How Crocs Crashed

  Success is sometimes your own worst enemy. Just ask the management and stockholders at Crocs.

  A hot brand ends up in one of two different ways. It burns bright too fast and fizzles. Brands like this are known as fads. Or a brand burns hot then continues at a steady simmer. Brands like this are known as iconic.

  Believe it or not, whether your brand will become a fad or an icon depends on your strategy more than you think. The good news is the fate of your brand is very much in your control. The bad news is it may be too late for Crocs.

  While it’s true that no strategy could have turned the “Pet Rock” into an icon, many brands could have been saved from the fate of faddom.

  Brands like Crocs and Cabbage Patch could have been saved by better strategic decisions.

  Let’s start with the story of how Crocs took off. Then we can cover how Crocs crashed and burned.

The Rise of Crocs

  In the Western Rockies of Boulder, Colorado, in 2002 three longtime friends and created a lightweight antimicrobial foam they called Croslite using a technology created by a Canadian laboratory in 1999. They molded it into a boating and water-sports shoe they named “Beach.” Thank goodness, they abandoned the Beach name and the shoes became known as Crocs. The shoes quickly caught on and developed a loyal and vociferous following.

  By 2005, revenues were $108.6 million, net income was $16.7 million for a net profit margin of 15.4 percent.

  By 2006, revenues jumped to $354.7 million, net income was $64.4 million for a net profit margin of 18.2 percent.

  That same year, the company riding a wave of success sold shares to the public raising more than $200 million making it the biggest stock offering in shoe history. The company used the money to ramp up manufacturing, diversify the line and acquire new businesses.

  Things were looking fantastic, or so management thought. In 2007, Crocs hit a high-water mark of $847.3 million in sales with a net profit margin of an astounding 19.9 percent.

  In 2008, the wave came crashing down. Sales dropped slightly to $721.6 million, but the company lost $185.1 million. Crocs had to slash 2,000 jobs and its stock price has plummeted 76 percent. Today Crocs has millions of dollars of debt and a huge surplus of shoes.

  What caused the collapse of Crocs? Many articles have blamed the economic slowdown. But could the recession really be the reason for the fall of $30 Crocs? I think there is a far more likely answer.

  When a brand is hot, it is hard to predict anything but a bright future ahead. It seems anything and everything you do is a good move. But nothing could be further from the truth. A hot brand must be managed very carefully.

Here are the keys to keeping a hot brand “hot.”

1. Dampen Demand.

  Suddenly everybody wants to wear Crocs, buy a Cabbage Patch doll or stay warm with a Snuggie. There are lines of prospective customers and mass hysteria.

  Every company's dream right? But what to do next?

  The worst thing to do is over-produce. If you flood the market with your product, it can lose its appeal. Some people will buy it who don’t really want it. While you may rack up some amazing short-term sales, long term you will undermine your brand’s specialness and exclusiveness.

  Crocs did just that. The company rapidly ramped up production in 2006 which led sales doubling in 2007 but also created a fad not an icon. Instead of patiently fanning the flames, Crocs added fuel to the fire. Overnight everybody was wearing them and then nobody wanted to be wearing them.

2. Resist Line Extension.

   Crocs didn’t just flood the market with a wide variety of its classic Crocs in a rainbow of colors, it quickly added many other styles. Flip-flops, sandals and an assortment of other types of Crocs were developed. Especially troublesome was the fact that many of the expanded styles were meant to be attractive. The idea of Crocs is not to look beautiful but to be functional. If people want fashion, there are many other brands to look at.

  In addition, Crocs spent millions buying up other companies in order to line-extend. They bought Jibbitz which makes the do-dads used to decorate Crocs for $10 million. Buying Jibbitz was probably a smart purchase especially they kept the unique brand name. But Crocs made other horrible purchases like buying EXO Italia which made vinyl shoes like Teva and Fury Hockey which made sports-protection items like sticks, gloves, pants and elbow pads. There was even talk of launching Crocs clothing. Not surprisingly the expansion efforts fell flat. The Fury business was liquidated last year.

  The expanded line turned Crocs into just another brand. At first, Crocs had an enormous advantage because it owned an idea and an image in the mind. The multitude of styles undermined that image and destroyed the power of the brand.

 

3. Control Distribution.

  Crocs went from being available in just a few retail outlets to being available in every imaginable retail outlet. While that fueled sales, it also hurt the brand’s power with the distribution. Retailers no longer saw it special being able to stock Crocs.

  We normally recommend that new brands start with exclusive distribution deals. That way the retailer has an incentive to promote the brand.

 

4. Focus on Core Consumers.

  Crocs went from a sports enthusiast shoe to a shoe for everyone. A brand that tries to appeal to everyone ends up appealing to nobody.

