Crocs - with 2010 update


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How the hole went from the shoe to the bubble... and maybe back.

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  • 2-3 weeks, in season, product replenishmentThis model was the brain child of Crocs’s first CEO, Ronal Snyder, who was a college friend of the founders and was hired in early 2004 from a leading electronics contract manufacturer where he was leading the design division. Coming from the electronics contract manufacturing background, Snyder was used to producing what the customer needed, when it was needed and responding rapidly to changes in demand.In fashion, if you are able to offer a successful product and take care of inventory, you are a rock star. The positive relationship that Crocs developed with its retailers resulted in additional benefits. As Crocs became more important to big retailers, they approached Crocs to suggest invreasing the Crocs presence. Some of them actually asked Crocs to enter different product segments such as accessories, T-shorts, hats, Jibbitz. They were willing to give up whole retail areas and dedicate it to current Crocs offerings and any new stuff they would make.
  • Crocs - with 2010 update

    1. 1. Marianna Malaspina, Global Supply Chain Management, Prof. D. Klotz, Fall 2008<br />
    2. 2. The Product<br />Shoes<br />2<br />
    3. 3. Financial data<br />3<br />
    4. 4. Simple and functional product, yet very new and funky.<br />Global world strategy<br />Supply chain that provided a competitive advantage: 2-3 weeks, in season, product replenishment.<br />Core strategy<br />4<br />
    5. 5. Crocs Supply chain: 1st phase<br />Immediate purchase of the Canadian Manufacturer and acquisition of proprietary resin croslite (comfort and odor resistance)<br />Canada for 100% of production<br />USA<br />Europe<br />Compounding<br />In Italy<br />Molding of Croc shoe<br />By Foam Design in Canada<br />Boxing<br />In various assortments<br />Denver Distribr<br />New pellets with color<br />Buy<br />chemicals<br />5<br />
    6. 6. Crocs Supply chain: 2nd phase (2005)<br />Starting from 2005, large contract manufacturer in China<br />Boxing<br />In various assortm.<br />USA<br />Europe<br />Molding of shoe<br />By Foam Design in Canada<br />Buy<br />chemicals<br />Compounding<br />In Italy<br />New pellets with color<br />Denver Distrib.<br />Molding of shoe<br />China Manufacture<br />Boxing<br />In various assortm.<br />6<br />
    7. 7. What a difference 5 years make…<br />2002: 1 model, 6 colors<br />2007: 250 models, including: Ocean Minded, YOU by Crocs (fashion) Bite footwear models; licensing agreements with Disney, Nickelodeon, Marvel, DC Comics and Warner Bros., and introduced a limited edition line of footwear and Jibbitz charms featuring such popular characters as Cinderella, Ariel, Mickey Mouse, Sponge Bob Square Pants, Dora the Explorer, Spiderman and Batman; Introduced Crocs at Work line that offers Crocs shoes targeted towards healthcare and food industry professionals; Developed Crocs Rx line: the Relief, the Cloud and the Silver Cloud. Targeted towards consumers who require specialized footwear that provides relief from certain medical conditions, such as diabetes, plantar pain, heel pain, metatarsalgia, achy feet and post-op conditions; and Entered into and extended existing collegiate licensing agreements with various colleges and universities, and our sports licensing agreements with, among others, NFL, NHL, MLB, AVP, NASCAR and more recently the Olympics, Gaelic Athletic Association and Australian football league<br />7<br />
    8. 8. Manufacturing<br />In 2007:<br />17% manufactured by Company owned premises in North America, Italy and Brazil<br />56% footwear products from third-party manufacturers in China <br />27% footwear products from third-party manufacturers in Bosnia, Vietnam, Romania and the U.S.<br />Crocs also kept the Florida manufacturer for just one high volume product with a Made in the USA label<br />Continued manufacturing in Canada as well, in part because of duty considerations (e.g.: Canada/israel no duty, with Crocs sales at 1.2 million pairs in 2006 in Israel).<br />Continued the compounding in Italy: this resulted in SC inefficiencies in this phase of Crocs development<br />In 2006 Crocs control of the compounding activity, creating state-of-the-art compounding facilities in Canada, China and Mexico.<br />Change in warehousing model: from contract warehousing in Colorado to company own warehousing (added to each factory) with direct shipment from manufacturing premises to big Clients’ DCs.<br />The goal: controlling the strategic order fulfillment function in Asia<br />8<br />
    9. 9. Must have enough injection molding machines<br /><ul><li>Purchase molds from 2 suppliers: by 2007 lead time crashed from 3 months to 6 weeks as supplier realized Crocs potential.</li></ul>Must have enough molds for desired products.<br /><ul><li>For this purpose, molding machines would be transferred between production locations: e.g.: if demand increased in the US, might move production to Mexico, closer to customers. Productions for products with relatively dependable forecast would be switched to China.
    10. 10. In general: products for Europe made in Europe, products for Asia made in Asia.</li></ul>Flexibility and lead time<br />9<br />
    11. 11. Geographical Sales<br />In 2007:<br /> U.S. sales: 52% of total revenues, (compared to 68% in 2006 and 93% in 2005), 13,000 stores.<br />International sales: 48% of total revenue, 19,000 international customer store locations, including 25 Company-operated retail stores in a variety of locations including Canada, Finland, United Kingdom, Singapore, Hong Kong, Japan, China and the Netherlands <br />An interesting forecasting aspect: products generally equally sold in each market: test product in the ss season in the southern emisphere and the result would be indicative of how Europe and the US would respond.<br />10<br />
    12. 12. Company Owned Stores<br />U.S Retail Stores<br /> Crocs Kiosks 138<br /> Crocs Retail Stores 4<br /> Crocs Outlet Stores 6 <br /> Total 148   <br />International Retail StoresCrocs Kiosks 36Crocs Retail Stores 25  <br /> Total 61<br />11<br />
