Wholesale And Distributor Sales

Published Date: 02 Nov 2017

designer, manufacturer, distributor, worldwide marketer and brand manager of footwear for men, women, and children

aspire to be the global leader in molded footwear design and development

design and sell a broad offering of footwear, apparel, gear and accessories that utilize our proprietary closed cell-resin, called Croslite

History

organized as a limited liability company in 1999 and began marketing and distributing footwear products in the U.S. under the Crocs brand in 2002

Initially, targeted to water sports enthusiasts, but the comfort and functionality of the products appealed to a more diverse group of consumers who used the footwear for a wide range of activities

expanded sales infrastructure, strengthened senior management team, and developed relationships with a range of retailers in the U.S

Beginning in June 2004, significantly expanded all aspects of operations in order to take advantage of what was believed to be an attractive market opportunity

From 2002 until 2007, business grew tremendously, both organically and through acquisitions

In 2006, we added: Jibbitz, which produces unique charms specifically suited to fit into Crocs shoes;

In 2007, we added:

Ocean Minded, which produces sandals primarily for the beach, action and adventure market (In 2008, Ocean Minded introduced a product line that includes Croslite foot beds to provide increased comfort)

Bite, LLC ("Bite"), a manufacturer of performance shoes and sports sandals sold worldwide in five categories, including, golf, adventure, healthy lifestyle, travel and water sports;

and YOU by Crocsâ„¢, a women's fashion line that combines the comfort of Croslite with fashionable styles; a women's fashion line that combines the comfort of Croslite with 24 designs including various boots, slides, and high heels composed of suede, smooth napa leather, metallic leather and patent leather

2002-2008 - suring this period, significantly increased production capacity, warehouse space and inventory in an effort to meet demand

From 2008 - moderated growth

The popularity of our Crocs footwear may not grow as rapidly as it has in the past and may decline, which would have a negative impact on our sales and results of operations.

actions to reduce operating costs (crisis)

Product

Crocs shoes combine fun colors and innovative design

new and exciting molded footwear products that feature fun, comfort and functionality

an innovative, soft, lightweight, non-marking, slip and odor-resistant shoe

reduce peak pressure on the foot, reduce muscular fatigue while standing and walking and to relieve the musculoskeletal system

designed to allow the product to be defined by comfort, fun, and function

an innovative shoe unlike any other footwear model then available

trademarks, trade names, copyrights, trade secrets, issued and pending patents, and trade dress and designs on nearly all of the products and believe that having distinctive marks that are readily identifiable is an important factor in creating a market for the goods, in identifying Crocs, and in distinguishing the Crocs’ goods from the goods of others. believe that the trademarks, patents, and other intellectual property rights are important to the brand, the success and the competitive position.

Now

The Crocs product range is divided into three categories: everyday, style and sport (everyday product range is composed of fully molded products, which are closest to the core products and targeted widely to several distribution channels. The style product range consists of more fashionable silhouettes targeted towards higher-end department stores. The sport product range includes sport inspired products that offer a Crocs point of view for active end uses like boating, walking, and hiking)

Beginnings

2002 a single model in six colors

25 models in 2006

over 250 models in 2007 and over 270 models in 2008 (including Ocean Minded, YOU by Crocsâ„¢ and Bite footwear models)

Development strategy

expanded Croslite products to include a variety of new styles and products and have extended product reach through the acquisitions of new brand platforms such as Jibbitz, LLC ("Jibbitz") and Ocean Minded, LLC ("Ocean Minded")

We intend to continue branching out into other types of footwear, bringing a unique and original perspective to the consumer in styles that may be unexpected from Crocs

continue to build a stable year-round business as to offer more winter-oriented styles

incorporated traditional materials such as textile fabric and leather into our products but continue to utilize Croslite for the foot bed, sole and other key structural components for these new products

Established licensing agreements with Disney, Nickelodeon, Marvel, DC Comics and Warner Bros., and introduced a limited edition line of footwear and Jibbitz charms featuring such popular characters as Cinderella, Ariel, Mickey Mouse, Sponge Bob Square Pants, Dora the Explorer, Spiderman and Batman

