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How Crocs Became An Unlikely Billion-Dollar Brand - YouTube
Channel: CNBC Make It
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These are Crocs.
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And a lot of people think they're really ugly.
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People who love to hate Crocs had cause to celebrate in 2008 when
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investors were writing the company off as a passing fad.
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Crocs lost over $185 million that year and cut about 2,000 jobs.
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The stock plunged to just over $1 a share from a high of about $69 a year
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earlier. But over the next decade, Crocs would go on to sell over 700
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million pairs of shoes worldwide.
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Recently, the clogs have been strutting down runways at luxury fashion
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shows. Celebrities like Justin Bieber, Ariana Grande and Post Malone are
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wearing the shoes.
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It's a top brand among Gen Z, and limited edition Crocs are selling for
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hundreds of dollars on the resale market.
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Crocs have become a collector's item.
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I have two Croc backpacks,
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20 pairs of Crocs, five shirts, and my laptop is filled with Crocs
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stickers. Here's how Crocs came back from the dead and turned a widely
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mocked shoe into a cultural icon.
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Crocs start at about $35 and were originally designed as a comfortable
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shoe for boating. Three friends - Scott Seamans, George Boedecker and
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Lyndon Hanson - came up with the idea while sailing in the Caribbean.
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Seamans was wearing a slip and odor resistant clog made by a Canadian
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company called Foam Creations.
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Boedecker and Hanson thought they were ugly but were sold on their
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functionality. They licensed Foam Creations' foam resin technology, called
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it Croslite and developed the Croc.
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Crocs later acquired Foam Creations in 2004.
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The shoes debuted at the 2002 Fort Lauderdale International Boat Show and
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were an immediate hit.
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Annual revenue jumped from $24,000 in 2002 to over $108 million in 2005.
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In 2006, Crocs raised over $200 million in its IPO, the biggest in shoe
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history. In 2007, Crocs had its most profitable year in business, raking
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in over $168 million.
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The stock hit its all time high of about $69 a share.
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Back then, the brand was incredibly hot.
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It was growing strong, strong double digits.
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In some quarters it was growing triple digits.
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So it was one of the hottest growth stocks.
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People, people bought into it. I'm about to try Crocs on for the first
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time in my life, something I've avoided so far because they're so ugly.
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These are actually so lightweight and comfortable, I feel like I'm not
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even wearing shoes.
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It's no wonder parents, kids, hospital and restaurant workers sought them
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out for their comfort and functionality.
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But their distinct style evoked strong feelings.
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The public, it seemed, either loved or hated them.
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When I first saw Crocs, I actually did vehemently hate them.
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Like I thought they were just completely ugly.
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I was like, what excuse does anyone have for wearing these ugly shoes?
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Tyson-Tshitundo was working on a food truck one summer and their feet were
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killing them at the end of each day.
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So they set their pride aside and bought a pair of Crocs.
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The shoes were so comfortable, they started wearing them to work, class,
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parties and even the club.
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I'm here in a pair of Crocs and I'm having a blast because I'm not anxious
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to go home because my feet hurt.
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When I show up somewhere in Crocs, it is very evident that I'm not too
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concerned with any social hierarchy that's going on.
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This is how I dress.
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This is what makes me comfortable.
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And that's all I care about.
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Because of its vocal community of haters, Crocs have unwittingly become a
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statement shoe.
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What the clogs have come to represent has played a large role in the
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company's success.
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To Tyson-Tshitundo, wearing crocs is a symbol of embracing their
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individuality rather than conforming to conventional ideals about fashion
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and beauty, something they struggled with growing up.
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It did come from a place of ignorance, my like deep hatred of Crocs,
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because I was like, they're different and they're ugly.
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So I hate them. But by 2008, many had condemned Crocs as a passing fad.
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The company had to somehow convince a wider audience that its shoes
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weren't just about function, but about fashion and that it's fashionable
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to put comfort first.
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But the company took some wrong turns along the way.
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And by 2008, the bear outlook on Crocs was gaining steam.
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Back in 2007 and 2008, when the brand had hit its peak, it really was
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coming off the rails very quickly.
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It was something that we heard very commonly from investors - that Crocs
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was a fad and it was a trend.
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To keep up with demand, the company grew in an unruly fashion.
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It expanded into too many product lines, distribution channels and markets
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worldwide. Then came the 2008 recession.