  Croc loyalists saw Crocs on everyone and said Geez, they don’t make me stand out and look different anymore.

  The key to making a brand an icon is having a base of loyal consumers. Instead of chasing everyone, Crocs should have resisted that temptation and stayed focused. This is the key to keep a brand becoming a fad.

  What are the core consumers for Crocs? Kids, athletes, workers. Forget the soccer moms/dads, grandmas/grandpas, fashionistas and everybody else.

  Kids in particular were a big part of Crocs’ success. Kids are also great customers because they have feet that grow. Sure, Crocs may be indestructible, but when your feet keep growing you need a new pair every six months anyway. Kids also love the Jibbitz which allowed each pair to be personalized.

  Athletes are the customers Crocs started with. Athletes gave Crocs a natural distribution strategy of sporting-goods stores like Sports Authority. The shoe is not just trendy but functional. The anti-Sex in the City shoes.

  Workers on their feet. Nurses, doctors, chefs and workers of all sorts are the perfect target consumer for Crocs and could have been a long-term steady market.

 

5. Expand Globally.

  Crocs did understand the power of going global. But you should not try to go global all at once. Crocs used its stock-market cash to build manufacturing plants in Mexico and China as well as distribution centers in the Netherlands and Japan.

  That was way too much, too soon. Going global is important, but should be done carefully, strategically and slowly. Instead, Crocs flooded the global market with its shoes.

  Too bad. Crocs is a great brand with a great name built around a great idea. The missing ingredient was great marketing.

Comments

[Marc]

And yet any or all of these strategies could easily have worked. For each of them there's an example of other companies who've done it successfully.

So writing in retrospect about them as if they are marketing commandments is a little misleading. They're not. The combination didn't work for Crocs (for any number of reasons, but probably mainly because they were a fad product in the first place... and the fad came and went).

In fact, in general and individually they're probably bad advice for most companies. "Dampen demand" (?!?) Try telling that to Nike or Levis (or for a closer example, how about Havaianas?). "Resist Line Extension" (?!?) Holy cow!

It's obviously easy to look back on any success or failure story and analyze the steps that led to the outcome. But to then extrapolate it and make it "wisdom" is a dangerous thing.

Some things are destined to be fad products from the outset. Crocs were probably one of them. A business owner could take two approaches to that. They could try to give it longevity (perhaps succeeding, perhaps failing), or they could milk the fad hard and fast. The second option isn't a terrible one.

=)

[Erica Mills]

Great post! As someone else noted, the press around crocs being unsafe (e.g. getting caught in elevators) was tough and they didn't do a great job of managing the PR hubbub. Also, when they started putting energy into kids crocs, they seemed to lose sight of the fact that it was still the parents, not the kids, who were their target audience as they still hold the purse strings. I have to say that, although my kids love their crocs, I refuse to let them wear them anywhere near escalators and will not be sad when they outgrow them!

Thanks for the thoughtful analysis on growing brands!

[MDT]

One other factor not considered in your comments was the ease with which other shoe brands (and mass market discounters like Wal-mart and Target) were able to flood the market with look-alike knock-offs.

In the end, Crocs are just molded foam rubber. The brand was only as unique as its look, which was quickly co-opted. While Crocs was busy diluting its own brand, other companies were able to step in and produce a facsimile shoe that customers interested in saw as enough like Crocs not to bother pursuing the real thing.

Failing to maintain brand integrity left Crocs wide open for this kind of scalping. They lost focus on conveying to customers what made their product a singular choice and, along with the other bungles you aptly cited, they are well and truly paying for it.

[fcarlos]

My kids still like them. They're not as "hot" and now the cool coveted shoes are converse. Agree w/ your analysis esp re: demand and focusing on core business. So many replicas on the market -- when Target carries croc knock-offs, you know that the market is saturated.

[jamie]

Look to 'Life is Good'. They've resisted the VC money and the demand for rapid expansion. They maintain their own identity with something sooooo simple.
And you can't buy them in a big-box (as far as I know anyway).

[Account Deleted]

yes it is a branding fault - but root cause being the short-sightedness of the promoters.
There are entrepreneurs and professionals who would say if we are getting an extra buck, then why not grab it - a clear stategy gap!
We've had Akai CTVs in India going down the same way.
A brand should always be carved out rather than being left to be made into something and anything.
However I wonder whether the marketing gurus would put it as a nice example of the 'tipping point' - but we see here that the achieveing the tipping point meant the begining of declining sales...
I do agree to the point of building on niche sales, and i feel it is important now for companies and new entrepreneurs to realize that the market is segmented into small niches scaling accross different geographical boundaries.
helpful analysis Ms.Ries, made my mind think! Thank you!

