Crocs, Inc.

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Crocs, Inc.

6273 Monarch Park Place
Niwot, Colorado 80503
U.S.A.
Telephone: (303) 468-4260
Fax: (303) 468-4266
Web site: http://www.crocs.com

Public Company
Incorporated: 1999 as Western Brands LLC
Employees: 260
Sales: $108.6 million
Stock Exchanges: NASDAQ
Ticker Symbol: CROX
NAIC: 316219 Other Footwear Manufacturing

Crocs, Inc., is a Colorado maker of unique clogs that became extremely popular in the early 2000s with both men and women. The inexpensive shoes rely on a proprietary closed-cell resin material called Croslite to produce a lightweight, slip-resistant, odor-resistant, non-marking sole. The material also softens with body heat, thus molding the shoe to the foot of the wearer and providing a comfortable fit. Originally intended for use on boats and in other outdoor activities like hiking, fishing, and gardening, Crocs has also found a market with working people who spend a lot of time in their feet, such as health care and restaurant workers. Moreover, Crocs, generally considered an ugly shoe, has attracted the attention of celebrities, thereby making them fashionable. The shoe features a removable back strap available in 20 colors. In some circles, essentially younger girls, these straps are traded among wearers to provide a different look. Because of their broad appeal, Crocs are available through numerous distribution channels: traditional footwear retailers, sporting goods and outdoor retailers, department stores, uniform suppliers, specialty food retailers, gift shops, health and beauty stores, and catalogs. The company also sells the shoes on its Web site and in kiosks located in places with heavy foot traffic. In addition to the United States, Crocs are sold in more than 40 countries. Beyond its signature clogs, Crocs has taken steps to extend its brand to include clothing, hats, sunglasses, gardening kneepads, and other products. The company maintains manufacturing facilities in Canada, Italy, Mexico, and China. Crocs is a public company listed on the NASDAQ.

END-OF-CENTURY ORIGINS

Before assuming its current name, Crocs was originally Western Brands, LLC, formed in Colorado in 1999. The origins of the Crocs clogs, however, date to 2002, and the shared inspiration of the company's three founders: George B. Boedecker, Jr., Lyndon V. Hanson III, and Scott Seamans. All three were Boulder, Colorado, entrepreneurs. Boedecker was involved in the fast food business, a founder of Oregon Food Concepts LLC, a major franchiser of Quizno's in the western United States. Prior to that, he operated more than 100 Domino Pizza franchises. Boedecker was a high school friend of Hanson, and later both attended the University of Colorado, where Hanson received a master's degree in marketing. He also earned a B.S. in Finance from the University of Wyoming. Hanson then spent 17 years involved in sales and management in the computer hardware, software, and financial services fields. Seamans was another friend of Boedecker. For more than 14 years he ran his own company designing and manufacturing professional photography and related medical equipment, and he held a number of patents for his work in materials engineering and process development. He sold his company in 1996, gaining the free time and financial wherewithal to indulge his twin pastimes: skiing and sailing.

Boedecker shared Seaman's passion for sailing. In 2002 they came across a new boating clog produced by a Canadian Company, Foam Creations, Inc. The Quebec company's closed-cell resin allowed the shoe to be lighter than traditional, rubber-soled boat shoes, and because it molded to the shape of a person's foot it was even less likely to slip on a wet boat deck. In addition, the material absorbed a minimum of odors and the clog design insured that it was well ventilated. While on a sailing trio from Islas, Mexico, to Ft. Lauderdale, Florida, in May 2002, the two friends discussed improvements on the Foam Creation's design and decided they wanted to market this ideal boat shoe. When they returned home they brought in Hanson and acquired the rights to Foam Creations' manufacturing process through Western Brands.

