Crocs Wants You to Forget About Its Clogs; Crocs is targeting foreign markets. Half of the 90 stores it will open in 2013 will be in Asia

Crocs Wants You to Forget About Its Clogs

By Matt Townsend on July 03, 2013

http://www.businessweek.com/articles/2013-07-03/crocs-wants-you-to-forget-about-its-clogs

Search online for “hate crocs” and you’ll quickly see why Crocs (CROX) is eager to downplay the clunky clogs it unleashed on an unsuspecting world 11 years ago. Bloggers have denounced the rubbery footwear as ugly and an escalator tripping hazard. On YouTube, a woman cuts a yellow pair into pieces and then feeds them to a blender.

The clogs still generate 47 percent of the company’s sales; lots of people like them, especially medical professionals and kids. Yet to hit Chief Executive Officer John McCarvel’s target of doubling sales in five years, the company has to woo consumers with its other footwear. That’s why Crocs-the-company is telling the world all about its foam-bottomed wedges, sneakers, and leopard-print ballet flats—and putting Crocs-the-clogs in the back of stores the way grocers do with milk. “If someone wants them,” McCarvel says, “make them walk through all the new stuff first.”McCarvel, who became CEO in 2010, has been credited with overhauling the Niwot (Colo.)-based company and making it profitable again. Still, even though sales rose 12 percent last year to $1.12 billion and net income was the highest since 2007, investors are wary. They watched the shares roar past $70 in 2007, giving Crocs a market value of $6 billion. A year later the bottom fell out amid competition from knockoffs and the company’s brand-blemishing propensity to sell the clogs everywhere, including gas stations. By November 2008, shares were trading at less than $1. They currently trade at about $16. “The story is certainly different than it was years ago, and some people have yet to grasp what it is now,” says Michael Swartz, an analyst with SunTrust Robinson Humphrey (STI).

McCarvel says foreign markets—where its flagship shoes aren’t considered as passé as they are in the U.S.—are key to the company’s growth. He says increasing Crocs’ scant presence in warm-weather regions such as Kuwait and Brazil, where people wear sandals year-round, could help make the company’s sales less seasonal. The Middle East, Central America, and South America now account for about 8 percent of total sales.

Crocs plans to open 90 locations globally this year, with about half in Asia, where sales jumped 34 percent in the first quarter. That would boost its total number of stores by 20 percent to more than 500. Crocs had about half that number in 2011. The stores sell both the company’s traditional and newer styles.

Russia has been a surprisingly fast-growing market. One reason: Rather than getting to know Crocs as the ugly clog company, Russians first embraced its fur-lined boots. And in China, where sales will pass $100 million this year, Crocs are known more as an American brand similar to Starbucks (SBUX) without the history as a fashion faux pas, says McCarvel, who led Crocs’ Asia expansion before becoming CEO. Notes Robinson Humphrey’s Swartz: “There’s a much bigger audience out there.”

To grab those shoppers, Crocs increased its worldwide marketing budget by 30 percent this year with such slogans as “A shoe for every you.” The aim is to become a lifestyle brand, introducing potential customers to Crocs’ more than 300 styles and convincing those who think they know the brand that they don’t.

A recent catalog could easily be mistaken for a mailer from J. Crew. On the cover, a grinning, preppy couple sits in a half-embrace in a wooden boat. Their legs dangle over the side—pulling the reader’s eye to their Crocs docksiders. The following pages are filled with strappy sandals and loafers. The namesake clogs aren’t featured until the back.

The bottom line: The maker of Crocs is targeting foreign markets. Half of the 90 stores it will open in 2013 will be in Asia.