Introduced Crocs at Work line that offers Crocs shoes targeted towards healthcare and food industry professionals (introduction of an ESD (electro-static discharge) shoe, which is designed for medical personnel)

Developed Crocs Rx line, which offers five models, the Relief, the Silver Relief, the Cloud, the Silver Cloud and the Silver Fox, targeted towards consumers who require specialized footwear that provides relief from certain medical conditions, such as diabetes, plantar pain, heel pain, metatarsalgia, achy feet and post-op conditions

Expanded into new footwear categories by designing new footwear using the in-house design team as well as recognized footwear design experts

To successfully expand the footwear product line, must anticipate, understand, and react to the rapidly changing tastes of consumers and provide appealing merchandise in a timely manner

As part of the strategy, Crocs plans to streamline the supply chain network and expand the sales of the products into new locations internationally. Successfully executing this strategy will depend on many factors

acquisitions of, or investments in, other companies. expected to consider other opportunities to acquire or make investments in other businesses and products that could enhance the manufacturing capabilities, complement the current products or expand the breadth of the markets or customer base. The pursuit of acquisitions may divert the attention of management and cause Crocs to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated.

Actions

the first-of-its-kind recycled footwear donation program that allows customers to give back their worn-out Crocs shoes to be recycled into new shoes which are then donated to people in need around the world

As the name, "Ocean Minded" implies, the brand takes an active role in protecting the oceans and beaches through beach clean ups, support of the Surfrider Foundation and various other environmental efforts. Ocean Minded utilizes recycled and recyclable materials whenever possible and is well known in the action sports industry as a leading advocate for environmental awareness and responsibility.

Sale’s points

throughout the U.S. and in 128 countries

through domestic and international retailers and distributors and directly to end-user consumers through webstores, Company-operated retail stores, outlets and kiosks

wide range of distribution channels, including department stores and traditional footwear retailers as well as a variety of specialty channels

small branch sales offices in Hong Kong, Taiwan, Korea, Australia, Puerto Rico, Hawaii, California and India. Crocs enters into short-term leases for kiosks

domestically and internationally with fixed monthly rents subject to certain covenants with contingent rents based on percentage of revenues. also lease retail space at 8 domestic and 62 international retail stores and 30 domestic and 2 international outlet stores. The short term and long term leases expire at various dates throughout the year 2026. also still hold a lease on facilities in Quebec City, however, as a result of the restructuring efforts during 2008, have shut down these facilities and taken the appropriate lease termination charges.

Domestic Sales

In 2008, sales in the U.S. accounted for approximately 44% of total revenues, compared to 52% in 2007 and 68% in 2006.

In the U.S., - 148 Crocs branded retail store locations, including Company-operated kiosks and retail stores in such locations as New York, Boston, Chicago, and Maui, and through the webstores.

also through a broad range of sporting goods and department stores, as well as through specialty retailers.

no long term contracts with any of the retail customers, and sales to the retail customers are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by the customer.

International Sales

In 2008, international sales accounted for approximately 56% of total revenues, compared to 48% in 2007 and 32% in 2006.

Outside of the U.S. - over 314 Crocs branded retail store locations, including 131 Company-operated retail stores in a variety of locations including Canada, Finland, United Kingdom, Singapore, Hong Kong, Japan, China and the Netherlands, as well as through kiosks and webstores.

also sell through a broad range of retailers, similar to the retail sales channels that those established in the U.S.

occasionally utilize sales agents and buying groups in the international locations to service the retail customers.

a direct sales presence established in most major international markets, rather than relying on distributors, which are believed enables to Crocs to obtain better margins and allows to better control the marketing and distribution.

As of December 31, 2008, direct sales efforts established in 31 countries. Outside of the direct sales markets, Crocs utilizes third-party distributors.