Seamans tweaked the design of the shoe while Boedecker took over as chief executive officer and lined up a host of small investors. Hanson set up most of the operation and oversaw the running of it. As a name for the shoe they settled on Crocs, an abbreviation of crocodile, because the attributes of the animal fit the product: comfortable both on the land and in the water, strong, and long-living. Because they also wanted to convey a sense of fun, the founders played on the non-slip properties of the shoe to coin a initial marketing tagline: "Get a Grip." This playful attitude would also lead to the various colors in which the clogs were offered.

EARLY 21ST CENTURY DEBUT

The Crocs clog made its debut in November 2002 at the Ft. Lauderdale International Boat Show with its first model, "The Beach." Attendees snapped up all 1,000 pairs the company had to offer. Even more important to the growth of the brand was the enthusiastic reception the shoes received from the retailers and sales representatives at its first footwear exhibition, the March 2003 Shoe Market of the Americas. Western Brands quickly lined up retail accounts, which within a year approached 300 in number. The shoe sold well with boaters, but according to CSIndy, the shoe quickly won "converts among landlubbers, too. People who spent long hours on their feet, such as restaurant workers and hospital employees, like the softness and the loose fit. They were less expensive than, say, traditional surgical clogs, and they cleaned up nicely in the dishwasher, eliminating unsightly food splatters and body fluids." Moreover, the report continued, "Baby boomers with swollen feet and fallen arches liked the way Crocs felt on hardwood floors. Middle school trend-setters tripped on the bright colors. Gardeners dug the fact that you could hose them off." During their first full year on the market, 76,000 pairs of Crocs were sold, generating 1.2 million in sales. Just one year later, Western Brands sold 649,000 pairs, resulting in revenues of $12.3 million.

COMPANY PERSPECTIVES

Despite our rapid success, we still stand behind the core values of Crocs Footwear. We are committed to making a lightweight, comfortable, slip-resistant, fashionable and functional shoe that can be produced quickly and at an affordable price to our customers.

Manufacturing to this point had been handled by Foam Creations in Canada. Crocs were proving so successful that in 2004 Western Brands acquired Foam Creations, picking up the rights to Croslite as well as the manufacturing facilities. The company prepared to go public, with the first step coming early in 2005 when Boedecker stepped down as CEO in favor of Ronald R. Snyder. Boedecker remained involved in marketing and continued to serve on the board of directors. His 48-year-old successor, another University of Colorado graduate, had been serving as a consultant for the past year. Snyder was a former vice president of a San Jose, California, electronics company, Flextronics International, which had acquired a Colorado electronics company, Dii Group, he had co-founded. Snyder was well familiar with growing companies, in charge of global sales and marketing as well as mergers and acquisitions when Dii increased its worth from $20 million to $17 billion. His international experience would be put to use as Crocs began establishing distribution operations in Europe and throughout the Pacific Rim. He had also experienced the rigors of taking a company public, completing an initial public offering of stock for Dii in 1993. At the same time as Snyder's hiring, Crocs beefed up its management team with the addition of Caryn Ellison as the new chief financial officer. She had previously served as the president of Classic Sport, a Colorado manufacturer of sporting goods.

In the spring of 2005, Crocs took another step as it laid the foundation for an initial public offering (IPO), unveiling plans for a new line of apparel and accessories. According to Rocky Mountain News, "Small companies wanting to go public often need to branch out first to convince investors they can keep growing over the long haul. Such a strategy would help Crocs fend off competition from others who attempt to copy the Crocs shoe concept." Soon the company was hawking T-shirts, hats, and other items bearing its smiling crocodile logo, such as sunglasses and gardening kneepads. At the same time, Crocs continued to bring out new models of its signature clogs. By the end of the year Crocs could be found in nine models and 17 colors.

