Crazy Business Ideas That Actually Worked: Crocs
They knew the shoes were ugly, and they made them anyway.
The first time John McCarvel arrived home with a pair of bulbous plastic clogs strapped on to his feet, his wife was alarmed.
The couple lived in Singapore then, and McCarvel was returning from a business trip to the US, but on this occasion his usual welcome back was preempted by a stunned, "What are those things?"
It was 2004, so McCarvel's wife could be forgiven for not recognizing Crocs (CROX), made of a proprietary "Croslite" resin. "She said, 'Those are the ugliest things I've ever seen,' " McCarvel recalls in an interview with Minyanville. At the time, the former Flextronics (FLEX) executive was about to join Crocs as head of global operations. He has since become the company's CEO, having been named to the top post earlier this year. He has also moved to Colorado, where the company has its headquarters.
McCarvel's wife became a "Crocs convert" years ago, or so the CEO claims. If true, that would make her one of many millions who came around to accepting the shoe after trying it on and marveling at its squishy, form-fitting sole. Just a year after McCarvel joined the company, the Crocs look inexplicably went global. Kids, gardeners, boaters, and college students adored the practical footgear. By 2007, the rubbery shoes were considered acceptable fashion for almost any event or outing, and were sometimes paired with socks.
The shoes were ridiculed in style columns, which did nothing to halt or even slow the trend. A couple of students in Halifax, Canada started Ihatecrocs.com, and t-shirts appeared that read, "Friends don't let friends wear Crocs." Yet the public kept buying, popularizing even the flashiest colors and declaring Crocs the most feet-friendly shoes on earth, though orthopedists would disagree. Nurses and other workers who had to spend long hours standing found the affordable, easy-to-clean shoes a godsend. In the New York Times, Rob Walker observed:
In the summer of 2006, Crocs wearers ranged from children to senior citizens, from the image-indifferent to the celebrity chef Mario Batali. The suggestion of ubiquity was probably magnified by the fact that seeing one pair of the oversized and often brightly colored footwear felt like seeing five. The Washington Post noted the "goofy" shoes were spreading "like vermin," and Radar Magazine anointed the "hideous" items "summer's most unfortunate fad."
The plan to populate the world with Crocs originated with three pals from Boulder, Colorado, who made an annual ritual of sailing together in Florida, explains McCarvel. Scott Seamans, George Boedecker, and Lyndon Hanson were convinced to investigate the viability of starting their own company after Seamans raved about a pair of plastic shoes he had discovered. The shoes were light, comfortable, and able to float in water. They were made by a Quebec company called Foam Creations, which the Crocs guys eventually purchased. Crocs was incorporated in 1999 with seed money from mostly small investments (many of the backers were friends from Boulder), and its single product was pitched at a niche market. Crocs designers added a handy backstrap to the existing Foam Creations model and produced the shoe in a range of intentionally clownish colors.
In the early 2000s, the clogs began to find a following, mostly with gardeners and sailing enthusiasts, though others followed. The tipping point came when a buyer from Dillard's gambled on an order worth more than $1 million, says McCarvel, and other retailers began to pay attention.
In 2006, the year the company went public, sales reached $354 million and the share price increased sevenfold. Crocs executives wisely played up the shoe's ugly factor in ad campaigns. The following year, when most of us were already sick of Crocs, sales reached a whopping $847.4 million and earnings came in at $168.2 million.
Crocs would boast of 13 manufacturing facilities and 15 distribution centers around the world by 2008. That capacity allowed the firm to send out 7 million pairs of shoes per month into shops worldwide.
At last, the fad hit a wall, in lockstep with the economy. With unemployment spiking, not even $30 lime-green shoes could cheer the average consumer. "The shoes were over distributed," adds McCarvel. Sales dropped suddenly, and Crocs decided to close its Quebec City manufacturing plant along with facilities in Miami and Brazil.
These days, Crocs is in recovery mode. In the past two years, the company has introduced dozens of newer, supposedly hipper models, some that use recognizable material, like leather. The kids market still accounts for 25% of Crocs' overall business.
According to the company, revenue for the first quarter of 2010 increased 23.7% to $166.9 million, compared to revenue of $134.9 million in the first quarter of 2009. Sales were up by 40% and 34% in Asia and Europe respectively, but only 9% in the Americas.
This May, Crocs opened a store in Soho that McCarvel says is doing very well. "We're very happy," he reports, adding that the company went out of its way to honor the subdued look of the historic loft-filled neighborhood. So far, though, the shop appears to be a hit with tourists, and has yet to score points with the locals. But stranger things have happened.
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