Running Head: Crocs Crocs Jess R. Vasquez Colorado State University – Global Campus ORG 500 Foundations of Effective Management Jama Bradley, Ph. D. 21 November 2009 Abstract Crocs Inc. , was founded in 2002 and immediately realized success. The company had a great idea and moved quickly to capitalize upon it. Early in 2006 the company entered into its IPO, it too was a huge success. “At the height of the real estate market, in 2006, the company sold shares to the public, raising more than $200 million in the biggest stock offering in shoe history” (Mui, 2009).
These successes were due in large part to the fact that the product had a large appeal and the supply and production models used were revolutionary to the apparel industry and were incredibly efficient. However, was too much focus and importance put on building a strong supply and production model and too little emphasis placed on understanding the importance of managing its value chain? The supply chain created was one which was developed in three stages. First, the company moved to purchase the manufacturer of the product in order to have proprietary rights to the raw materials.
The second stage was to begin to use contract manufacturers in different countries. Third, the company moved to bring some of the global operations which had been contracted out, in house. This was accomplished by developing company-owned manufacturing sites and warehouses located in strategic areas depending on need (Holloway & Lee, 2007). Value Chain: Industry Differentiation Crocs is a unique company as it is manufacturer, distributor, and retailer of its own product. This operation has obvious advantages; most important is the ability to lower overall cost to the end use customer. The company as certainly profitable. In 2005 and 2006 the company’s net profit margin of 18. 2%, led the industry; Deckers Outdoors had the second highest margin at 10. 4%. Crocs aggressive manufacturing and distribution strategies clearly gave it a competitive advantage. The company had successfully introduced a supply chain model never before used in the footwear industry, but did this success possibly give management a false sense of being “bullet proof” to changes? Traditional Value Chain Typically the requirements of a successful value chain include these areas: * Coordination and Collaboration Technology Investment * Organizational Process * Leadership * Human Resources * Organizational Culture and Attitudes (Coulter & Robbins, 2007) Crocs seemed to follow this general template in the development of their value chain. It was certainly coordinated in its production and supply efforts. The leadership was right for where the company was trying to go and that was to become more of a global presence. The culture would have been influenced by this aggressive leadership style. The company had invested heavily in machinery to increase production.
It had also developed a system that could quickly adjust its manpower requirements as was necessary. It relied heavily on the fact that the shoes were selling themselves, so the company did not seem to invest resources in improved technology, e-commerce. Apparel Global Value Chain Within the apparel value chain like the traditional method is a series of key steps: The level of marketing requirements often varies with the business model being deployed by a company. It can be virtually non-existent or it can be the main driver of competitive advantage.
The marketing department is typically responsible for: * Assisting the design team to understand market trends, end consumer profiles, changing market needs and new opportunities; * Developing programs to keep brands fresh and relevant to the end consumer; * Monitoring competitor activities and providing input on product prices, styling, etc; * Developing and implementing promotional or public relations campaigns aimed at retailers or end consumers; * Organizing product launches; Identifying sales leads and new channels of distribution; * Developing pricing and in-store promotion strategies to encourage retailer and consumer purchases (The Apparel Global Value Chain, 2009). This model addresses the fact that in fashion, change happens quickly, sometimes within months. The ability to constantly adapt to new styles, market interruptions, and pricing is paramount in this industry. Crocs had a solid product base and had also begun to develop other products and acquire existing companies to compliment their growth strategy.
With a very solid profit margin provided by the supply and production efficiency it steadily increased market share. Energized Value Chain This chain, like the others, relies on everyone contributing ideas and sharing insights across the organization. “Building an energized value chain is not corporate restructuring. It is more like reawakening and repositioning the current organizational and operational practice to thin uniquely from the perspective of the brand” (Gerzema & Lebar, 2008).
This model encompasses the strengths from the other models but builds upon them. It includes the finance department as well allows for constant reevaluation of existing business models. One example of this is Geico. It too was a director marketer of a product but realized it had to constantly change in order to not loose customer interest. It stimulated “engagement” with the famous free quote campaign called the “fifteen minute challenge. ” It also used different approaches to present the product from celebrities, to cavemen and geckos (Gerzema & Lebar, 2008).
