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Crocs, Inc. (CROX)’s Shifting Business Model Is Beginning to See Success

A few years ago, Crocs, Inc. (NASDAQ:CROX)’s stock crashed from incredible highs as the company’s notoriety as a fad shoe, wore off. Some may wonder why the shoes even sold at all, but they did and in large numbers. With 2008, the company saw its fortunes collapse considerably, taking a loss in 2008. Yet, from this seeming calamity emerged a stronger, more diversified company that has made the transition from being a fad into a brand with a wide product offering.

Crocs, Inc. (NASDAQ:CROX)The company installed a new management team in 2010 with John McCarvel as CEO. As a five year veteran with Crocs, the CEO had experience with the brand and saw what worked and what did not before he took the top leadership role, and since his tenure as CEO, we have seen the company go through a slow but focused transformation. The CEO’s primary background has been in operations, and in international markets and you can see this focus coming through naturally in the company strategy.

The company is shifting its focus from selling through wholesale and mall kiosks to a focus on direct retail. In a bid to drive up its gross margins, Crocs, Inc. (NASDAQ:CROX) is opening more Crocs, Inc. (NASDAQ:CROX) branded stores and direct to consumer outlets. Their revenue split has been shifting too.

2011 2010 2009
Wholesale 59.80% 61.00% 62.60%
Retail 30.60% 29.50% 28.00%
Internet 9.60% 9.50% 9.40%

Source: Crocs Annual Report

As you can see from the chart above, Crocs, Inc. (NASDAQ:CROX)’ revenue percentage from retail has grown relative to wholesale. This new channel is seeing significant success. Between 2009 and 2011, they added 96 new stores and in a recent conference call, the CEO said that sales through retail grew 12.7% in the Americas and 17.6% in Asia.

Changing the Business Model

In addition, the company is adding entire product lines repositioning the company not as a premier brand but instead as a comfort brand that provides informal comfortable shoes of all types. This brand in my opinion fits the company very well. Crocs, Inc. (NASDAQ:CROX) were seen as a comfort shoe by many consumers and Crocs, Inc. (NASDAQ:CROX) is trying to double down on this perception by marketing and creating products that fit this perception.

So how well is it working? The traditional “crocs” shoes now represent less than half of sales while its other products, particularly its new fashion lines have gained traction. This is significant number as it shows that Crocs has become, not just a one-trick pony, but instead an entire product line that is appealing to consumers.

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