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The company had expanded into over 5,000 SKUs and was saddled with excess
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inventory. Crocs of all kinds weren't selling.
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Crocs lost over $185 million in 2008.
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The stock sank to just over $1 a share.
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They grew very fast, but it was not sustainable.
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They had over two years of inventory that they had to work through.
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Experts say Crocs fell into a common pitfall for young companies - trying
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to be all things to all people.
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Over the next several years, Crocs worked on narrowing its focus.
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We need to focus from a product perspective, really get focused back on
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our core molded heritage, get focused on some new key product lines that
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we're bringing to market. We need to get focused geographically.
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As you said, we're extended into about 90 countries across the globe.
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There are five that really matter.
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The company closed underperforming stores, cleaned up its distribution
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network, reduced overhead and cut its product offerings by about 80
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percent. And it doubled down on what the company is known for.
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Its clog.
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Crocs staging a huge comeback.
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Once left for dead, the company famous for its distinct clogs is on fire.
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So we went back to what we're good at, right?
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What Crocs is good at is making a super comfortable clog.
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In 2019, its clogs accounted for more than 60 percent of sales.
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Those shoes became extremely relevant as consumer preferences were
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changing. Experts say Crocs helped usher in the athleisure and ugly
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fashion movements that took off around 2017.
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Athleisure refers to comfortable clothes worn for exercising and general
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use. Ugly fashion is all about defying conventional standards of beauty.
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The ugly fashion trend - that brought in a huge moment for consumers to
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say, I can decide how it is that I want to pull this outfit together.
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What is important to me and what I feel good in and how I want to express
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myself. Crocs doubled down on innovating around the clog, making it a
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trendy statement shoe that stood for self-expression and individuality.
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It's this statement of going against the norm.
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Something that we considered to be solely built around function can
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actually be transformed
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into a fashion statement.
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Crocs took a cue from hypebeast culture and began collaborating with
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celebrities, designers and other brands to drop limited edition clogs.
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Since 2017, Crocs has released dozens of limited edition clogs in
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collaboration with the likes of Balenciaga, Christopher Kane, Kiss, KFC
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and Peeps. Some of those collaborations have sold out in minutes.
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Crocs designed by Post Malone are now reselling on StockX for up to
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$1,000.
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I'll honestly buy whatever Crocs drops.
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So they could drop ones that are super ugly and I'll still wait in line
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and buy them. Because I think it's so fun that you own the pair that nobody
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else has. Oh I think that they have been adopting strategies like a
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Supreme, even like a Vans, like a Nike, where it's all about the drop.
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I mean, it's really a page from the luxury brands right.
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You want things scarce, you want it unattainable, it creates demand.
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Crocs achieved record revenues of over $1.23 billion in 2019.
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The company sold over 67 million shoes worldwide.
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In December 2019, the stock was up nearly 500 percent since the beginning
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of 2017.
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Revenue growth accelerated as collaborations helped to captivate an
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entirely new generation of customers, many of whom hadn't worn Crocs since
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they were little kids.
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Gen Z. They're an incredibly important consumer because they influence
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people and they bring more people to the brand.
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Currently, I have about 20 pairs of crocs.
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I own eight pairs of Crocs.
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I have 13 pairs of Crocs. I wear my Crocs pretty much everywhere.
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I wore them to homecoming.
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Jenna Wilkinson got made fun of for wearing Crocs as a middle school
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student. By the time she got to high school, Crocs were officially
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trending. They were a shoe of choice for the VSCO girl look, a comfortable
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and viral style of dress that took off on the photo editing app, VSCO.
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In Spring 2020, Crocs has risen to the 12th most popular footwear brand
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among teens. Crocs attributes some of that success to its removable charms
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business Jibbitz, which allows consumers to personalize their clogs.
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Personalization is very, very important.
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It's a global megatrend, right.
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So across the globe, the younger consumer wants to be able to turn a
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generic purchase into a personal purchase and tell a story.
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In 2020, Crocs is preparing to weather an economic downturn caused by the
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COVID-19 pandemic.
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First quarter 2020 revenues were down five percent from the same period in
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2019, in light of store closures and reduced sales due to the pandemic.
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But experts say Crocs is in a much stronger position to weather a
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recession in 2020 than it was in 2008.
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The company has over $100 million in cash and a core product that's much
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more than just a shoe.
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