    13. 13. Retailing channels<br />Initially: small retailers<br />Advantages: <br />Willing to take more risk<br />Willing to work with Crocs on problems such as stock out and shipment delays, while large retailers charged hefty penalties for an order past cancellation date.<br />Important for brand building and presence even after majority of sales went to large retailers.<br />By 2007: 75% of sales large retailers<br />(shoe stores, department stores and sporting goods sales)<br />12<br />
    14. 14. Logistics<br />2007<br />18% shipped from Company owned manufacturing facilities (940,000 sf) and third-party manufacturers directly to the customer.<br />82% fulfilled by 20 distribution locations strategically located throughout the world. Crocs owns warehouses in Australia, Brazil, California, Colorado, Canada, Finland, Hawaii, the Netherlands, India, Japan, Mexico, Puerto Rico and Singapore. <br />and  by third-party operated distribution centers located in Canada, Colorado, Dubai, the Netherlands, Hong Kong, Japan, Kansas, Korea, New Zealand, and Taiwan (750,000sf).<br />1.7 million square feet of space : flexibility to meet rapidly changing business requirements and positions Crocs to support the growth of all of their brands (e.g.flip flop sandal explosion in 2006: projected 250K, sold 2.5M). <br />Production capacity at 1M above actual monthly plan. This additional 1M can be turned on at a minute notice. Quite impressive.<br />In December 2007,agreement with Manhattan Associates to provide warehouse management systems within all Company-operated distribution centers. The implementation of their software is scheduled to be strategically rolled-out in all locations over the next 24 months. <br />13<br />
    15. 15. The supply net after 2005<br />Canada Compounding + Mnfct<br />19,000 International Retailers<br />Nordstrom<br />DCs<br />Dillard’s<br />DCs<br />Italy compound + mnfc<br />Bosnia and Rumania third party mnfctr<br />13,000 US retailers<br />Dick’s<br /> Sporting Goods<br />DCs<br />Vietnam third <br />Party mnfct<br />Colorado wrhs<br />Mexico Cmpndg<br />Florida Mnfctr, 1 high volume prodct + wrhs <br />China 3rd p. Mnfctr 55% of Pr.+ compndg+ wrhs <br />Brazil Company owned mnfc<br />+ wrhs<br />14<br />
    16. 16. Things get complicated<br />2007<br />Expansion into products lines beyond croslite molded shoes.<br />Crocs acquires Ocean Minded a designer and manufacturer of high quality leather and EVA based sandals primarily for the beach, adventure and action sports market<br /><ul><li>Additional complications in the supply chain and production process
    17. 17. Higher costs of materials</li></ul>15<br />
    18. 18. New planning system<br /><ul><li>Adoption of ERP
    19. 19. Launch of inventory module </li></ul> global view of inventory<br /> information for the planning system, which was brought online.<br /><ul><li>Each country’s generating their requirement plan + global planning activity for each model type: global planning personnel worked with the local staff on the requirements for each market.
    20. 20. No excess inventory – but this has dramatically changed in 2008
    21. 21. Yes to acquiring excess capacity</li></ul>16<br />
    22. 22. The stock – (or what a difference a year makes…)<br />'<br />17<br />
    23. 23. New planning system<br /><ul><li>Adoption of ERP
    24. 24. Launch of inventory module </li></ul> global view of inventory<br /> information for the planning system, which was brought online.<br /><ul><li>Each country’s generating their requirement plan + global planning activity for each model type: global planning personnel worked with the local staff on the requirements for each market.
    25. 25. No excess inventory – but this has dramatically changed in 2008
    26. 26. Yes to acquiring excess capacity</li></ul>18<br />
    27. 27. The importance of a committed strategy <br />The Crocs phenomenon has by now crashed as a Wall Street favorite, but we think they have found a very fit logistic model and the product has real value, especially the original one. <br />We wonder if part of its recent debacle may not be due to “too much of a good thing”: how did the company expect to be able to handle an exponential increase in SKUs while maintaining almost real time response for over 33,000 global customers at a low price? <br />Maybe a slowdown would have been advisable, consolidating the brand and the Company’s already remarkable organizational skills before taking on additional different products which contributed to distract the Company from its core expertise.<br />Brief comments<br />19<br />
    28. 28. Thank you for listening to me!<br />Do you have any question?<br />20<br />
    29. 29. <ul><li>Crocs web site
    30. 30. Crocs 10-K
    31. 31. “Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage”,Stanford Graduate School of Business case, 2007
    32. 32. Rick Munarriz, “Ugly Shoes, Pretty Profits”, The Motley Fool, May 4, 2007
    33. 33. “Crocs Losing Foothold Among Young Consumers”,</li></ul>References:<br />21<br />
    34. 34. Year 2008 almost collapsed the company.<br />However, 2009 has seen a strong improvement on the bottom line (a steep decrease in the final loss) in spite of a terrible global economic environment and decreasing sales. Main reason for improvement were improved gross Margins and reduction of impairments.<br /> The first quarter of 2010 shows a profit of almost 6M against a loss of over 22M for the same period in 2009. The company is opening 300 stores in the USA and seems poised for a stable come back. What we fear is that such a strong decline in SG&A could have an impact on the image: see for example bad store appearance in key retail areas such as Manhattan Upper West Side, where frequently piles of boxes are left in the windows instead of being properly stored. <br />After reaching rock bottom at barely $1 in Fall 2008, the stock currently trades at about $ 10 and we believe has room for growth.<br />Summer 2010 Update !<br />22<br />