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Crocs: Revolutionizing an Industry’s Supply Chain Model for
If the products sell extremely well, we will
build more in season, and will be back on the
shelves in a few weeks. And we’ll build even
more, and even more, and even more, in that
same season. We’re not going to wait with a
hot new product until next year, when hopefully the same trend is alive.
—Ronald Snyder, CEO of Crocs, Inc.1
On May 3, 2007, Crocs, Inc. released its results for the
first quarter of the year. The footwear company,
which had sold its first shoes in 2003, reported revenues of $142 million for the quarter, more than three
times its sales for the first quarter of 2006. Net income, at $0.61 per share was more than 17 percent
of sales, nearly four times higher than the previous
year.2 These results far exceeded market expectations, which had been for earnings of $0.49 per share
on $114 million of revenue.3 As part of the earnings
release, the company announced a two-for-one stock
split. Immediately after the announcement, the stock
price jumped 15 percent.
The growth and profitability of Crocs, which made
funky, brightly colored shoes using an extremely comfortable plastic material, had been astounding. Much
of this growth had been made possible by a highly
flexible supply chain which enabled the company to
build additional product to fulfill new orders quickly
within the selling season, allowing it to respond to unexpectedly high demand—a capability that was previously unheard of in the footwear industry. This ability
to fulfill the needs of retailers also made the company
a very popular supplier to shoe sellers.
This success also raised questions about how
the company should grow in the future. Should it
vertically integrate or grow through product line
Quotations are from interviews with the authors, unless otherwise specified.
Press Release, “Crocs, Inc. Reports Fiscal 2007 First Quarter
Financial Results,” May 3, 2007. Online at http://www.crocs.
com/consumer/press_details/688244 (accessed May 4, 2007).
Rick Munarriz, “Ugly Shoes, Pretty Profits,” The Motley Fool,
May 4, 2007. Online at http://www.fool.com/investing/highgrowth/2007/05/04/ugly-shoes-pretty-profits.aspx (accessed
May 7, 2007).
extension? Should it grow organically or through acquisition? Would potential growth paths exploit
Crocs’ core competencies or defocus them?
In 2002, three friends from Boulder, Colorado went
sailing in the Caribbean. One brought a pair of foam
clog shoes that he had bought from a company in
Canada. The clogs were made from a special material that did not slip on wet boat decks, was easy
to wash, prevented odor, and was extremely comfortable. The three, Lyndon “Duke” Hanson, Scott
Seamans, and George Boedecker, decided to start a
business selling these Canadian shoes to sailing enthusiasts out of a leased warehouse in Florida, as
Hanson said, “so we could work when we went on
sailing trips there.”4 The founders wanted to name
the shoes something that captured the amphibious
nature of the product. Since “Alligator” had already
been taken, they chose to name the shoes “Crocs.”
The shoes were an immediate success, and word
of mouth expanded the customer base to a wide
range of people who spent much of their days standing, such as doctors and gardeners. In October 2003,
as the business began to grow, they contacted Ronald
Snyder, a college friend, to become a consultant for
the company. Snyder had been an executive with
Flextronics, a leading electronics contract manufacturer, heading up the company’s design division. He
had extensive experience in manufacturing operations, mergers and acquisitions, and sales and marketing. When he first started consulting with Crocs,
Snyder said, “I thought I would work a few hours a
day. I thought it would be restful.”5 But seeing the
rapid growth of the company based on word-ofmouth marketing, Snyder joined Crocs in June 2004
as its president, becoming CEO in January 2005.
When Snyder joined the company it was headquartered in Colorado, but essentially distributing
shoes made by the Canadian manufacturer Finproject NA. One of Snyder’s first moves was to purchase
Diane Anderson, “When Crocs Attack,” Business 2.0,
November 1, 2006.
David Hoyt and Amanda Silverman prepared this case under the supervision of Michael Marks, Professors Chuck Holloway
and Hau Lee as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 2007 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. No part of this
publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any
means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Stanford Graduate
School of Business. Reprinted with permission.
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Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage 493
Finproject, which was renamed “Foam Designs.”
Crocs now owned the formula for the proprietary
resin “croslite™” that gave the shoes their unique
properties of extreme comfort and odor resistance.
The company now also controlled manufacturing.
Snyder encouraged the company to think big. He
brought in a number of key executives from Flextronics, and built infrastructure in preparation for
growth. (See Exhibit 1 for Crocs executives and directors.) He also launched the product worldwide.
EXHIBIT 1 Crocs executives and directors.
Ronald Snyder, President, CEO, Director
With Cross since June 2004 (consultant since October
2003). Senior executive with Flextronics. Founder of
The Dii Group, which was acquired by Flextronics.
With Crocs since April 2006. Previously EVP, CFO, and
treasurer of publicity held sports apparel and
With Crocs since January 2005 (consultant beginning in
2004). Previously an executive with Flextronics and
The Dii Group.