[www.facebook.com/profile.php?id=1413755331]

While there are many valid points, this article might be a little too soon to put a tab on crocs.

I agree that they have diluted their product line when they should have focused on evolving their original crocs design and expand from there. However, Crocs have very strong distribution channels and this can be taken advantage of, that is if the management use it appropriately.

[marc]

Interesting article. Their problems seems they went for growth (and that is what they got to start...) Was a strategy of growth always doomed to fail?

I'm trying to think of an iconic brand that is based upon a single, strong product that is anything other than niche.

[Louis Gordon]

Amen sister. I saw Sponge Bob Crocs in a hardware store in Israel... and a dumpy one at that.

[www.facebook.com/profile.php?id=524628599]

Jason Karpf made a great point about Krispy Kreme though... you have to focus on your value proposition. Crocs value proposition is a simple, comfortable, albeit revolting looking shoe.

I'm going to get flamed for this I think but their value proposition is basically:

"if you already look revolting we can make you an equally revolting shoe that is super comfortable with amazing utility."

So they should focus on revolting shoes for revolting people that are amazingly useful and comfy.

Everything else is diffusing their brand.

Kudos Jason! :)

[Steve]

Good analysis and many valid points but Crocs is still here, expanding from kiosks to inline stores and their outlets are booming. I still see them on the feet of both young and old, men, women and kids. I have been reading the doom of this company from pundits for the last year, but they are still here with an interesting variety of styles.

[Business Plan Writers]

Hi,
It was a very nice idea! Just want to say thank you for the information you have shared. I can see that you are putting a lot of time and effort into your blog and detailed articles. Keep posting the good work.

[Ross Dodwell]

Let us not forget that they were getting bad press for children getting them caught in escalators.....

[Burak BABACAN]

Here is my take on Crocs...

I discussed this issue with my wife and she said that nobody can make her wear Crocs. Why ?

1. Crocs give the impression of banality, a shoe for dumb people. Crocs users look not so bright, hard to identify herself with one of them (sleepy mothers with push chairs lazily strolling)

2.Crocs are simply ugly ! Design evokes the emotion of irritation mixed with slight disgust

My guess is there are not enough number of sporty types, athletes, doctors and nurses compared to everyday ordinary consumers. After a certain point of sales, crocs shoes' irritating love or hate design became uncool just because overwhelming number of "ordinary" people began to wear them. The narrow segment of crocs specialists lost their power to give the shoes an identity. The new crocs identity is shaped by people who are attracted to that certain design. My humble guess is that when the visibility of crocs increased, backlash was inevitable. Some other people certainly resisted crocs. So, doubling the production when they reached their peak was useless, as there would be a natural limit to crocs lovers in the market. Instead of selling more and more, it would be a better idea to identify the core users and focus on them for longevity.
In that sense what crocs needed badly was the identity. It was stolen by sleepy looking dumb faces and as my wife put it neatly she didn't want to be one of them.

[Kimble]

I enjoyed this one. It gave me some perspective on what is a fad and how to prevent your brand becoming one.

It also made me think about the iphone and its meteoric rise. In fact I applied what you observed for Crocs to iphones.

http://greenerdesktop.com/551/is-the-iphone-just-a-fad

[CulturalEngineer]

I'm not a "brand" guy and obviously many here have a lot of expertise. But I'm sure finding it interesting.

It sounds like these guys were surprised by their own success: the sale of a lot more shoes than they expected.

But they missed that while the sale of a lot of shoes is certainly a nice thing...

The BIG success was occupying a piece of "mythological space" in the minds of a good number of people who associated the "folks" at Croc as being part of their "tribe" so to speak.

But they had a dilemma. They must have realized that knockoffs would be on their heels (pun intended) at a much lower price (mine were $6!)...

I agree with your points regarding building a brand...

Is it possible they got advice from investment bankers connected to the IPO (who foresaw this looming knockoff issue) and were seeking to maximize short-term return by issuing stock at the peak with little real concern for the potential viability of the brand for the long term?

I'm not saying the founders knew this... but I'll bet the bankers saw it coming.

Chagora & Civilization Systems

[Scott B]

What about "competition from knockoffs"??

I would never buy a pair of Crocs at $30. I passed on them for years. But....I DID BUY knockoffs at $10 a pair, sold as "loss leaders" at Big Five Sporting Goods...three times! Three different knockoffs by three different mfgs.

If the utility of your product is easily copied, yet more cheaply (Levi jeans an example) expect to be required to "differentiate or die".

