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Crocs Diversifying Footwear Production to These 2 Asian Nations

After becoming one of the rising stars of the Covid-19 pandemic, Crocs has enormous ambitions for its next five years. The casual footwear seller, which has gained massive traction due to celebrity partnerships with the likes of Post Malone and Justin Bieber, aims to drive $5 billion in annual sales by 2026.

Currently, Crocs projects $2.25 billion in full-year sales for 2021, but expects compound annual growth rates (CAGR) to reach 17 percent in the next five years.

Crocs’ stock shot up as much as 13 percent when CEO Andrew Rees and other major execs shared some of the company’s long-term projections during an investor presentation Tuesday.

Michelle Poole, who serves as the foam shoemaker’s president, indicated in the presentation that clogs now form an $8 billion market, up from $6 billion just 18 months ago.

“We’ve really seen a very noticeable acceleration of more clog silhouettes popping up alongside us,” Poole said. “We feel very encouraged by that because it’s really signaling to the consumer, an increased relevance of the silhouette. The clog itself as a silhouette is all about easy-on, easy-off, fit, versatility and comfort. We do see continued growth of the overall product segment, because it fits into consumers lives and it fits into these macro trends.”

The cash cow of clogs plans to make the jump to $5 billion by relying on the four growth drivers that have gotten the business to where it is today: growing digital sales, gaining market share in sandals, continuing growth in Asia and furthering its own product innovation capabilities.

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While digital sales currently represent 37 percent of Crocs’ business across its e-commerce site, wholesale channels and online marketplaces, the footwear seller wants that total to reach 50 percent of sales by 2026. Crocs says 2021 full-year digital sales totals are expected to reach $700 million.

Although sandals currently comprise 16 percent of sales, Crocs has higher ambitions for the category due to what it describes as a $30 billion addressable market. Already driving 10 percent CAGR growth in the three years pre-Covid, the Gen Z-favorite brand wants its sandal business to quadruple by 2026. And revenue from the Jibbitz charms, which enable shoppers to personalize their clogs and sandals, is expected to double by 2026.

Asia is Crocs’ fastest-growing region, and Rees expects it to stay that way. While the continent represents 18 percent of the company’s total sales, Crocs is shooting for it to drive 25 percent of the $5 billion expected revenue off of 30 percent-per-year CAGR growth. All of these growth numbers are contingent on the casual footwear brands’ success in China, where Crocs has taken longer to catch on than initially anticipated, Rees said in June. Three months later, the company remains bullish on the market.

“China is the second-largest footwear market in the world, representing about 20 percent of global footwear sales,” Rees said. “As we look at benchmarks, many of our competitive brands are achieving about 20 percent of their sales from Mainland China. Crocs is under-penetrated. We have less than 5 percent of our business coming from Mainland China today.”

As Crocs reiterated its 2021 guidance, Rees asserted that the Vietnam factory closures have “no material bearing” on the $5 billion long-term revenue goal and noted that production facilities are starting to reopen now. The brand is planning to use additional airfreight to get products to customers quicker amid global supply chain bottlenecks.

Crocs currently manufactures the highest concentration of its products from Vietnam (the company doesn’t release percentages of its sourcing capacity), but is planning to shift some sourcing into new markets. In particular, Crocs is building new facilities in Indonesia, and has signed an agreement with a major manufacturer to open a new facility in India.

“I would also emphasize, we do have a number of close-to-market facilities in Bosnia, and also in Mexico, that are smaller and not owned by us but are operated by our partners,” Rees said. “Those are smaller than those Asian facilities but they do give us versatility. Ongoing diversification is essentially the name of the game. We feel very confident in our pipeline of sourcing to be able to support this kind of growth, because it will require obviously a lot of incremental production.”

Rees said the company will reveal more about the impacts of the Vietnam closures, particularly how they will impact the brand’s first-half production in 2022, in Crocs’ third-quarter earnings call in October.

Crocs shoots to grow wholesale, bolster omnichannel business

Over the next five years, expect differences in where Crocs will be selling product, and how shoppers can purchase and access it.

Crocs was one of a few major footwear players that terminated select wholesale partnerships this year, but going forward, the brand plans to expand its activity in the channel. Over the next five years, wholesale will jump from 51 percent to 55 percent of total sales, while DTC will fall from 49 percent to 45 percent.

Anne Mehlman, Crocs chief financial officer, said the growth will actually occur more from the bounce back of existing distributors that were disproportionately impacted by Covid, instead of new partners. Mehlman cited Amazon, Zappos, Zalando and Russia’s Wildberries as marketplaces that will be the biggest drivers of digital wholesale growth.

The company recently enhanced its omnichannel capabilities by allowing consumers to reserve product in-store via Crocs.com. It will soon roll out full buy online, pick up in-store technology throughout its U.S. stores, and is set to launch its first mobile app later in September, which will include app-exclusive content and product launches.

As the company increases its revenue, Crocs aims to deliver high levels of profitability and cash flow. By 2026, the footwear firm expects adjusted operating margins to exceed 26 percent and annual free cash flow to surpass $1 billion.

‘Bio-based’ Croslite will help Crocs get closer to net-zero

Aiming to reach net-zero emissions by 2030, Crocs is introducing a new, “bio-based” Croslite material into its clogs. In partnership with materials science provider Dow, the clogs use a carbon-negative technology called Ecolibrium, which is designed to transform sustainably sourced waste and byproducts into a material with the same comfort as a typical Crocs shoe.

“The process produces essentially the same feedstock, but it doesn’t come from natural gas,” Rees said. “And then we can blend that feedstock with our current feedstock to extrude it to make the product. And yes, the impact of that will increase the blend over time, primarily around supply. That will reduce the carbon footprint of that classic clog to half of what it is today.”

In line with the carbon reduction capabilities that Ecolibrium brings, Crocs said it plans to cut its carbon footprint per pair of shoes by 50 percent. The brand, which recently expanded into socks, also wants to improve the packaging areas of its business as part of its ESG initiatives.

“Eighty percent of our products ship today without a box, but we can do even better,” Rees said.