Wholesale and Distributor Sales

In 2008, approximately 76.5% of the net revenues were derived from sales to the wholesale customers and distributors compared to 91% in 2007 and 89.8% in 2006

principal wholesale customers include national and regional retail chains, department stores, sporting goods stores and specialty retailers, such as Nordstrom, Finish Line, Dicks Sporting Goods, The Sports Authority, Dillard's, The Forzani Group and Journeys

No single customer accounted for 10% or more of the revenues for the year ended December 31, 2008

strong domestic and international wholesale customer channels

Crocs uses distributors in select markets where it believes such arrangements are preferable to direct sales

In markets where used third-party distributors, these distributors purchase products pursuant to a price list and are granted the right to resell the products in a defined territory, usually a country or group of countries

The typical distribution agreements have terms of one to four years, are terminable on 60 days' notice prior to the end of the term or on six months' prior notice at any time, and require the distributors to meet a minimum sales threshold

The agreements with distributors do not contain contractual rights of returns or price protection features

Crocs will accept returns from wholesale and distributor customers for defective products, quality issues, and shipment errors on an exception basis at the sole discretion of the management

Crocs may also accept returns from the wholesale and distributor customers, on an exception basis at the sole discretion of management, for the purpose of stock re-balancing to ensure that the products are merchandised in the proper assortments

Additionally, at the sole discretion of management, Crocs may provide markdown allowances to key wholesale and distributor customers to facilitate the "in-channel" markdown of products where it has experienced less than anticipated sell-through

The domestic accounts are primarily serviced through the internal sales force, which focuses on selling the appropriate mix and quantity of the products to the retail accounts. They ensure the products are displayed effectively at retail locations and educate the retailers about the Crocs brand and the quality of the products.

no long term contracts with any of the retail customers, and sales to the retail customers are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling by the customer

If cannot fill the customers' orders in a timely manner, the sales of the products and the relationships with those customers may suffer, and this could have a material adverse effect on the product sales and ability to grow the product line.

Kiosks

With bright and colorful displays, efficient use of retail space, and limited initial capital investment

an effective outlet for marketing our products

Kiosks enable to highlight a wide range of the products; more effectively interact with potential consumers, and enhance the brand awareness among both consumers and local retailers.

plan to continue to open and operate additional kiosk sites in select, high foot traffic locations. The kiosk opening plans are subject to adjustment based on the impact of economic conditions and demand for the products.

Retail stores

Company-operated retail stores are designed with colorful displays and allow to effectively market the new and existing products and interact with customers in order to enhance brand awareness.

plan to continue to open additional Company-operated retail stores in the future.

The retail store opening plans are subject to adjustment based on the impact of economic conditions and demand for the products.

Outlet stores

The outlet stores help profitably move older products in an orderly fashion.

plan to open more Company operated outlet stores in early 2009.

The outlet store opening plans are subject to adjustment based on the impact of economic conditions and demand for the products.

Internet

Crocs currently offers its products domestically and internationally through the webstores.

The internet presence enables to educate consumers about the products and brand.

continue to expand the web-based international marketing efforts to continue to drive consumer awareness regarding the availability of the full product range on the market-specific websites.

Manufacturing and Sourcing

strategy to maintain a flexible, globally diversified, low-cost manufacturing base

Company operated production facilities in Mexico and Italy and also contract with third-party manufacturers located around the world

in-house manufacturing capabilities enable Crocs to rapidly make changes to production, providing it with the flexibility to quickly respond to orders for high-demand models and colors throughout the year, while outsourcing allows it to capitalize on the efficiencies and cost benefits of using contract manufacturing

this production strategy will enable Crocs to continue to minimize the production costs, increase overall operating efficiencies and shorten production and development times to better serve the retail customers

In the year ended December 31, 2008 - approximately 17% of the footwear products were manufactures at our Company operated manufacturing facilities in Mexico and Italy and, for a portion of the year, from the facilities in Brazil and Canada. The remaining 83% obtained of the footwear products from third-party manufacturers in China and Bosnia. In the year ended December 31, 2008, the largest third-party supplier in China produced approximately 49% of the footwear unit volume.

no written supply agreements with the primary third-party manufacturers in China

During 2008, Crocs consolidated its manufacturing capacities at the facilities operated in Mexico and with the third-party manufacturers and shut down the manufacturing facilities in Canada and Brazil to align the production capacities and cost structure to decreased demand and declining revenues

Distribution and Logistics

continue to make enhancements to the distribution and logistics network that will streamline the supply chain increasing the speed to market

continued to consolidate the global distribution centers and warehousing, thereby decreasing the fixed costs

In 2008, approximately 24% of the products were shipped from the internal and third-party manufacturers directly to the customer.

