Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publishe/s prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. 482 STRATEGIC MANAGEMENT CASES Crocs, Inc., 2013 Yv\ w.crocs.com, CROX Headquartered in Niwot, Colorado, Crocs, Inc. produces Crocs shoes, one of the most comfortable shoes ever designed. The awkward, even clumsy look of the Crocs shoe is offset by unbelievable comfort. One of the world leaders in casual footwear and apparel for men, women, and children, Crocs' shoes offer unmatched comfort derived from Croslite, a proprietary material that gives Crocs its soft, lightweight, waterproof, and odor-resistant qualities. Crocs are produced in many different styles, including boots, sandals, sneakers, flats, golf shoes, mules, and the popular original clog style, which is offered in more than 20 colors. Most of the other styles are limited to six colors or two-color combinations. Crocs makes shoes specifrcally for companies in the healthcare and airline industries as well as for diabetic needs markets. Crocs has an alliance with the American Nurses Association, providing nurses with a 25 percent discount on shoes. Croc "Fuzz Collection" is designed with removable woolly liners that enable the shoe to be worn in winter or summer and the Jibbitz line, marketed primarily at children, manufactures declarative clip on items, often of Disney characters, for use in the ventilation holes ofthe shoes. For the first time in its history, Crocs reported revenues of more than $1 billion at year-end 20ll and in2Dl2 celebrated its 10th birthday. To date, Crocs has sold more than 200 million pairs of shoes to customers in more than 90 countries through its retail stores, outlets, kiosks, and Web stores. Crocs Web stores operate under the brand names Crocs Work, Crocs Rx, Ocean Minded, and Jibbitz. As of year-end 2Ol2,Crocs operated l2l kiosks, mostly in malls,287 retail stores, 129 outlet stores, and 43 Web stores around the world. With more than 4,100 employees, Crocs manufactures its shoes mainly in Mexico, but it has other manufacturers in Italy, Romania, Bosnia and Herzegovina, and China. Crocs' major rival, Columbia Sportswear Company (COLM), in late 2013 strengthened its presence in India by forming a distribution agreement with the New Delhi-based Chogori India Retail Ltd. As per the agreement, Chogori will serve as the sole distributor of Columbia's brands in India. Chogori owns 32 stores in 14 cities in India and is the exclusive retailer ofHi-Tec, the British footwear brand and American footwear brand. Crocs. Copyright by Fred David Books LLC. (Written by Forest R. David) History Crocs was founded by friends Scott Seamans, Lyndon "Duke" Hanson, and George Boedecker Jr. in 2002 who desired to manufacture and distribute a foam clog style shoe they purchased from a company in Quebec, Canada, called Foam Creations. Foam Creations was marketing the shoe solely for use as a spa shoe, however, Boedecker, former Chief Operations Offtcer of International Sales at Quiznos Corp. in Canada, envisioned a brighter future for the product than limiting the marketing only to spas. Soon after securing rights to the shoe, Crocs unveiled its first offrcial shoe under the Crocs brand named, called the Beach, at the 2002 Fort Lauderdale, Florida Boat Show. AII 200 pairs available at the show were sold almost instantaneously. In 2004, Crocs officially purchased Foam Creations and with it rights to Croslite, the principle material that provides Crocs their comfort and medically beneficial properties. In 2006, Crocs expanded their brand by acquiring Jibbitz, from a stay-at-home mom, for $10 million, and acquired Bite Footware and Ocean Minded in2007.In 2008, Crocs acquired two European based companies, Tidal Trade and Tagger. In2OO6, Crocs had an initial public offering (IPO), selling stock and raising funds through equity financing for the first time. Fortunately for Crocs, the 2006 IPO corresponded with the rapid advancement of sales in what Saloz described as "somehowjust caught fire" in reference to demand for the product. Crocs' stock price subsequently jumped from around $15 in 2006 to more than $75 by 2007 , amounting to a 400-percent retum for IPO investors in a little more Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisheis prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. cAsE than a year. However, along with increasing sales, critics of Crocs were coming equally as fast. 2007 , fashion consultant Tim Gunn was quoted in Time Magaz,ine as saying "the Croc looks like a plastic hoof. How can you take that seriously?" In addition to