Yesterday, reports surfaced that Crocs — the maker of those iconically clunky but featherweight clogs — is thinking about going private. While the company isn't in terrible shape, it's consistently missed revenue projections, sending its stock into a downward slide that seems to have no end.
But wait — haven't you heard this story before, about the very same company, only four years ago?
You sure have. And the fact that you're hearing it again is a parable about how difficult it is to manage even a good brand well enough to avoid disaster — and the perils of the constant demands for growth that face publicly traded companies.
First a little history.
Back in 2009, Crocs was in big trouble. After sales took off in the mid-2000s, it struggled to keep up with demand, reaching $847 million in revenue in 2007. When production finally caught up, it went overboard, ending up with mountains of shoes and no one to buy them just as the economic downturn hit. That sent the company into a tailspin, losing $185 million in 2008, which drew shareholder lawsuits and auditors who said Crocs might not be able to pay off its debts.
That might've been the last you've heard about the footwear manufacturer. But in the years to follow, Crocs pulled off a remarkable comeback. John Duerden, a turnaround expert who used to run Reebok, arrived at the helm in March 2009 to close factories, cut nearly a third of the company's workforce and get rid of the excess inventory. He also shelved unprofitable lines of apparel and high-end women's shoes, trying to stick to products "still recognizable as Crocs."
By the time Duerden left in early 2010, the company was back on the road to profitability. John McCarvel, who was appointed CEO after years in different positions at the company, started rapidly expanding again, opening retail stores and developing scores of new products — boots, heels, flats, wedges and sneakers — in an attempt to become a "four-season" brand. They would even put the classic clogs at the back of the store to make customers walk through all the new stuff in order to get to something they thought they wanted; non-clogs now make up a majority of the company's revenue.
"When you have an iconic shoe to start with, it’s hard to get people to think about you differently," he told the Denver Business Journal in 2012. "Our ongoing mantra has been getting new consumers to understand our diverse portfolio of products."
That seemed to work, for a while. Revenues started growing again, and reached $1.12 billion in 2012, but have been leveling off. Despite strong sales in Asia — where the company doesn't carry the same perception baggage — it's whiffed on expectations for several of the past quarters, comp sales are declining in the U.S., and the stock has been drifting downwards since its post-recovery peak in mid-2011.
So what went wrong? In short, all that growth came at a cost.
On earnings calls, executives chalk up the weakness to things beyond their control, like low consumer confidence, currency fluctuations and even the weather. Another problem: Amazon.com. Crocs happily sells in bulk to Amazon, which automatically discounts if a competitor posts a cheaper price. Amazon may be able to eat the cost, but it puts Crocs in a tough spot, since consumers now have little incentive to pay face value in its stores.
"If you've created a monster, you have to kill the monster. But if you kill the monster, the stock goes down," says Sam Poser, an analyst with Sterne Agee. "Management doesn't want to do anything to show that growth is slowing down."
Poser, who issued a very critical note on the company in August alleging a "leadership void," says the company had lost talented marketing staff, allowing the message to drift even as it continues to open new stores.
"They need to be pulling back, closing stores, figuring out the Amazon problem, controlling the brand," Poser says. "As long as they're allowing the distribution they have, it can't be good enough."
In essence, it's a case of expanding too fast in an endless quest for new growth to satisfy investors — which was part of the problem the first time around.
"If you have a brand that wasn't the luxury brand, that was the garden gnome of fashion, and you're just pushed to do more and more and more, it's really hard to manage," says marketing and branding expert Rachel Weingarten. It's a challenge that's also dogged UGG, which tried to branch out from its wildly popular suede boot, with limited success.
Going private — if indeed they're serious about the idea, and manage to find a buyer — could be a way to discipline Crocs' image, and focus on a few core products in a way that Wall Street would never allow.
"I think maybe a good way to do it would be like the Cabbage Patch dolls, to own the ugliness, to have limited editions," Weingarten says. "I think trying to be a high fashion brand was just never a great idea."