Crocs also launched its first national marketing campaign in 2005 to increase the brand's visibility with both consumers and potential investors. The Boulder, Colorado-based shop of TDA Advertising & Design was hired to develop the campaign. Heading the effort was TDA's Jonathan Schoenberg, who began wearing Crocs while traveling as a way to generate some inspiration. According to Denver Business Journal, people at airports "would come up to him and say, 'Those are so ugly; where can I get a pair?' It was like a scene from a bad sitcom," said Schoenberg. "I was struggling to find an ad campaign and people were walking up and giving it to me." The result was the "Ugly Can Be Beautiful" print ad campaign. It featured lifestyle shots that poked fun at the clogs' hardly glamorous look. The ads appeared in such national magazines as Vanity Fair, Rolling Stone, GQ, Men's Journal, and Real Simple, as well as regional magazines on the East and West Coasts, such as Time Out New York. Sales for Crocs were already on a sharp upward trend, but the advertising played its part in selling more than 6 million pairs of shoes and achieving $108.8 million in sales in 2005. The company also turned its first net profit, $16.7 million, after losing $1.6 million the year before. Footwear News named Crocs its brand of the year in 2005.

GOING PUBLIC IN 2006

The company had already dropped the Western Brands name, adopting Crocs, Inc., in January 2005. In preparation for going public it was then reincorporated in Delaware in June 2005. However, Snyder and his team, along with lead underwriters Piper Jaffray & Co. and Thomas Weisel Partners Group Inc. took their time putting Crocs on the market, spending the rest of the year and the early weeks of 2006 in laying the groundwork for the IPO. In its presentation to investors Crocs revealed plans that called for new shoe models, increased distribution both in the United States and globally, and the pursuit of a Crocs store-within-a-store concept with leading retailers. Dick's Sporting Goods chain was already interested in trying out the idea in 15 to 20 of its locations.

As investor interest in Crocs grew, the company was able to increase its asking price as well as the number of shares it was putting on the market. Initially the company planned to sell 9.9 million shares at a price of $13 to $15 per share. Crocs was able to add more than a million shares and bump its asking price to the $19 to $20 range. A lot of that interest came late as many Wall Street firms that liked to invest in consumer-goods companies were distracted by a heavy load of stock offerings and only began to focus on Crocs in the final hours before its IPO. They generally liked what they saw: a company enjoying exceptional growth and a product that had broad demographic appeal.

In the end, Crocs increased its asking price to $21 a share when the offering was conducted in the first week of February 2006. Almost $208 million was raised, of which $97 million went to current shareholders, including the company's three founders. Early backers of the company were also handsomely recompensed for their participation. They were an assorted lot, including a bodybuilder, a retired architect (Hanson's father), and a boat captain—Ron Oliver, a friend of Seamans who ran a distribution center in Miami in the early days and took stock in exchange for his labor. He received nearly $2 million from the offering and still held shares worth another $9.6 million. The company itself netted $87 million. All told, it was the largest IPO ever for a footwear manufacturer, far exceeding Fila Holdings' $135 million and Nine West's $140 million offerings, both IPOs conducted in 1993.

KEY DATES

1999:: Western Brands LLC is formed.
2002:: The Crocs shoe is first unveiled at a boat show.
2005:: Ronald Sndyer is named CEO.
2006:: The company is taken public.

The enthusiasm for Crocs continued after the IPO, as the shares began trading on the NASDAQ and quickly increased in value by 55 percent before settling down. The company did not rest on its laurels, however, quickly launching a new women's shoe model and its first children's style. A few weeks later it announced plans to open its first concept stores in Austria and Sweden. The company also made inroads in the United Kingdom, inking a deal with giant shoe retailer Clarks to carry the clogs. Crocs also benefited from the large number of celebrities spotted wearing the clogs, such as Faith Hill, Tim McGraw, Ben Affleck, and Jennifer Garner. Another sign of success was the appearance of knock-offs. In February and March 2006 Crocs received patents from the U.S. Patent and Trademark office that covered its manufacturing processes and features related to the styling of several Crocs models. Crocs wasted little time in seeking injunction against 11 companies making similar clogs, claiming patent infringement. It was all part of the growing process for a young, successful company in the contemporary business world.