Time, the Washington Post and New York Times printed critical reviews of the shoes. The ongoing negative press coincided with a weakening global economy and resulted in Crocs' stock price falling from $75 per share in late 2007 to under $0.80 per share by year-end 2008. Fortunately for Crocs, the stock and company rebounded an amazing 4,000 percent to $32 per share in 2011. Revenues also hit an all-time high of $1 billion at year-end 201 1. Along with Crocs robust rise as a powerful player in the shoe industry in 2006, the year In witnessed other firms manufacturing or distributing products deemed "croc-offs" a unique play on words indicating Crocs patents were being infringed. Ln2007, many of these "croc-offs" were seized in the Philippines and Denmark. However today, there are still competitors offering similar looking shoes under various brand names such as Airwalk, Poliwalks, and NothingZ. Unfortunately for Crocs, Inc., croc-offs can be purchased today at discount stores, beach stores, superstores, and similar shopping outlets. lnternal lssues Mission Statement According to the company website, Crocs provides two separate mission statements, one for Crocs, Inc. and one for Ocean Minded. Crocs' mission is: "To bring profound comfort, fun and innovation to the world's feet." Ocean Minded's mission is: "To become the global leader in sustainable lifestyle footwear, apparel and accessories whilst ensuring that the four pillars of the Ocean Minded brand-Quality, Authenticity, Responsibility and Community-resonate throughout our company, products, associates and actions." 0rganizational Structure Crocs' organizational structure consists of all white males, as indicated in Exhibit 1. Notice the firm operates using a division-by-region organizational design. Shares of Crocs' stock dropped 5.1 percent on 8-8-13 after Sterne Agee analysts downgraded the company to underperform, due to a perceived lack oftalented top executives. The analysts also have concerns about Crocs' relationship with backjoy.com-which includes several former Crocs executives-calling it "too close for comfort." EXHIBIT 1 Organizational Structure John McCarvel, Chief Executive Officer and President Dan Hart, Chief Legal and Administrative Officer Dale Bathum, Chief Product JeffLasher, Chief Financial Officer Doug Hayes, Vice-president General Manager, Americas Source: Based on company documents. Of6cer Vice-president, Vince Gunn, Vice-president Asia Europe Dave Thielen, Mike DeBel[, Chief Sales Officer t2 . cRocs, rNc., 2013 483 Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any me-ans without the publisher's prior written permission.'Use (other than pursuant t6 me qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. 484 STRATEGIC MANAG EM ENT CAsE5 Segments 2012, Crocs operated 43 company-owned Intemet web stores, up from 42 and 37 the prior two years respectively. But the company's Intemet sales dropped to 9.1 percent of total revenue in 2Ol2from 9.6 percent the prior year. For 2012,57.5 percent of Crocs'revenues were derived from sales to wholesale distributors, down from 59.8 and 60.8 percent the prior two years, respectively. Distributors include Dick's Sporting Goods, Famous Footwear, Kohl's, and Nordstrom, but no single customer accounts for l0 percent or more of revenues. ln By Product Crocs footwear accounts for about 96 percent oftotal revenues, with accessories, primarily from Jibbitz, producing the remaining revenues. Footwear products are divided into four main categories: (1) Core-Comfort, (2) Active, (3) Casual, and (a) Style. Core-Comfort category includes the classic Crocs and all close derivatives from the original design. The Active product offerings are designed for activities such as boating, walking, and hiking. The remaining two categories of shoes are designed with style in mind, taking more of an equal role with comfort, and Crocs hopes this line of shoes will expand the pool of "wearing occasions" for customers. Crocs also operates under three different brands: (1) Crocs, (2) Ocean Minded, and (3) Jibbitz. Although Crocs does not report revenues or operating incomes by brand, the tkee brands are quite distinct and even have their own mission statements. The Crocs brand is the traditional clog-looking shoe and in line with the Core-Comfort category. Crocs describes the Crocs brand shoe as being: innovative, fun, comfortable, and simple. Even going as far to state "in a world full of bells and whistles, less is more." Crocs' Ocean Minded brand, which was acquired in 2007 keeping the name Ocean Minded, includes the Active, Casual, and Style categories