The other 76% of the products were fulfilled from the 21 distribution locations strategically located throughout the world. Distribution centers operated in Australia, Colorado, Finland, the Netherlands, India, Japan, Mexico, Shanghai and Singapore as of December 31, 2008.

Company-operated distribution centers had approximately 1,368,000 square feet of space.

also utilized third-party operated distribution centers.

The third-party centers were located in Brazil, Colorado, Dubai, Hong Kong, Korea, and Taiwan. These distribution centers gave approximately 744,000 additional square feet of space.

the combined total of 34 distribution locations and 2.1 million square feet of space gives the flexibility to meet the rapidly changing business requirements and positions Crocs to support the current level of revenue and any growth of the brands.

Competition

The global casual footwear and apparel industry is highly competitive

Crocs does not compete directly with any single company with respect to the entire spectrum of our products, portions of our business compete with companies such as, but not limited to, Nike Inc., Heelys Inc., Deckers Outdoor Corp., Sketchers USA Inc. and Wolverine World Wide, Inc.

The retail locations also compete with footwear retailers such as Macy's Inc., Nordstrom Inc., Dicks Sporting Goods Inc., and Collective Brands Inc.

The principal elements of competition in this industry include brand awareness, product functionality, design, quality, pricing, marketing and distribution

The unique footwear designs, Croslite, and the expanding product offering and distribution network position Crocs well in the marketplace

However, some companies in the casual footwear and apparel industry have substantially greater brand awareness, financial, distribution, and marketing resources than Crocs currently has

Furthermore, the unique designs and resulting success of the footwear products have attracted new players in the market with imitation products that are similar to Crocs’, and it faces competition from these new market entrants

The footwear industry is highly competitive. Recent growth in the market for casual footwear has encouraged the entry of new competitors into the marketplace and has increased competition from established companies. Some of the competitors are offering products that are substantially similar, in design and materials, to Crocs-branded footwear. In addition, access to offshore manufacturing is also making it easier for new companies to enter the markets.

Our competitors include most major athletic and footwear companies, branded apparel companies, and retailers with their own private labels.

Risk

The footwear industry is subject to cyclical variations, consolidation, contraction, and closings, as well as fashion trends, rapid changes in consumer preferences, the effects of weather, general economic conditions, and other factors affecting demand

These factors make it difficult to forecast consumer demand, and if demand for our products is overestimated, may be forced to liquidate excess inventories at a discount to customers, resulting in markdowns and lower gross margins

Conversely, if consumer demand underestimated, could have inventory shortages, which can result in lost potential sales, delays in shipments to customers, strains on the relationships with customers and diminished brand loyalty

Moreover, because the product line is limited, may be disproportionately affected by cyclical downturns in the footwear industry, changes in consumer preferences, and other factors affecting demand, which may make it more difficult to accurately forecast the production needs, exacerbating these risks

substantial cash requirements in the U.S., but a majority of the cash is generated and held abroad. Since repatriation of such cash is subject to limitations and may be subject to significant taxation, Crocs cannot be certain that it will be able to repatriate such cash on favorable terms or in a timely manner.

If continue to incur operating losses and require cash held in international accounts for use in the U.S. operations, a failure to repatriate such cash in a timely and cost-effective manner could adversely affect the business, financial condition, and results of operations.

Failure to adequately protect the trademarks and other intellectual property rights and counterfeiting of the brands could divert sales, damage the brand image and adversely affect the business.

In addition, the laws of certain foreign countries may not protect intellectual property rights to the same extent as do the laws of the U.S.

if unable to successfully protect the rights or resolve intellectual property conflicts with others, the business or financial condition could be adversely affected.

also rely on trade secrets, confidential information, and other unpatented proprietary information related to, among other things, the formulation of Croslite and product development, especially where it is not believed patent protection is appropriate or obtainable

Using third-party manufacturers and compounding facilities may increase the risk of misappropriation of the trade secrets, confidential information and other unpatented proprietary information.

The agreements used to try to protect the intellectual property, confidential information and other unpatented proprietary information may not effectively protect such intellectual property and information and may not be sufficient to prevent unauthorized use or disclosure of such trade secrets and information

Furthermore, as with any trade secret, confidential information, or other proprietary information, others, including the competitors, may independently develop or discover such trade secrets and information, which would render them less valuable to Crocs.

