Change is afoot at Crocs Inc., where the company is not only relocating its distribution center and planning to move its headquarters but also ramping up its digital efforts, something company executives outlined this week during a presentation at the 31st annual ROTH Conference in Orange County, CA.
Speaking at the conference, EVP and CFO Anne Mehlman summarized the company’s three growth levers—Product, Channel and Region—where Crocs has shifted its focus following a recent restructuring.
Here’s a breakdown of each:
- Product. Crocs aims to innovate and grow core clog relevance while tapping into significant long-term growth potential with sandals and emphasizing its visible comfort technology. Clogs are a $4 billion a year global category, and Crocs is the market leader around the world. This is also the company’s highest margin category, and it aims to grow its presence here through more collaborations (like the recent successful one with Post Malone), optimizing color options and adding more personalization. Meanwhile, sandals is a $23 billion a year global market with no real leader and runway for Crocs to grow in the casual, outdoor and fashion spaces.
- Channel. Crocs is seeing double-digit e-commerce growth—15 percent CAGR—which has been driven by its own sites (11 around the world) and has benefited from the continued shift from brick-and-mortar to digital. However, the greatest upside is on the wholesale side (specifically to e-tailers and distributors as opposed to traditional brick-and-mortar), Rees said, and the company is prioritizing its most profitable retail outlets as it closed non-outlet stores. The company has also ventured into global marketplaces. It now sells directly on five sites and plans to add five or more sites in 2019.
- Region. Asia presents the largest long-term growth potential (primarily China, Korea and Japan) for Crocs high growth and underpenetrated markets, while the Americas is seeing strong momentum.
Let’s dig into how the company is working to optimize its channel strategy, which is becoming more and more digitally focused, Mehlman said.
The company’s e-commerce strength, through both its own website and third-party marketplaces, was evident in the fourth quarter. E-commerce revenues increased 28.3 percent to $28.1 million as site traffic surged. Active customers increased over last year and the number of new customers grew at a significantly faster rate. E-commerce grew 22.5 percent for the year.
“From a channel perspective, we have seen double-digit e-commerce growth and we believe that will continue,” Mehlman said at the Roth presentation. “We had record e-commerce revenue in 2018 and we expect that to continue as consumers shift to the e-commerce channel.”
Even on the company’s wholesale side, which focuses on selling to e-tailers and brick-and-mortar stores, digital is where the growth is occurring, Mehlman said.
Looking more closely at the company’s own branded e-commerce website, Mehlman said, “We continue to see traffic growth. It’s a fast-growing distribution channel just because the consumer is migrating there. We’ve been investing in people and technologies to continue to drive people to our own dot.com.”
As for marketplaces, where Crocs is able to sell direct to the consumer through third-party sites (Amazon in Europe, TMall in China, etc.), Mehlman said, “The way that we’re going to win there is we launched five sites in 2018 and we’ll launch an additional five sites in 2019 and we’ll continue to look to that channel.”
And looking at e-tailers—which is 50 percent of Crocs’ wholesale business and includes pure-play e-commerce providers like Amazon, Zappos and others—Mehlman said, “The way that we’ve been able to gain share is by achieving consistent double-digit e-tail growth” through product segmentation and investing in onsite marketing.
On the digital marketing side, Mehlman said Crocs in 2017 moved to 100 percent digital marketing, including celebrity and brand ambassadors, along with enhanced social engagement in the U.S. and globally.
“We will continue to double-down on our digital marketing strategy,” Mehlman said. “One of the great things about being able to pivot to a digital marketing strategy is it allowed us to scale a global campaign, which we had never been able to do before from a marketing perspective so we could stretch our dollars much further and have a consistent message to all of our markets, including giving marketing and messaging to our distributor partners.”
Digital has come at the expense of brick-and-mortar, as the company has reduced the number of physical stores and focused on the more profitable outlets. Crocs has closed 175 retail stores since 2016 and now has 383 stores worldwide (about half of those are outlets) with no plans to drastically change that profile.
“Overall our retail footprint is about right at this point,” Mehlman said.
As Crocs ramps up its digital presence, the company has made some news lately related to its physical infrastructure. Crocs recently announced it will relocate its headquarters from Niwot, CO, to nearby Broomfield, CO. The move is part of the company’s strategy for long-term, sustainable growth, including employee retention and recruitment.
Also, the company is moving its distribution center from Ontario, CA, to Ohio, which will result in $35 million in capex, Mehlman said, but will save the company money over the long term on freight. That price tag is part of a total of $65 million capex spend in 2019, up significantly from $12 million in 2018, mostly on deferred IT and infrastructure investments, Mehlman said.
Photo courtesy Crocs Inc.