Crocs, known for their iconic clog design, have had an up and down history since being founded in 2002. While they saw massive popularity and growth in the mid 2000s, the late 2000s brought declining sales and talk of bankruptcy. However, Crocs managed to avoid completely going under and have since rebounded as a company. Here is an in-depth look at when and why Crocs almost went out of business.
Crocs’ Early Success
Crocs Inc. was founded in 2002 by Scott Seamans, Lyndon “Duke” Hanson, and George Boedecker Jr. Originally developed as a boating shoe, the lightweight resin clog design that became their signature product was initially mocked by reviewers. However, Crocs quickly caught on in 2004 and 2005, appealing to people in food service, healthcare, and other jobs that required long periods of standing and walking. Their clogs were comfortable, slip-resistant, and easy to clean.
By 2006, Crocs had sold over 100 million pairs of shoes worldwide and revenue had increased by triple digits yearly. The distinctively ugly clogs were now deemed a fad and were even worn ironically by celebrities like Michelle Obama and Mario Batali. Demand was so high that Crocs even had a 6 month backorder. It seemed that the company could do no wrong.
Declining Sales and Mounting Losses
However, by 2008 Crocs was struggling with declining sales and losses. After selling 50 million pairs of shoes in 2007, Crocs only sold 33 million in 2008. Stocks dropped from a high of $75 per share in October 2007 to just $10 per share in November 2008. Crocs had expanded too quickly and overestimated long term demand for their products.
In 2009, Crocs posted a net loss of $185 million after losing $22 million in 2008. Layoffs commenced and manufacturing facilities were downsized as Crocs had 2 years worth of inventory sitting idle. Their single model approach focused solely on their clog also hurt Crocs once consumer tastes changed. Expenses grew as Crocs branched out into clothes, bags, watches, and other products but sales continued to decline with net losses of $180 million in 2009 and $230 million in 2010.
Key Mistakes That Led to Problems
Crocs’ sudden fall can be attributed to several key missteps:
- Overreliance on their signature clog product
- Unsustainably rapid expansion of manufacturing and operations
- Failure to respond to competition from imitators and fading fad demand
By only focusing on their clog, once interest waned Crocs had no other popular styles to drive sales. Expanding so quickly also left Crocs saddled with extra manufacturing capacity and inventory they couldn’t sell. New leadership was eventually brought in 2010 to help rescue the company.
Near Bankruptcy and Turnaround
By 2011, Crocs was on the verge of bankruptcy. The previous years losses had left Crocs with only $80 million in cash though they owed $180 million in debt. Crocs stock traded at a mere $4.05 per share in December 2011.
Crocs was saved through a combination of layoffs, store closures, inventory reduction, product diversification, and debt restructuring. More casual slip-on shoe models and sandals were added to diversify beyond their clogs. 300 of 624 global retail stores were shuttered to cut costs along with significant layoffs. Inventory was slashed by $35 million and $200 million in debt was converted to equity.
These necessary steps paired with slowly recovering sales allowed Crocs to avoid bankruptcy. 2012 finally saw increasing revenues again and marked a turning point. While Crocs will likely never regain the explosive growth of the mid 2000s, they have settled into being a stable company with a dedicated customer base.
Key Turnaround Strategies
Here are the major changes and strategies that allowed Crocs to bounce back from the brink:
- Diversified footwear offerings beyond just clogs
- Closed underperforming retail stores
- Cut manufacturing capacity and slashed excess inventory
- Reduced expenses through layoffs and restructuring
- Converted debt to equity to improve balance sheet
By improving company fundamentals and focusing on sustainable operations, Crocs was able to regain profitability after years of mounting losses.
Crocs Today
Since its near bankruptcy in 2011, Crocs has had relatively steady operations over the past decade. While revenues are well below their 2007 peak, Crocs has found stability through its diverse product line. Casual shoes and sandals now make up a significant portion of sales in addition to the classic clog.
The company had a small sales boost during the COVID-19 pandemic, likely due to increased demand for comfortable at-home footwear. Annual revenues were $1.39 billion in 2020 compared to $1.23 billion in 2019. Profits have been thin but consistent, with small net income each year from 2013 to 2020.
While Crocs may never again soar to the level of popularity it had in the mid 2000s, the company has learned from past mistakes. By having a diverse product line and conservative operations, Crocs has evolved into a stable footwear brand with a niche following.
Key Takeaways
- Founded in 2002, Crocs saw exponential growth in the mid 2000s from their iconic clog.
- By 2008, sales were declining rapidly and Crocs began posting large losses.
- Crocs came close to bankruptcy in 2011 after losing $200+ million from 2009 to 2010.
- Turnaround strategies including cost-cutting, debt restructuring, and product diversification allowed Crocs to avoid bankruptcy.
- Though sales remain below their peak, Crocs has been profitable since 2013 by focusing on sustainability.
In the span of a decade, Crocs went from being a fad success story to a company on the verge of failure. Their ability to bounce back after record losses demonstrates how brands can self-correct after periods of unsustainable growth. While Crocs will likely never return to the popularity of the mid 2000s, the company has reinvented itself in line with a smaller but loyal customer base.
Frequently Asked Questions
Why were Crocs so popular initially?
Crocs became a huge fad starting in 2004 due to their colorful, lightweight, and comfortable clog design. The resin shoes were perfect for service industry jobs where workers have to stand for long periods. Crocs were also seen as quite ugly by some, which led to them being worn ironically by celebrities and others.
How did Crocs expand so quickly?
Rapid expansion was a key reason for Crocs downfall. Caught up in their initial popularity, Crocs greatly increased manufacturing capacity and operations to meet demand. This left them saddled with extra costs and inventory when sales slowed a few years later.
What products helped revive Crocs?
Diversifying from just their signature clog helped Crocs recover after failing as a one-hit wonder. Adding more casual shoes, sandals, and boots gave Crocs more products to sell and reduced reliance on a single model.
Is Crocs still a popular brand?
While no longer ubiquitous like in 2006, Crocs has maintained a loyal customer base. They sell around 50-60 million pairs of shoes annually, mostly focused on casual and comfort footwear. The brand has shifted from a fad to a company with steady, sustainable growth.
Could Crocs go bankrupt in the future?
Crocs is unlikely to go bankrupt after learning from past mistakes. They have diversified product lines, efficient operations, and reasonable debt levels. Barring another sharp decline in clog popularity, Crocs financials are stable enough to avoid bankruptcy.
