Critical list: Crocs

The famous foam footwear brand has gone from hero to zero. Now it's losing millions.

by
Last Updated: 06 Nov 2012

It wasn't long ago that foam footwear Crocs were soaring in popularity, snapping at the heels of other big names such as Birkenstock. In 2007 a report even suggested that Crocs were the 'most searched-for fashion item in the UK'. But fashion trends don't last for ever. Last month, Crocs (the company) revealed losses of £18.1m, compared with a net profit of £1.3m last year. It has taken drastic steps to cut costs, including the layoff of 2,000 staff. But will these be enough to save the shoemaker from the jaws of recession?

Danger signs
Crocs' strategy has had holes in it for some time. Four years ago, inventory overload sent shares plummeting, and it looks like it may be falling into the same trap again. Adding to the company's woes, the product is easily copied. Crocs has so far filed complaints against 11 companies that manufacture, import or distribute cheap imitation products - 'Crock-offs', as they're called. Distribution of these mock-Crocks has hit sales: revenues fell a catastrophic 42% in Europe and 19% in the Americas, where the brand has met with most success.

Prognosis
There's still hope for the company. It didn't fare as badly in its second quarter as Wall Street analysts had feared, and the launch of the multi-coloured plastic clogs into the Asian market has gathered steam, with revenue in the region growing at 30% or more. But the company's long-term growth looks shaky: Crocs isn't expected to make a profit for the rest of this financial year. What's more, it may never work off surplus stock, and if the company continues to discount, its margins will be crippled. Despite this, Crocs remains a big consumer brand and is unlikely to disappear overnight. Shares are doing better than they have in almost a year, hitting $6 in recent weeks (up from between $1 and $2 a couple of months ago). This suggests that Wall Street investors are expecting a sale. It may be just a matter of time before a hungry rival comes along and snaps the suffering shoemaker up.

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