of shoes. The Ocean Minded brand specializes in ocean or water sports themed items. Flip flops, boat shoes, and shoes for surfing are all possible options. In addition, shoes with wooly liners, high-quality leather, hiking shoes, and more everyday shoes are also produced by Ocean Minded. Ocean Minded brand shoes have their own website at www.oceanminded.com. Finally, the Jibbitz brand produces accessories designed for use with Crocs brand shoes as well as a means to per- sonalize purses, cell phone cases, beach bags, backpacks, and more. Jibbitz has contracts with Disney, Marvel, and Lego, among others to produce trademarked items. By Region Crocs' organizational structure is set up by geographic region, and so are the reporting business segments. As indicated in Exhibit 2, Crocs' revenues and operating incomes are reported under three segments: Americas, Europe, and Asia. Exhibit 2 provides a breakdown of the most recent financial information for Crocs. Note the company is doing well in all three geographic regions. The Crocs' Americas segment includes all revenues in North and South America. Products are sold wholesale to sporting goods, department, and specialty retail stores as well as direct to the consumer through about 200 company-operated stores and Web stores. About 45 percent of all revenues are derived from the Americas segment, making it the largest of the three reporting segments. The bulk of business for Crocs is located outside the USA. Despite 45 percent of revenues being derived from the Americas, only 32 percent of operating income came from this segment. Crocs' Asia segment has experienced stable total revenues each of the last three years, culminating with 38 percent of total revenues being derived from this segment in 2011. The Asian segment accounted for an impressive 5l percent of operating income in20ll. Locations included are Asia, Australia, New Zeeland, the Middle East, and South Africa. Products are sold in a similar manner as in the Americas. Crocs operated 198 company stores in Asia based on year-end 2Ol0 data. The European segment, which includes Russia, is the smallest Crocs segment based on revenues, operating income, and number of stores. In 201 1, total revenues and operating income each accounted for around 17 percent of their respective measures. Like the Americas and Asia, products are sold to wholesale distributers in Europe. Crocs operated 35 direct-to-consumer stores as ofyear-end 2010 in European markets. Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisher's prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. CASE 12 EXHIBIT 2 Crocs' Revenues by Channel 31, 2011 Year Ended December ($ thousands) 2012 Change % Channel revenues: Wholesale: $ 235,988 Americas Asia 298,350 Europe r10,947 574 Other businesses 645,859 Total Wholesale $ 214,062 r0.2%o 259,104 15.1 124,995 (11.2) 1,9L 200,5 598,352 7 ,9 Consumer-direct: Retail: Ll Americas 196,7 Asia r43,062 35,052 Europe 37 4,825 Total Retail 1,74,840 1,650 20,167 306,657 11 1,2.5 28.r 73.8 22.2 Internet: Americas 63,L53 Asia 15,ggg Europe 23,465 102,617 Total Internet Total revenues: Source: 2012 Form 10K, _q_1, 123,301 5 rl,,0l2 25,707 95,894 59,17 _q1,000,903 6.7 45.3 (8.7) 1,0 12.2% p.28. By Channel As indicated in Exhibit 3, Crocs' revenue increased nicely in 2012 in all channels. Note in Exhibit 4 that Crocs reduced its number of kiosks in2012 to 121 from 158 the prior year, but increased its number of retail stores and outlet stores to 28'l and 129 respectively. Finance Crocs' stock price recently jumped 9 percent in one day after Goldman Sachs analyst Taposh Bari gave the creator of those colorful plastic shoes a "Buy" rating, saying that investors have misinterpreted the shoe brand as a fad. "We see Crocs as a lifestyle brand with global appeal that appears both proven and sustainable," he wrote in a note to investors. Crocs' stock hit a 52week low price of $12 on November 15,2012, but since then has increased to $18 in mid-2013. Crocs, Inc. has little debt and has more than $315 million in total cash, and a price-to-earnings to growth (PEG) ratio of only 0.90. All these factors indicate a stock that is undervalued. The company has never paid a cash dividend on shares of its stock. As revealed in Exhibit 5,2012 was the best year ever for Crocs with the company reporting revenues up 12.2 percent percent from 201 I to an all-time record of$1.12 billion and net income rose 17 percent to $131 million. The record growth was fueled by all three geographic operating segments and Crocs attention to focusing on selling prices, new product styles, forming new contracts with existing and new wholesale customers and a strong expansion of new Crocs stores. In addition, Crocs increased marketing efforts of Ocean Minded products to provide Crocs footwear options for all four seasons. The balance shees in Exhibit 6 reveal that Crocs' stockholders' equity increased 30 percent from 201 I to 2010 and an impressive 7l percent more than the two-year period ending in20ll. Crocs has acquired other firms over the years, but to their credit, the company has $0 goodwill on their balance sheet. . CROCS, lNC., 2013 485 Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisher's prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. 