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Q&A With Crocs' John Duerden

The CEO addresses the struggling brand's future.



FN: What do you need to do to complete a turnaround?

JD: We need to come up with a business model that is much more suited to the footwear business today. We need to be leaner, we need to be able to move more quickly and respond more effectively to changes in the market. We need to concentrate on producing great product and bringing that to the marketplace in an effective manner. We need to improve our information systems — they are already improving, there’s been a big investment in our information systems. Once those projects are completed, we will be in a much better position to lower the cost base of the company and provide the level of service that is essential in this industry today.

FN: Crocs’ initial success led to copycats, which stole market share and buzz. Is that still a problem?

JD: Yes, there’s been an impact from knockoffs. But that’s not something unique to Crocs. I can remember the days when Reebok was constantly being assaulted by knockoffs in the marketplace. You have to build the brand positioning so that you distinguish yourself from the competition either with the design of the product, the way in which you manufacture the product, the quality of the product or the way you service the customer. You’ve got to build a competitive advantage.

FN: The company had tried to branch out into higher end shoes with the You by Crocs line. Is that still a priority?

JD: You by Crocs is not. It has been temporarily shelved. But there is a female market out there that we are doing quite well in with injection-molded shoes. You by Crocs is something I’ll take another look at [down the road]. But at the moment, we’re focusing on the core Crocs product.

FN: And what about the apparel Crocs launched?

JD: Apparel has been shelved as well. We need to focus on what we do well.

FN: Two weeks ago the company said it will close its distribution center in Colorado, and also had another round of layoffs. What other cost-cutting measures will you take?

JD: We will be taking further actions to bring our costs in line with revenue. I don’t want to be very specific at this stage, but we’ve got a line of sight on where we need to go with the organization.

FN: So you could lay off more employees or part ways with underperforming retailers? Is everything fair game?

JD: Yes. You need to take a look at what’s profitable and what’s not, and you take a very close look at what’s not. That’s really the exercise I’ve been going through in the last 70 days, finding out where we are making money, where things can be adjusted relatively easy or if there are things where we are going to have to make some hard calls.

FN: Some analysts say Crocs’ downward spiral began with inventory problems. What’s the inventory situation today?

JD: Inventory was a big problem for the company. It was almost what I’d call a “perfect storm.” The economy collapsed and the retail market started to suffer just as Crocs had geared itself up for continuation of its amazing growth. So that’s a lot to deal with. We have made some good progress on inventory. Our inventory is a lot lower now than it was a year ago. We’re down 50 percent. We need to bring it down further. I’m hoping to bring it more in line with what I regard as industry norms in terms of turnover by the end of this year.

FN: One of the other criticisms is that Crocs’ shoes were overdistributed and lacked exclusivity. What changes should retailers expect to see regarding distribution?

JD: The comment that the product was overdistributed is absolutely right. We need to come up with a much more selective distribution strategy for this product, which would clear the market effectively. That’s a very high priority for me and something that we’re working on as we speak. It’s going to take us awhile to finalize that and get it implemented in the marketplace, but it’s very high on my radar.

FN: Another issue was that Crocs failed to buy brands that would add product diversity. Any plans to acquire?

JD: I’m not certain I want to acquire anything else at this stage. We need to focus on our core business, doing what we do best. If that means stabilizing the growth of the company, that is what we should do. Jibbitz has been quite successful, some of the others have been less successful and we’ve either terminated those brands or just put them on the backburner. There’s one or two of them that will be interesting in the future. Ocean Minded, for example, when we have time to spend on it, can have some good potential. But I’m not about to institute a major acquisition strategy right now.

FN: On the flip side, are you readying Crocs for a sale?

JD: No. That’s the short answer. My task, the one the board has given me, is to get this company turned around and moving in the right direction. To do that we need to concentrate on the basics, to take care of our retailers, to come up with an effective distribution and channel strategy, and we need to bring in a progressive stream of interesting new products that are still recognizable as Crocs products, but maybe extend the brand into some new areas. For instance, the Prepair shoe we recently introduced as a sports-recovery product is an interesting area for us.

FN: Growth outside the U.S. has been a major push. What markets are you focused on?

JD: Crocs has about 50 percent of its sales now outside of the U.S. To grow the international business is an important priority. In Asia, in particular, we have good operations there. Japan, mainland China and the whole of Southeast Asia represent a significant opportunity for us. The brand has had a good reception there. The European market has been a tough market for us. But we’ve put a good team in place in Europe and our business will improve there this year.

FN: What’s the healthiest part of the Crocs business?

JD: The kids’ business is doing well and that’s an area I want to focus on. It’s just a natural shoe for kids. And the shoes are at a good price point, they’re attractive, they’re fun. They are a lot of the things you want in a recession. And the kids’ business certainly helps to stimulate the women’s business, and for us, those are the two strongest bits of the market.

FN: What are you enjoying most about the job?

JD: It’s great to be back in [product] line operations again. I’d been working on putting together deals and investing in companies and doing some consulting work over the last three years, some of which has been in the footwear business, but running an operation again is the ultimate challenge, and I’m enjoying being back at the helm.

 

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