Crocs will be the next Nike. It's a bold statement, I realize, but if any footwear/apparel maker has the chance to become relevant, sustainable and as near-dominating as Nike (NYSE: NKE) has been these past 25 years, it's Crocs (NASDAQ: CROX). Understandably Crocs has a long way to go and a lot of heavy lifting in front of it before it can claim a seat at the mountaintop, like Nike. But the potential is very good as Crocs is emerging as a category-dominant player. Let's do a bit of a review to understand why.
I wrote in my book Stop Losing Money Today that Nike began in the 1970s as a fad/niche play. Nike sold its functional running shoes to the jogging set, but then quickly expanded its offerings to include all athletes in virtually every sport. The shoes were customized to handle the rigors of the individual sport. Nike also expanded its line to be fashionable and cool to wear even when its wearers weren't sweating. The company went north of the ankle to include a full line of T-shirts, warm-up suits, shorts and hundreds of other products. In essence, Nike graduated from a fad/niche player to become a full-blown global phenomenon. The company went public in 1980, and currently has a market capitalization of $27.5 billion and distributes its products through thousands of retail stores, as well as 418 of its own NikeTown stores. