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Posted Date: 10/6/2013

Crocs Gets Ready for More Growth

By Masha Zager
About a decade ago, sightings of odd-looking clogs suddenly began popping up everywhere. Brightly colored and clunky, the clogs didn’t look or feel quite like other footwear. Some people were puzzled by them — were they plastic or rubber? What were those holes for? And where should you wear them, anyway? Others were charmed and intrigued.

Crocs, made by the company of the same name, proved to be a new category of footwear. Constructed from a proprietary closed-cell resin material called Croslite (which is neither plastic nor rubber), they are soft, lightweight and odor-resistant, and their soles conform to the shape of a wearer’s foot. They were originally designed as boating shoes, but purchasers — many of whom swore Crocs were the most comfortable shoes they’d ever worn — took them out into the streets, to the beach and to many other casual occasions.

After several years as an underground sensation, Crocs reached takeoff velocity. Chief operating officer Scott Crutchfield explains that the groundswell of interest was driven largely by word of mouth. “The product had become on-trend because it was so distinct. People would ask other people what they were wearing, and it started to catch on.” In 2006, Crocs went public with the largest initial public offering in history for a footwear company.

As the brand became a household name, Crocs began to enter new markets, and it now operates in more than 90 countries. It also introduced new styles, moving rapidly from a single-style product focus to what Crutchfield calls a “broad lifestyle brand.” Today, in addition to the iconic “classic clog,” the company sells more than 300 styles of footwear for men, women and children. Most styles are still made of Croslite, and even newer styles with other materials on the exterior — canvas sneakers and leather boots, for example — have Croslite inside.

Crocs also began to diversify its channels. Currently, its wholesale customers include department stores, traditional footwear retailers, specialty and family-owned footwear retailers and online retailers such as Amazon and Zappos. Crocs’ own stores, which include about 300 retail stores, more than 100 outlet stores and more than 100 store-in-stores, now account for about one-third of its sales, and its ecommerce sites account for about 10 percent of sales.

Revenues have continued to increase rapidly; in 2011 Crocs passed the billion-dollar mark and posted sales exceeding $1.1 billion in 2012. The company has sold more than 200 million pairs of shoes in total, including more than 50 million pairs in 2012.

The challenges of growth
This breakneck growth, and the recognition that the company would continue growing far beyond the founders’ original expectations, required Crocs to rethink its IT infrastructure — a hodgepodge of disparate systems that had been stitched together quickly to support the first growth spurt. Crutchfield says, “The [original] systems had served us well, but from a scale standpoint, going from a $1 billion brand to a $2 billion brand and beyond, we needed systems that would scale better with us.”

Local variations in the way the old systems were used also posed a challenge. Crutchfield says Crocs’s global subsidiaries have always operated with a high degree of autonomy. After setting up a subsidiary in a new market and installing key executives, the company empowers those executives to make major decisions about both marketing and operations. Local autonomy has enabled subsidiaries to develop strategies attuned to the very different markets they serve — for example, in some markets, customers view Crocs as comfortable utility shoes, while in others, the shoes have become fashion statements and modes of personal expression.

Though all the subsidiaries used the same transaction systems, they used them in somewhat different ways, based on their individual strategies — and that made a “single version of the truth” hard to achieve. Compiling global reports always required a great deal of labor-intensive analysis and data reconciliation.

A new enterprise platform
To support future growth, make actionable data more readily available, and better balance local business requirements with enterprise-wide data integrity, Crocs decided to replace its legacy transaction systems with an integrated, scalable system. In addition to the demands one would expect of a fast-growing company with global operations, Crocs had one unusual requirement — it needed a system that had good support for the direct-ship model, as it ships a significant amount of product directly from factories to retail stores.

This practice was developed in the company’s early days, when retailers had difficulty gauging potential demand for Crocs’s unusual product. “A lot of retailers were trying to figure us out, and they were only willing to take small positions.” Crutchfield says. “Then they would sell through the product extremely fast.” To replenish accounts promptly, Crocs built a business model that focused on responding quickly to market demand and providing just-in-time product. Eventually, to get products to its customers even faster and at lower cost, it eliminated the distribution center wherever possible. Today, Crocs’s extremely sophisticated direct-ship process is used for nearly three-quarters of the wholesale business — even for small orders. “It adds a lot of complexity to the business,” Crutchfield says, “but we have the lowest-touch-cost supply-chain model in the industry. It pays off in the end.”

The solution that met all Crocs’s requirements was SAP Apparel and Footwear, which is currently being implemented for supply chain, analytics and database software. Design has been completed, development is underway, and a pilot project in a single location will be followed by a phased global rollout that should be completed by October 2014. The initial rollout will include only base functionality; additional functionality will be layered on later.

Because the SAP solution is specifically designed for apparel and footwear, Crocs can implement a standardized global template with no customization at all. That doesn’t mean every subsidiary must operate according to the same rules — Crutchfield notes that subsidiaries “will continue to have the autonomy to execute their business to serve their market.” Different countries impose different laws and regulations, and business practices such as billing frequency also vary by region. However, the system itself will be uniform, and data will have the same meaning across the whole company.

“We have a lot of very smart people who are good at data mining and pulling together reports to make decisions,” Crutchfield says. “Now they’ll be able to spend more time on analysis than on data gathering and report generation.”

A 360-degree view
The growth in sales volume and the proliferation of styles has generated a vast amount of data, and Crutchfield looks forward to using that information to guide decision making. SAP’s analytical capabilities should give Crocs the elusive “360-degree view” needed for accurate predictions of customer behavior.
The data should also provide early reads of new products (which amount to 30 percent to 40 percent of products each year) through multiple channels — as Crutchfield puts it, “not only what’s selling in but what’s being sold through, what we need to replenish, what’s working and what’s not working … whether something is moving due to promotional activity, not only overall, globally, but in specific markets.”

This information is especially important in the retail and ecommerce channels. “You have to be more nimble in direct-to-consumer,” Crutchfield says. “With wholesale, your customers are doing a lot of the upfront planning.”
With early reads on new products, the company will be able to add volume to products that are doing better than expected and hold back on products that may not do as well as originally forecast. It will also improve its ability to allocate and track supply to specific customers.

SAP will also make product-level analysis much simpler, which will facilitate ordering, forecasting, planning and fulfillment. The legacy systems are designed around SKUs rather than around more meaningful aggregates, and product-level data must be laboriously constructed by aggregating data on related SKUs.

Other initiatives
SAP isn’t the only IT project for Crocs. The company is also working on mobile solutions for ecommerce and on mobility solutions for the sales staff in its retail stores.

Recently, Crocs selected a new product lifecycle management solution, Centric, to manage its product development process, including concept, design and sourcing. Centric, which will be integrated with SAP, will help the company validate decisions based on changing costs and product inputs. This will allow it to determine whether to go forward with a product while it is still in the midst of a development cycle.

However, the migration to SAP is what is expected to make the biggest difference for the company in the near future. “This is the primary area we’re driving,” Crutchfield says. “Everything is taking the lead from this project.”

Masha Zager is a New York-based Apparel contributing writer specializing in retail and business technology.

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