Because depended on third-party manufacturers, may face challenges in maintaining a sufficient supply of goods to meet sales demand, and may experience interruption in the supply chain. Any shortfall in the supply of the products may decrease the sales and have an adverse impact on the customer relationships.

no long-term supply contracts with most of these third-party manufacturers, including the third-party manufacturer that produced the majority of the footwear products, and any of them may unilaterally terminate their relationship with Crocs at any time or seek to increase the prices they charge Crocs. As a result - not assured of an uninterrupted supply of products of an acceptable quality and price from the third-party manufacturers

The manufacturing of the products from the proprietary closed-cell resin, which refers to as Croslite, requires the use of a complex process, and Crocs may experience difficulty in producing footwear that meets the high quality control standards

any formal purchase agreement with the providers of the elastomer resins - purchase on a purchase order basis. If the suppliers were to cease production of these materials - not be able to obtain suitable substitute materials in time to avoid interruption of the production cycle, if at all.

may also have to pay materially higher prices in the future for the elastomer resins or any substitute materials used, which would increase the production costs and could have a materially adverse impact on the margins and results of operations.

products are subject to risks associated with overseas sourcing, manufacturing, shipping and financing.

independent manufacturers manufacture a majority of products outside of the principal sales market - products must be transported by third parties over large geographic distances.

Delays in the shipment or delivery of the products due to the availability of transportation, work stoppages, port strikes, infrastructure congestion, or other factors, and costs and delays associated with transitioning between manufacturers, could adversely impact the financial performance.

In addition, manufacturing delays or unexpected demand for the products may require to use faster, but more expensive, transportation methods such as aircraft, which could adversely affect the profit margins. The cost of fuel is a significant component in transportation costs, so increases in the price of petroleum products can adversely affect the profit margins.

dependent on sales of a small number of products, and the absence of continued market demand for these products would have a significant adverse effect on the operating results.

third-party manufacturers located in foreign countries; operate manufacturing facilities located in North America, Brazil and Italy; and sell the products to retailers outside of the U.S. Foreign manufacturing and sales activities are subject to numerous risks, including the following:

tariffs, import and export controls, and other non-tariff barriers such as quotas and local content rules;

delays associated with the manufacture, transportation and delivery of foreign-sourced products;

increased transportation costs due to distance, energy prices, or other factors;

delays in the transportation and delivery of goods due to increased security concerns;

foreign currency fluctuations, for which we do not currently engage in any material hedging transactions;

restrictions on the transfer of funds;

changing economic conditions;

restrictions, due to privacy laws, on the handling and transfer of consumer and other personal information;

changes in governmental policies and regulations;

political unrest, terrorism, or war, any of which can interrupt commerce;

expropriation and nationalization;

difficulties in managing foreign operations effectively and efficiently from the U.S.; and

difficulties in understanding and complying with local laws, regulations, and customs in foreign jurisdictions.

Furthermore, manufacturing activity outside of the U.S., including the production of the products by third-party manufacturers, particularly in China, is subject to risks of poor infrastructure, shortages of equipment, and labor unrest, in addition to those risks noted above. Once the products are manufactured, we may also suffer delays in distributing the products due to work stoppages, strikes, or lockouts at the ports where the products arrive. Such labor disruptions could result in product shortages and delays in distributing the products to retailers. These factors and the failure to properly respond to them could make it difficult to obtain adequate supplies of quality products when needed, resulting in reduced sales and harm to the business.

may be adversely affected by currency exchange rate fluctuations

purchase products and supplies from third parties in U.S. dollars and receive payments from certain of the international customers in foreign currencies. The cost of these products and supplies sourced overseas, and payments received from customers, may be affected by changes in the value of the relevant currencies. Price increases caused by currency exchange rate fluctuations could make the products less competitive or have an adverse effect on the profitability. Currency exchange rate fluctuations could also disrupt the business of the third-party manufacturers that produce the products

by making their purchases of raw materials more expensive and more difficult to finance. Foreign currency fluctuations could have a material adverse effect on the results of operations and financial condition.