486 STRATEGIC MANAGEMENT CA5E5 EXHIBIT 3 Crocs Income by Segment 31, 2011 Year Ended December ($ thousands) 2012 Change % Revenues: $ 495,852 Americas Asia 457,41,1, 169,464 Europe 1,,122,727 Total segment revenues 574 Other businesses Total consolidated revenues $ M8,077 38r,7 66 t70,869 1,000,7 L2 191 $ 1.,123,301 $ 1,000,903 l0.7%o 19.8 (0.8) L2.2 200.5 12.2To Operating income: $ 85,538 Americas L40,828 Asia 21,679 Europe Total segment operating income 248,044 Other businesses ( 10,805) 60 Intersegment eliminations (91.,r25) Unallocated corporate and other Total consolidated operating income Source: 2012 Form EXHIBIT 4 I}K, _$ r46J74. 70,532 2l3%o 123,918 13.6 (41.6) 37 ,106 231,556 7 .l (r4,r28) (23.5) (e. 1) 66 (86,415) 5.5 _q_131,0?9 ll.5% $ p. 33. Crocs' Company-Owned Stores December 31, 2012 Opened Closed December 31, 2011 Type: Kiosk/Store in Store L2l 39 Retail Stores 287 120 Outlet Stores r29 42 (5) 92 537 201 (e4) 430 Americas 199 44 (42) r97 Asia 24r 94 (s 1) 198 Total (7 6) 158 13) 180 ( Geography: Europe Total 97 63 (1) 35 537 201 (e4) 430 Source:2012 Form l0K, p.28. 5trategy A competitive advantage forCrocs is the absence ofany type ofbox packaging, saving millions on costs. Although revolutionary, Croslite remains cheaper to purchase and manufacture than other shoe materials like leather. Rival firms such as Deckers Outdoor and Timberland report cost of sales around 55 percent, whereas Crocs' cost of sales are about 42 percent. One of the biggest changes Crocs undertook in the aftermath of the 99-percent stock depreciation was that the firm began producing their own footwear in their own facilities in Mexico, Italy, and China. Ultimately this reduced costs, provided Crocs with better quality control and enabled the company to significantly speed up production and delivery of products to customers. Crocs also expanded away from their traditional clog-style shoe into beachwear, hiking shoes, boats shoes. and other more casual and fashionable options. Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisher's prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. CASE 12 EXHIBIT 5 Crocs' Income Statement For the Year Ended December 31, ($ thousands, except share data) 2012 201 $ 1,123,301 $ 1,000,903 $ 789,695 515,324 464,493 364,63r 607,977 536,4r0 423,7 64 460,393 404,803 342,96r L,4IO 528 l4l 146,,17 4 r3L,079 78,123 1 201 0 Consolidated Statements of Operations Data Revenues Cost of sales 1,300 Restructuring charges Gross profit Selling, general and administrative expenses 2,539 Restructuring charges Asset impairments Income (loss) from operations Foreign currency transaction (gains) losses, net Other income, net Interest expense Income (loss) before income taxes Income tax (benefit) expense Net income (loss) attributable to common stockholders 2,500 (4,886) (2,325) (2,,7ll) (1,578) (1,001) 837 853 657 145,548 136,690 80,792 L4,205 23,902 13,066 _q_9,343 __q_112'7!! _$ 67J26 $ 1.46 $ 1.21 $ 0.78 89,571,105 88,317,898 95,482,055 49,941 47,736 2t.55 20.04 Income (loss) per common share: Basic Weighted average common shares: Basic Footwear unit sales Average footwear selling price Source: 2012 Form l0K, p.24. Crocs continues to expand globally. The company's unique products match well with consumer demand around the world. so there are numerous countries yet that Crocs can enter. External lssues The footwear industry is quite fragmented in the USA and Western Europe. Total footwear sales rose just under 5 percent in 201 I to $50.5 billion in the USA. Out of the main categories of footwear, fashion represented 48 percent, performance 27 percent, sports and leisure 13 percent, outdoor 8 percent, and work and occupational 4 percent. It is expected the leading area for growth the footwear industry in the USA and Westem Europe resides in the fashion category. Markets in Asia and Eastem Europe are less developed and offer a wider range of product