When Crocs went public it immediately became even more aggressive with its growth initiatives. Market Downturn Forces Change The stock reached its high point in August of 2007 at just over $60 per share, its IPO price was $14. 25. The company began to take on more debt as it continued to build and operate more facilities. The real estate collapse followed by the financial market collapse coincided with the high stock price, which it did most companies, but because Crocs had a huge surplus of inventory and debt the downturn was nearly fatal. They had added a huge amount of infrastructure to meet this demand going forward,” said Jeff Mintz, an analyst with Wedbush. “Demand fell off, and they had way too much capacity and way too much supply of product. ” The company swung from a profit of $168. 2 million in fiscal year 2007 to a loss of $185. 1 million last year. In its annual report, Crocs said that an independent auditor expressed concerns about “conditions that raise substantial doubt about our ability to continue” [ (Mui, 2009) ]. Its stock price has plummeted 76 percent.
The company began to sell off subsidiaries, reduce employees and take other cost cutting measures to combat this downturn. Today the company’s stock has made some small gains, “Since inception, CROX has delivered $2. 6 billion in revenue with $41 million in cumulative net income and the market has punished the stock accordingly. However, $510 million in year to date revenue, with 9. 5 million units sold in Q3 alone, is compelling evidence of a brand with the potential for staying power. The fact is that the shoes are comfortable and durable, much of the world knows about them and some people like them.
Recent sales performance seems to imply that the brand has survived and CROX appears to have another chance to re-build an enduring and profitable business” [ (Big Charts, 2009) ]. In Retrospect There are several additions to the value chain which Crocs could have focused on and invested in which may have lessened the downturn in the market: * Leadership should have put more attention to marketing the product in multiple ways but it seemed to focus on just the supply chain and aggressive growth. This was a good model to follow initially.
Value chain leaders are wary of the success trap. Successful chains naturally tend to repeat the strategies that have led to success. Value chain leaders remain vigilant on the performance of the total system; they continue to improve chain metrics and develop capabilities, reinforce shared meanings and shared information, and are prepared to modify the underlying business design when required (O’Keefe). * With its huge investment in manufacturing equipment it at times had idle machines. The company was in a solid position to begin to produce products for other companies.
It could have also leased some of the machinery to companies who needed products made from the proprietary material. * The company had a very comfortable profit margin. However it never reduced prices as the profit margin grew larger. This could have added to net income as consumers would be more willing to purchase more than one pair of the shoes. * More attention to marketing trends would have predicted the fact that most buyers purchased one pair due not only to cost, but also due to the fact that the shoe was extremely durable.
Conclusion Crocs future is unclear, but it is taking positive steps to recover from the economic set back. It has changed leadership in a key role, “Early this year, Crocs’ chief executive Ron Snyder was replaced by John Duerden, who vows to change the company’s marketing strategy [ (Roberts, 2009) ]. The company is investing more in technology. It has contracted with a company which specializes in global branding and will use its website and other measures to sell the product and gather customer information and feedback. The new site is the first of multiple ecommerce sites that Crocs will roll out on the Demandware platform in various international markets over the coming months. The new Crocs. com features a fresh new design to showcase the company’s vast product line of casual footwear, along with several drastic improvements that greatly enhance the online experience for customers” [ (Big Charts, 2009) ]. The stock price has shown small, but positive movement as evidenced by the Q3 filings; (CROX 5. 45, -0. 08, -1. 5%) shares soared 29% after the shoemaker’s quarterly results and forecast, reported late Thursday, topped Wall Street’s outlook [ (Big Charts, 2009) ]. The company has a solid infrastructure established and with a focus on a complete value chain, Crocs has an opportunity to once again be an innovative, diversified company.
References Big Charts. (2009, November 12). Retrieved from Big Charts: http//www. bigcharts. marketwatch. com Coulter, M. , & Robbins, S. P. (2007). Management. Upper Saddle River: Pearson Education Inc. Gerzema, J. , & Lebar, E. (2008). The Brand Bubble. San Francisco: Jossey-Bass. Holloway, C. , & Lee, H. (2007). Crocs: Revolutionizing and Industry’s Supply Chain Model For Competitive Advantage. Stanford: Board of Trustees of the Leland Stanford Junior University. Mui, Y. Q. (2009, Jluy Thursay). Once trendy Crocs could be on their last legs. Washington Post , p. 16. O’Keefe, M. (n. d. ). LeaderExcel. com. Retrieved from Leadership Excellence: http://leaderexcel. com Roberts, C. (2009, July 16). 100 million foam clogs later. New York Daily News . The Apparel Global Value Chain. (2009, July 9). Retrieved from Industry Canada: http://www. ic. gc. ca