With Crocs since January 2005. Led Crocs sales group
as a consultant beginning in October 2003. Previously,
founder and executive with an apparel and
Peter Case, SVP, Finance, CFO, Treasure
John McCarvel, SVP, Global Operations
Michael Margolis, VP, Sales and Marketing
Board member since August 2004. Prior to retirement
in 1999, ran a healthcare information technology
consulting firm. Also on the board of several privatelyheld companies.
Board member since 2006. Vice Chairman of Saks Fifth
Avenue. Background in global retailing.
Board member since August 2004. Member of Kohlberg
Kravis Roberts & Co., a private equity firm, as a member
of the firm since January 1, 2006. Chairman of
Flectronics. Previously, he was with Flextronics from
1991–2005, serving as CEO and chairman. Also a
director of SanDisk Corporation and Schlumberger Limited.
Board member since 2006. Background in the apparel
business, including Limited Brands, Inc., Gap, Inc.,
Banana Republic, and Ann Taylor.
Board chairman since April 2005. With Circuit City from
1982 to 2002, serving as president, CEO, and chairman.
Also a board member of Flextronics (formerly chair).
And of Carmax, Inc., the nation’s largest specialty
retailer of used cars and light trucks.
Board member since April 2005. With Flextronics since
2000, as CFO, and SVP of finance. Previously SVP, CFO
and treasure of The Dii Group, Inc., which was acquired
by Flextronics. Also serves on the board of ADVA AG
President of Crocs. See background above under
Richard Sharp, Chairman
Sources: Crocs website, “Board and Management Profiles,” http://www.crocs.com/company/Investor_Relations/Board_Management.jsp
(April 23, 2007), Crocs Proxy, October 2006.
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Snyder explained the rationale behind launching
worldwide at an early point in the company’s life:
The plan was, we’re going to launch the world in
order to get a brand out that would be a sustainable brand with this funky looking, strange
product. Other, larger shoe companies, or even
larger apparel companies, could have knocked us
off, and could have gone into Europe before we
got there if they had infrastructure in Europe.
So, being Flextronics guys, and understanding
that the world is flat, and you can get everywhere fairly quickly, we said, “we need to launch
the world pretty much at once.” We delayed a
bit in South America, but now we’re there fairly
strong, too. But we needed to launch everywhere in order to have us be the brand that had
sustainability. That’s what we’ve been able to
pull off at this point. We were in every country
you can think of before anybody else had any
real capability to ship product in other countries
besides the U.S. Certainly, there are knock-offs in
all those other places, but they are just known as
knock-offs. They are not known as originals,
which is what we were hoping to achieve.
Crocs started its sales efforts on a grass-roots basis
in the U.S. The company participated in many trade
shows in every industry that could benefit from the
product, such as garden shows, boat shows, and pool
supply shows. As stores began carrying the shoes,
Crocs personnel worked closely with the stores. Snyder
observed, “If you just put up a rack of funny-looking
shoes, I don’t think they would have done anything.
But we got in there with some of our own people, or
our reps, and stood around and got people excited.”
Crocs also went to a wide range of events, such as concerts, festivals, and sports tournaments, to talk to customers about the shoes. The company took a similar
approach in other countries, but the momentum generated in the U.S. helped foreign adoption.
The company initially used representatives and
distributors in the U.S., but brought this function inhouse in order to control costs. In other countries,
Crocs had its own sales staff wherever possible, but
as of mid-2007 had some 3rd party distributors in
In addition to a popular product and a global
strategy, Crocs developed a supply chain that provided a competitive advantage. Traditional industry
practice was for retail distributors to place bulk orders for each season’s inventory many months in advance, with little ability to adjust to changes during
the selling season. The Crocs model did not impose
these limitations on retailers—the company could
fill new orders within the season, quickly manufacturing and shipping new product to retail stores.
The traditional practice, and the Crocs supply chain
will be described in detail below.
From 2003 through 2006 the company had
phenomenal growth. Revenue in 2003 had been
$1.2 million. By 2006, it was $355 million, with a net
income of $64 million (18 percent of revemk). Crocs
went public in February 2006, with an initial market
capitalization of over $1 billion. After the Q1 2007
earnings release, the market cap passed $2.7 billion.
Sales outside of North America grew from 5 percent
of total revenue in 2005 to 25 percent in 2006. In its
Q1 2007 earnings release, the company said that it
expected 2007 revenue to be between $670 and
$680 million. (The company had historically reported
results that comfortably exceeded expectations.6)
(See Exhibits 2 and 3 for company financial information.) Crocs’ financial performance was far superior
in many respects to others in the footwear industry
The Crocs Shoe
The original Crocs shoe was a clog design. Visually,
its two most distinctive features were large ventilation holes and bold colors. The key to the shoe, however, was the croslite material. This proprietary
closed-cell foam material molded to the shape of
the wearer’s foot, providing an exceptionally comfortable shoe. It was extremely light, did not skid,
was odor resistant, and did not mark surfaces. It
could also be washed with water. Croslite could be
produced in any color, and the company chose bold
colors (described by some as “crayon” colors) which
further enhanced the distinctive, funky look. Crocs
shoes generally sold for about $30—which was not
marked down, as retailers found they did not need
to unload excess inventory through clearance sales
at the end of a selling season.