development and penetration strategies for firms to explore. Firms competing in the industry are increasingly expanding their product offerings. Nike, for example, is now well entrenched in the apparel business and more recently has expanded into producing golfclubs, watches, yoga mats, and other products in an attempt to grow revenues. Shoe Composition: Health Concerns The Swedish Society for Nature Conservation found in 2009 alarming concentrations of toxic chemicals in many popular plastic-based shoes, including flip flips, sandals, clogs, and other similar style shoes. Out of 27 shoes tested originating from the Philippines, India, Indonesia, South Africa, and other nations, l7 or 63 percent of the shoes tested contained high levels of phthalates. Although Crocs does not manufacture their shoes in any of the tested nations, many fake crocs illegally using Croc logos have historically been produced in the Philippines. The growing awareness of toxic chemicals in shoe production is of potential concem for all shoe manufacturers, including Crocs. But Crocs conceivably could turn this issue into a competitive o CROCS, lNC., 2013 487 Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisher's prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. 488 STRATEGIC MANAGEM ENT CAsE5 EXHIBIT 6 Consolidated Balance Sheets December 31, ($ thousands, except number of shares) 2012 201 1 ASSETS Current assets: Cash and cash equivalents s 294.348 $ 257 .587 Accounts receivable, net of allowances of $13,315 and $15,508, respectively Inventories Deferred tax assets, net Income tax receivable Other receivables Prepaid expenses and other current assets Total current assets Property and equipment, net Intangible assets, net Deferred tax assets, net Other assets Total assets 92,278 164,804 6,284 5,613 24,821 24,967 613,115 82,241 59,931 34,11.2 40,239 $ 829,638 84,160 129,627 7,047 5,828 20,295 20,199 525,343 67,684 48,64r 30,37 5 23,410 $ 695,453 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable Accrued expenses and other current liabilities Deferred tax liabilities, net Income taxes payable Current portion of long-term borrowings and capital lease obligations Total current liabilities Long term income tax payable Long-term borrowings and capital lease obligations Other liabilities Total liabilities $ 63,,976 81,37 | 2,405 8,147 $ 66,517 7 6,506 2,889 8,273 2,039 1,118 157 ,,938 155,303 36,343 41,665 4,596 13,361 6,705 212,23E 203,673 9l 90 Commitments and contingencies Stockholders' equity: Preferred shares, pff value $0.001 per share, 5,000,000 shares authorized, none outstanding Common shares, p&r value $0.001 per share, 250,000,000 shares authorized, 91 ,047,291 and 88,662,845 shares issued and outstanding, respectively, at December 3 1,2012 and 90,306,432 and 89,807 ,146 shares issued and outstanding, respectively, at December 31 ,2011 Treasury stock, at cost, 2,384,452 and 499,286 shares, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Total stockholders' equity Total liabilities and stockholders' equity Source: Crocs 2012 Form I0K, p. F-4. (44,214) 30'7 ,823 334,012 19,688 617 ,400 $ gzg,6lt (19 ,7 59) 293,,959 202,669 14,821 491,780 $ 695,453 Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publishe/s prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. CASE advantage by educating consumers because crocs are made of Croslite, which is a proprietary blend ofmaterials the company does not disclose. Lack oftransparency by Crocs in this regard could be a major problem for the firm. The chemicals associated with phthalates and PVC are believed to cause health complications including infertility, testicular problems, endocrine disorders, and possibly even cancer. The Swedish Society for Nature Conservation has advised consumers to demand full disclosure ofproduct information and to avoid products derived from PVC and phthalates. These chemicals are also currently used in many household products such as baby milk bottles, pacifiers, printer inks, nail polish, adhesives, and perfumes just to name a few. The USA and European Union have passed laws banning phthalate rich children toys. Walmart and Target are phasing out PVC in their packaging, as are various companies, including Nike. China and the Philippians still do not have laws in place regarding acceptable levels of these containments. It remains to be seen how companies such as Crocs will fare when their shoes possibly contain these pollutants, and even if they do not contain them, public perception may steer customers away, especially parents of young kids who are a primary target of