of the product. Changing consumer taste is a potential threat. Changing fashion and trends and even fads are a problem faced by manufacturers. Competitors have come up with the concept of ‘Shoe Design’ to give the consumer the ability to custom design shoes that are delivered with two weeks.
Market penetration in the footwear industry is still considerably low, especially in Asia-Pacific region. Developing countries like India are emerging markets with huge population for firms to capitalize on. Purchasing power of people in these countries is increasing, thus showing potential target consumer groups.
Substitutes and knock offs pose great threat to major players in the industry. Since pricing and quality are major concerns, low costs are the main objectives. Changing trends and consumer taste are also a serious threat.
Crocs’ unique design that offers great comfort, odor-free, slip-resistant lightweight shoes at comparatively lower prices is a distinctive competency. Supply chain flexibility offers Crocs a competitive advantage over the other firms.
Crocs is required to distinguish its product, especially with the usage of croslite in its footwear. This makes it difficult for Crocs to develop new products in the formal range.
While 92% of company’s revenues came from footwear, the remaining 8% was from the sales of accessories and apparels.
Revenue has increased over the years and reached $354.7 million in 2006. There has been a tremendous increase in cost of the goods sold and was reported to be $154.2 million in 2006 from $47.8 million in 2005. Net profit margin has also been increasing and it was found to be 18.2% in 2006. Revenue was found to be $142 million in the year 2007 for Q1. Gross profit was reported to be 84.4% in the first quarter of 2007.
In comparison with competitors viz. Nike and Deckers, gross profit margin of Crocs has been considerably higher. Debtor’s turnover ratio is the highest in the industry, indicating that Crocs is efficient at handling debts. Asset management is also performed well at Crocs.
But looking at the inventory turnover ratio, Crocs is one of the lowest in the industry. This shows that Crocs is unable to turn inventory into cash as effectively. It is seen that in 2006, Crocs has inventory worth $86.2million compared to $28.5million in the previous year. This shows that Crocs capital is blocked in its stock.
About Crocs Inc.
Bring profound comfort, fun and innovation to the world’s feet.
Crocs shoes are distinguished from others by the following motive of the firm – Radical thinking, health-minded research, and providing solution to the Feet.
Colors and designs offered and the emotional experience served are important to Crocs to create its brand image.
Crocs claims to offer profound comfort, ergonomic design, massaging foot bed, and lightweight.
Crocs believes in keeping its products simple with a versatile function.
Clogs with Croslite
Target Consumer Segment:
Men, women and children of all ages
Diabetic patients and other ailments
Crocs shoes are lifestyle products that exhibit personalities like trendy, fun, and high fashion, dressy, casual and active.
Various models offered include mammoth, clogs, sandals, flats, heels, boots, slip-ons, flip flops, sport, work, Ocean Minded among others. Crocs started off as a company with about 25 models in 2004, and reached a point in 2007 when it offered 250 models. Original design was the clogs that kids could personalize with Jibbitz. Over time, Crocs extended its line by using usual raw materials like leather and suede with croslite soles.
Supply Chain Management
For consumer, Crocs designed an extensive distribution system so its shoes were available in a variety of retail outlets from specialty stores to department stores and large shoe store chains.
Footwear companies have two alternatives to choose from in the manufacturing of their products; they can both own and operate the factories that produce their products, or outsource operations. Factories may be located internationally or locally. Most firm practice outsourcing of operations to enable reduced costs.
Crocs believed in meeting customer demands in the current season. Supply Chain was Crocs main focus. Crocs had adopted the global logistics strategy. The firm was vertically integrated and by 2007, had acquired various units all across the world for its operations to cater to different consumers. Hence it was faced with large capital expenditure requirements and the management of the factories themselves. Yet Crocs did a tremendous job at supply management.
Where its competitors followed the seasonal order placements, Crocs had a delivery time of two to four weeks for newly placed orders, indicating how Crocs understood the demand for the product. Crocs owned the manufacturing, warehousing and retails units in almost all countries. With its effective management, Crocs was able to maintain low costs. Any other company in the footwear industry did not achieve such a flexible supply chain.
The firm maintained good professional relations with the retailers, and deployed its own personnel in stores and provided a store-in-store experience to customers.
Crocs is the only company that offers shoes made of croslite. This material ensures extreme comfort to the wearer. Crocs owns proprietary rights over the material, and this becomes the firm’s distinctive competency. Since Crocs is the only firm with the sole right of manufacturing such footwear, it should ensure no knock-offs are sold in the market in its name.
Flexible supply chain
Crocs understood the dynamic footwear industry and built a revolutionary supply chain to meet the demands of it consumers. Crocs is able to replenish stocks within weeks at short notice. This gives the firm a competitive advantage over the rivals.
Other than the core business activities, Crocs has initiated a program called Crocs Cares to provide the inhabitants of disaster affected areas with shoes in over forty countries.
Crocs has managed to develop an extremely flexible supply chain in order to meet customer and retailer demands, similar to none other in the footwear industry. The firm is extensively vertically integrated and has followed a pattern of a series of acquisitions for growth.
Another advantage for the firm is the sole proprietary rights over the croslite material. However, Crocs has learnt the need to extend its product line and incorporating materials like leather and suede in its products.
Crocs has also managed to lure its customers by acquiring the charm business, and also by diversifying into accessories and apparels. Although the firm is showing year-on-year profits, it is seen that by following the model of semi-finished products to achieve quick delivery, it is faced by the problem of low inventory turnover. The important thing to understand is that the industry is dynamic, and the demand is quite unpredictable due to varying trends. Thus, Crocs will continue doing better by focusing on the end-user product.
Global Footwear Market Report
How Crocs Is Outpacing The Pack
Crocs Revolutionary Supply Chain
History of Crocs
Factsheet of Crocs
About Crocs – Company Profile