Company Behind Crocs Loses Its Footing: 3 Lessons for Small Businesses
Crocs, the company responsible for outfitting tens of millions of people in brightly colored plastic clogs, announced that is closing 100 of its 600 global stores and terminating more than 180 employees, including 70 from its headquarters in Colorado. The announcement came after a significant 44% drop in profits in its most recent quarter.
The dramatic change in performance is not the company's first dramatic collapse.
In 2002, Crocs splashed into the market with remarkable success. The shoes' incredible comfort was loved by people who were on their feet most of the time, but the unfashionable style and bright colors were often scorned by the public. They even spawned a Facebook page called "I Don't Care How Comfortable Crocs Are, You Look Like A Dumbass," which has garnered over 1.5M "Likes" without any activity.
The company hit its peak in 2007, selling 50 million pairs a year and reaching $850 million in sales. In 2008, the company hit a massive skid. The economic collapse and the complete oversaturation of the marketplace led meant that $200 million in profits in 2007 turned into to $200 million in losses in 2008. The decline resulted from a"perfect confluence of events," as Crocs CEO John McCarvel described.
Crocs regrouped and expanded into several new styles of casual shoes, including sneakers, boat shoes, winter boots and even leather footwear. Although the strategy worked for a while (the company turned a profit again in 2011 of $150 million), ultimately it proved to be an overexpansion. Now, management again is scrambling to find the next magic strategy to save the company from failing.
Whether Crocs will regroup to succeed again is unknown. Its turbulent history, however, can teach other small businesses a few things about building a brand around a single product.
Do not build a brand around a fad.
While there is a good deal of support for Crocs and its products, especially for their therapeutic value (Crocs are certified by the U.S. Ergonomics Council and the American Pediatric Medical Association), it spread as a fad. Unfortunately, fads fade fast, and often with epic declines. Trying to build a company around a fad always proves difficult, and there are very few companies who have succeeded. In my industry (toys), we saw Zhu Zhu Pets attempt this. Riding their massive wave of popularity from 2010 around a small, motorized hamster, the company expanded into its own chain of retail stores and broadened its product lines--and eventually faded into shadows.
Brand the product and the company separately.
When you have a product that turns into a fad, consider branding the parent company differently. When Crocs introduced new lines of shoes, many of which were actually fashionable and sophisticated (well, at least more so than the clogs), they were prominently branded as "Crocs," which at that point carried a good deal of baggage. The company should have considered carefully branding new styles of shoes under a different name and image, much like car manufactures do: Toyota-Lexus, or Honda-Acura.
Consider licensing when you have a proprietary design.
Crocs was initially intended as footwear for boating, with its lightweight appeal and non-slip tread and waterproof qualities. Rx Crocs are lined with antibacterial material that will prevent fungal and bacterial infections. And, despite their clunky, clown-like appearance, they are incredibly comfortable. (I shjould know: I wore a pair for two years.) All of these great features have even led doctors to recommend Crocs to patients for medical reasons. Clearly, there is something to the materials and the design, so why not share the proprietary "ingredients" to other shoe companies that have substantial manufacturing and distribution resources? Understanding the cons of licensing (lack of control, lower revenue), you reduce the overhead and management costs of stores and designs.
What do you think about Crocs? Can they pull the company back to profitability? Should they? Share your thoughts below.