Crocs. Demographic and Economic Factors China Vietnam ,Brazll, Nigeria, Nambia, and Chile are just a few among many countries in which Crocs shoes could be well received. Those countries have rapidly growing middle-class consumers looking for new and innovative products. As consumers woddwide become more health conscious and more interested in style and convenience, Crocs could take advantage of demographic trends. World economies are in general improving, which also bodes well for firms such as Crocs. Competition Crocs competes with Foot Locker, Timberland, Decker, Adidas, Columbia Sportswear (COLM), Skechers USA, Inc. (SKX), Wolverine World Wide (WWW), and Nike, as well as numerous smaller firms. Croc-off companies that produce and market imitation crocs are the company's primary competitors. It is difficult to determine names of firms producing the knock-off crocs that sell for less than $10, whereas authentic crocs sell for over $20 per pair. Among competitors' price-to-earnings ratios in December 2012, Deckers was low at 10.2, compared to Nike at 17.4, and Wolverine World Wide and Adidas both above 15. Columbia Sportswear was nearly 17. Crocs had the lowest price earnings ratio at 8.8. Note in Exhibit 7 that Crocs' eamings per share (EPS) and revenue per employee lag far behind both Deckers and Nike. The latter ratio indicates that Crocs may have some intemal effrciency problems, perhaps even too many employees. Note that Decker has less than one-half the employees of Crocs, but generates 27 percent more revenue. Deckers Outdoor Corp. Headquartered in Goleta, California, Deckers is publically traded on the NASDAQ and has enjoyed 35-percent increases in profits from 2009 to 2010 and 2010 to 2011. Deckers' acquisition of Sanukin 20ll inflated company goodwill from $6 million to $120 million. Deckers EXHIBIT 7 Crocs, Inc. versus Deckers Outdoor and Nike Crocs Price earnings ratio Number of employees Revenue ($) Deckers N ike 8.8 t0.2 t7.4 4,157 1,900 44,000 43.88 1.1B 1.48 Revenue per employee 264K 136K 995K Net income l40M 156M 2.148 EPS Book value EPS, earnings per share. Source : Company documents. 1,,54 4.06 4.60 T,zLB 1,.34H- 43.88 12 . CROCS, lNC., 2013 489 Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmifted in any form by any means without the publisher's prior written permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. 490 STRATEGIC MANAGEMENT CASES designs, manufactures, and markets footwear and accessory luxury items ranging apparel to handbags. Deckers designs products for cold weather applications, hiking, amphibious footwear, and more. Deckers' popular UGG brand, accounted for 87 percent of20ll revenues. Under the firm's Teva brand, Deckers offers what the company calls, rugged outdoor travel shoes. Other brands offered include Sanuk, TSUBO, Ahnu, and MOZO. These brands produce items ranging from high-end casual footwear to amphibious footwear products. To reduce Deckers' dependence on their UGG brand for revenue, Sanuk was purchased in 2Ol1 for $120 million plus future payments for five years based on revenues the brand generates. Deckers sells its products mainly through third-party retail stores, but they also own outlet stores, and in addition sell from the company website. Deckers' products are available worldwide in the United States, Europe, Canada, Australia, Asia, and Latin America. Deckers UGG brand, made with luxury sheepskin, is currently the company's most popular product. To maintain strong sales, Deckers introduces a consistent flow of new product variations in the fall and spring seasons, along with year-round styles. To expand the UGG Brand, Deckers is targeting men, expanding the brand globally, and creating additional products such as handbags to supplement the shoe sales. Pricing for the UGG brand is considered mid- to upper-priced luxury. Teva and Sanuk are the two other principle brands offered by Deckers. The Teva brand has evolved from sports scandals to also include open- and closed-toe outdoor-themed footwear. In addition, the Teva brand has evolved to include light hiking, amphibious footwear, and travel shoes. Most recently, Deckers introduced an insulated boot under the Teva brand. Sanuk revolves almost entirely around the surf community. Deckers' stock price hit its all-time closing high of $ 1 17.66 on October 28, 2011, but from there it has been a steep and rapid decline, down to its lowest level in three years, $28.63 on October 31,2012. Since then, though, Deckers' stock has been increasing nicely. Nike Headquartered in Beaverton, Oregon, Nike specializes in the design and