What a Croc!

How three guys are turning an outrageous shoe fad into something that just might last.

Lyndon "Duke" Hanson knew he and his partners had hit on something big when the fire marshal at the Fort Lauderdale, Florida, boat show started yelling that the crowd gathered around their Crocs' shoe booth was blocking the aisles. Hanson was tossing pairs of his company's colorful boating shoes at passersby, asking them to slip them on: "People would say, 'Man, those are ugly,' and we would say, 'You just got to try them on.' "

They did, and Hanson sold 1,000 pairs in three days.

That was in late 2002. Last year, Crocs sold 6 million pairs of their spectacularly, well, different-looking casual shoes to teenagers, grandmothers, anyone. The company, based in Niwot, Colorado, outside of Boulder, earned $17 million on sales of $108.6 million. And this February, it raised $239 million in the largest footwear initial public offering ever, suddenly realizing a market value of $1.09 billion.

Lucky? Perhaps. Fashion is like that. Crocs' waterproof clogs and sandals, colorful and iconoclastic, appealed immediately to a certain fun-loving sensibility--giving people, as Hanson says, a sense of cool for being brave enough to wear them in public. And at about $30 a pair, a lot cheaper than traditional boat shoes, they rode a wave that's still building.

But the company understands that fads like this one are wispy and, most of the time, ephemeral, and it has moved swiftly to translate fast fortune into something more lasting. To ensure stability, the founders have bought up not just the factories that make Crocs but also the supplier of the shoes' proprietary resin. They've nailed down distribution with key retailers. And they've focused less on fashion than on sustaining the technology that makes their shoes truly distinctive.

It was Hanson's buddy Scott Seamans, now 52, who sparked Crocs' journey. In 2002, he came across a weird sort of clog developed by Fin Project NA, a Canadian plastics company, for use in day spas. It wasn't just that the shoe looked strange, though it surely did. What grabbed Seamans was the resin, later dubbed Croslite: It was waterproof and lightweight, and, unlike plastics and rubber, it resisted bacteria and fungus.

Even better, the resin softened with body heat to mold to the contour of the foot, providing an unusually comfortable fit, and "circulation nubs" promised to improve circulation and reduce muscle fatigue. Seamans put a strap across the heel and figured the design, featuring holes for air and drainage, would be ideal for boating. While vacationing in the Caribbean, he showed it to Hanson, a former hardware sales executive, and another friend, George Boedecker, who had been an exec at sandwich chain Quiznos. The trio started its company that weekend.

A couple of boat shows later, sales began popping, as buzz traveled first among boaters, then beyond. Crocs "took on some cultural icon status, where people either love it or they think you're the biggest idiot," says Rick Sterling, president of branding consultant Sterling-Rice Group in Boulder. Says Paula Chase, an X-ray technician in Pueblo, Colorado, who sports a pair of navy blue Crocs to work: "They grow on you. Once I wore them, I didn't feel like they were as ugly."

Crocs began selling to small shoe stores, which led to national distribution with Nordstrom and Dillard's. Some retailers pressed Crocs to raise prices above $30 a pair, but the company refused, figuring that the shoes were affordable but not necessarily "cheap." It was right: At that price, Crocs were an easy sell. "We sell more Crocs at lunch than we sell of other brands all year," says Richard Polk, owner of the Pedestrian Shops, a store in Boulder that just added a dedicated Crocs room.

"[Crocs] took on some cultural icon status, where people either love it or they think you're the biggest idiot."

In 2003, the founders called in Ron Snyder, another friend who was then a division president at Flextronics, the contract electronics manufacturer. Snyder's advice: "Think huge." To build for the long term, he said, Crocs had to buy up its suppliers, starting with Fin Project, which owned the proprietary resin as well as the engineering know-how (and, more important, the basis for design patents, which would give Crocs ammunition to shut down the inevitably myriad knockoffs). Strapped for cash and rejected by venture capitalists, they raised $5.2 million from friends to do the deal.

Snyder joined Crocs full time as CEO and orchestrated the purchase of more manufacturing operations in Mexico and Canada. He found contract manufacturers in China, Italy, and Romania to keep up with Crocs' demand. And he brought on some of his pals from Flextronics to set up more-sophisticated operations that would bring to footwear the speed and flexibility of electronics manufacturing.

For one, they set up systems allowing Crocs to respond quickly to demand: If the lime-green Athens shoe is hot in mid-June, the company can make more in two to four weeks. "We want our retailers to be able to turn inventory of popular models over many times during a season," says Hanson. Engineers have come up with 20 footwear styles, from kids' rain boots to women's dress flats; they've also added resin knee pads and the "kneeler," a foam-injected pad for gardeners.

Indeed, "we've just scratched the surface," Hanson says. The company has launched CrocsRx, marketing to doctors who might prescribe specially designed Crocs to diabetics with poor circulation, or patients with back or foot problems. It's pursuing institutional sales to chip-fabrication plants and hospitals, targeting workers who are on their feet all day.

And even as Crocs struggles to keep up with demand in the United States, it has expanded overseas, opening offices in eight nations and Crocs-branded retail stores in places such as Singapore and Austria. Revenue from outside North America was just $5.8 million last year, but it's growing rapidly.

Will those efforts pay off? Will Crocs become more than just a fad? "That's a question that we get a lot," says Hanson. It is, after all, still just a smallish company making a weird, kicky shoe that's had a few really good years. That doesn't qualify, yet, as built to last. But it's not a bad start.

Jennifer Alsever is a freelance writer living in Denver.

Add New Comment

1 Comments

  • I have a couple questions regarding the second paragraph as you talk about how Crocs made 17 million Dollars on the sales of 108.6 million Dollars. My question is:

    1) How come the amount of sales is 108.6 million Dollars instead of approximately 180 million Dollars, when later you state that a pair of Crocs cost approximately 30 Dollars for a pair. (I get 180 million by: 30 x 6 million)

    2) Is the 17 million of profit EBIT? (Earnings Before Interests and Taxes)