[Andrew]

Interesting analysis - at least in theory. Crocs are a particularly bad example, though, because their crash had nothing to do with their marketing. People stopped buying Crocs because they finally realized that they're awful, awful shoes. No amount of PR finagling could change that.

[twitter.com/1day1brand]

Laura, you forgot reason #6 "Don't let this person promote your product". [pic] http://ow.ly/i/4zS

[Erik Johnson]

Alvin- I do see your points but I think Crocs is still a product that if marketed right could have been a long-term success. Laura is right, all the line extensions have watered down the brand.

I would also add that by going public the pressure by Wall St. to hit their numbers creates a culture to line extend. It seems that companies don't care about market share as much as they care about hitting sales.
Good post.

http://marketinglawsdaily.com

[Martin Calle]

Laura, Companies like Crocs can learn to turn fads into icons with better positioning at http://tinyurl.com/yhh23ck. This is my ASSAYS High Performance Focus Group Site for new products and brands.

Marketers used to always ask me the difference between a trend and a fad. Everyone wanted to protect themselves from fads. Now it seems no one cares. They just want to make money. Today. Seems like some companies grow so fast and make so much money the executives just want to live for today and enjoy their new found success. "Hey! Call us tomorrow!" They don't want any help. They are invincible. On the other hand other companies do so poorly that they can't get any help. I picked this up working for dot.coms during and after the rapid growth years. They were/are either swimming (Facebook, Twitter, Orbitz, Travelocity) and thinking themselves invincible - hence little strategic thinking goes on; or they were/are sinking, doing so poorly that they focus in areas other than strategy (which is why GoDaddy or Friendster end up slipping into oblivion). And don't forget Priceline! Even though I love William Shatner the company, like pre Acer Gateway, is still just a penny stock. There's just no money or wealth there. It's one of the reasons hardware manufactures, PC manufactureres in particular, spend so little money promoting their brands and positions preferring that the channel retailers do it for them in weekly newspaper ads. As Lou Gerstner once told me at IBM, "There's no money making PCs." It's why Carly Fiorona's acquisition of Compaq for HP hurt so bad. HP's stock slide from $38 to $16 and stayed there a LONG time.

We offer a product that is realatively inexpensive that turns fads into lasting brands. More information is available at my ASSAYS High Performance Focus Group site. http://tinyurl.com/yhh23ck They are Creative. Qualitative. They work for companies like P&G. They'll work for Crocs and other companies living the life of fad today gone tomorrow. And I hope you don't mind my self-proting plug. I don't do it usually, but your Croc story, example and insight is just soooo poignant I couldn't resist. Thanks!

[Alvin]

I see a few holes in this analysis.

Crocs, regardless of how well it could have been marketed, branded, etc. etc. is still fundamentally a poor product. (There have been many instances of the shoes being unsafe in "watery" conditions - go figure). Besides safety issues, it's simply an inelegant design that couldn't stand the test of time.

It became successful by riding a wave of hype, but it wouldn't have been able to sustain it no matter what because fans would begin to find the usefulness and longevity of the product questionable.

Also, examples abound of companies with marginal products who break the rules of dampening demand and line extensions (mainstream beer comes to mind). In the end, Coors thrives despite a watery product promoted by faddish gimmicks.

Crocs failed not necessarily because it was an unsustainable brand, but because it was an unsustainable product.

[Richard Elen]

Fascinating and useful piece.

I also can't help thinking that a major contributory factor to diluting the brand via over-availability was that there were a vast number of knock-offs quickly available at very low prices. They weren't made of such high quality materials, but they appeared extremely similar and at least in the UK many people I know didn't seem to notice the difference.

I would tend towards the opinion that even if Crocs had successfully dampened demand, Croc-like shoes would have been extremely widely available in any event – except that they wouldn't have been Crocs.

At least Crocs maximised the sales of their own product instead of no-name knock-offs getting all the unit sales.

[Sean]

Brilliant analysis. In the UK we have an interesting parallel in some respects in a brand called 'vivo barefoot' which, as the name suggests is meant to replicate 'natural' barefoot walking. The shoe is targeted at young urban folk and is part of the terra plana brand. Imagine my surprise then when I visited one of the terra plana shops in London and found that not only were the low-heel vivo barefoot shoes on sale but on the opposite side of the store there were lots of very colourful and well-designed, high-heeled women's shoes. But can you have such different categories of shoes under the same roof? I put that question to the manager as he wrapped my vivo barefoots. 'Funny you should bring that up,' he said. 'There's a big debate going on amongst the partners about exactly that.'I think that we all know what the company should do -that is, separate the shoes by using different retail outlets. But will they do it? I wouldn't bet on it.

[twitter.com/Trigeia]

By the way Jason I love Krispy Kremes! and you are 100% right