development of footwear, apparel, sports equipment, and accessories for men, women, and children worldwide. The company also markets their products to college and professional sports teams. Nike distributes products under the Converse, Chuck Taylor, All Star, Hurley, and One Star trademarks, among others. The Hurley brand produces sandals and shoes designed for the surf boarding community, competes directly with Crocs Ocean Minded products. Nike's Cole Haan brand designs reflective shoes for night life and other evening outings best competing with the more stylish brands of shoes Crocs develops. Nike and Crocs both develop and market shoes for golfers. Nike sells its products mainly through retail stores and the company website, but Nike has its own retail stores and outlet stores. To its credit and financial soundness, Nike has goodwill of only $201 million despite numerous acquisitions in Nike's history. Of late, however, Nike has been divesting brands. ln late 2012, Nike sold its Cole Haan handbag and shoe brand to private equity frrm Apax Partners for $570 million and also sold its Umbro football brand to Iconix Brand Group for $225 million. Skechers USA Headquartered in Manhattan Beach, California, Skechers' Chief Executive Officer Robert frm that designs and sells more than 3,000 styles of lifestyle and athletic Greenberg leads this footwear (oxfords, boots, sandals, sneakers, training shoes, and semldressy shoes) for men, women, and children. Skechers also offers fashion and street-focused footwear under the Marc Ecko, Zoo York, and Mark Nason brands. Its shoes are sold through department and specialty stores in more than 100 countries, as well as in some 330 company-owned concept and outlet stores and on its website. Sketchers footwear is manufactured primarily by Chinese contractors. For the third quarter of 2012, Skechers sales grew 4.2 percent to $429.4 million from the prior-year quarter, reflecting excellent performance across company-owned retail businesses, domestic wholesale, and international distributors. The company's domestic wholesale sales were up 7.2percent, reflecting a 9.l-percent increase in pairs shipped, coupled with a strong growth across kids and performance divisions. Sales grew 10.9 percent in the quarter for the company's international distributor, reflecting strong growth across Pan-Asian distributors, Middle East, Indonesia, Philippines, South Korea, Taiwan, New Zealand, and Australia. Username: Sonny ArissBook: Strategic Management: Concepts and Cases, A Competitive Advantage Approach, Fifteenth Edition. No part of any book may be reproduced or transmitted in any form by any means without the publisher's prior wriften permission. Use (other than pursuant to the qualified fair use privilege) in violation of the law or these Terms of Service is prohibited. Violators will be prosecuted to the full extent of the law. CASE However, international subsidiary sales declined 14.6 percent. On a combined basis, Skechers' retail business sales grew 13.9 percent. Domestic retail sales grew 13.2 percent, and the company added 23 new domestic and 4 new outside-U.S. stores. The Future If Croslite is indeed free of phthalates, then (a) a huge marketing campaign by Crocs may be worthwhile in the future to educate consumers, and (b) numerous health-related specialty areas exist for Crocs to develop new products. If Croslite is not free of phthalates, Crocs, Inc. should correct this problem as quickly as possible while the exact composition of its shoes is a secret. Crocs could in some manner follow the lead of Nike and Deckers regarding (a) diversification into accessory items, (b) expansion into other countries, and (c) development ofnew products. There is nothing wrong with being a fast follower, as evidenced by firms such as Samsung doing quite well following Apple's first-mover advantage strategy. The Croslite material perhaps has many undiscovered, marketable applications, so the company could devote more resources to research and development to develop innovative new products. It may be in Crocs' best interest to take legal action against croc-off imitation shoes, especially against fums that produce nearly identicalJooking shoes. Despite this and other external threats, Crocs has performed admirably in recent years, but a clear strategic plan is still needed help assure continued success. Crocs plans to open about 90 new stores in 2013 but analysts question whether this is a desired strategy. Develop a three-year strategic plan for Crocs based on sound strategic-management tools and techniques. 12 . CROCS, |NC.,2013 491