As Crocs grew, it added additional shoe designs.
The two original models, Beach and Cayman, accounted for about 62 percent of footwear sales in
2006.7 These two models also formed the basis of
some of the other Crocs models. By April 2007, the
company had a wide range of shoes and other products. Its website showed 31 basic footwear models,
ranging from sandals to children’s rain boots to
shoes designed for professionals, such as nurses,
who had to stand all day. Some of its shoes were
made under a license agreement with Disney, and
incorporated Disney characters. In addition, Crocs
offered four models of shoes (CrocsRX) that were
Munarriz, loc. cit.
Crocs Form 10K for 2006, pp. 15–16.
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Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage 495
EXHIBIT 2 Crocs’ ﬁnancial performance through 2006.
All amounts in $ millions, except as noted.
Cost of goods sold
Gross profit margin
Net income after taxes
Net profit margin
of revenue (% of total)
Shoes as percent of
Selected Balance Sheet Items
(Calendar year end, all values in $ millions)
Net fixed assets
Sources: Hoovers. Product and geographic distribution of revenue from Crocs Form 10K for 2006, pp. F-27, 28.
EXHIBIT 3 Financial results, Q1 2007.
The following results were released May 3, 2007, for the quarter ended March 31, 2007 (dollar values in
millions, except as otherwise stated):
Gross profit (% of sales)
Net income, after tax
Net income (% of sales)
Net income per share, diluted
Source: Crocs Press Release, May 3, 2007, loc. cit.
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EXHIBIT 4 Industry comparisons.
Comparisons of Crocs with companies selected as “best of group” and industry median.
Annual sales ($ million)
Market capitalization ($ million)
Gross profit margin
Pre-tax profit margin
Net profit margin
Return on equity
Return on assets
Return on invested capital
Price/Cash flow ratio
12 month revenue growth
12 month net income growth
12 month EPS growth
Source: Hoovers Online Competitive Landscape (April 27, 2007). Crocs growth numbers are for calendar years 2005 and 2006. Crocs inventory turns
designed to meet the special needs of those with
medical problems that affected the feet, such as diabetes. The company offered 17 models of collegiate
models that were made in school colors, with the
school logos. Universities such as USC, UCLA, Notre
Dame, Cal, and Ohio State participated in the program. (By the start of the 2007/8 academic year,
Crocs expected to include many other institutions in
its catalog of university logo shoes.) Crocs sponsored
the AVO beach volleyball tour, and offered two
models with the AVP logo.8 (See Exhibit 5 for photos
of selected Crocs products.)
While shoes comprised 96 percent of company
revenues in 2006.9 Crocs also branched out into
other accessory products, such as caps, shirts, shorts,
hats, socks, and backpacks. It had products such as
kneepads and kneelers that utilized croslite to provide functionality. It also sold decorative inserts that
could be put into the shoe ventilation holes, originally made by a family-owned company (Jibbitz)
that Crocs purchased in December 2006.
Product links from Crocs homepage: http://www.crocs.com/
home.jsp (Accessed April 24, 2007).
Crocs Form 10K for 2006, p. F-27.
Crocs made other acquisitions in 2006 and early
2007 in the sports protection equipment and apparel market, and in action footwear. These acquisitions further broadened the company’s product line,
and introduced products that incorporated conventional materials such as leather. (See Exhibit 6 for a
list of Crocs acquisitions.)
Producing a Crocs Shoe
The raw materials for the croslite in Crocs shoes are
relatively inexpensive chemicals purchased in pellet
form from suppliers such as Dow Chemical. These
chemicals are then combined in a process called
“compounding,” in which they are converted into a
slurry, mixed, and then reformed into new pellets.
As part of the compounding process, color dyes are
added. The compounded pellets are then ready to
be molded into croslite products.
Croslite components for Crocs products are made
by injection molding. This requires an injection
molding machine, and molds for each style and size.
After the parts are molded, they must be assembled.
This might involve gluing croslite parts together, or
stitching, in the case of components made of leather,
canvas, or other materials which had been added to
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Crocs: Revolutionizing an Industry’s Supply Chain Model for Competitive Advantage 497
EXHIBIT 5 Selected Crocs products.
Beach was the company’s most
popular model. Beach and Cayman
accounted for 62 percent of 2006
Beach and Cayman were the first two
Crocs products, and formed the basis
for some other shoe models.
Disney beach was a version of
the Beach model produced
under license from Disney.
Professional was intended for
people such as nurses who spent
all day working on their feet.
Jibbitz were used to customize Crocs
shoes by filling the ventilation
holes in the shoes.
crocs 1” wristband
Crocs offered branded accessories ...
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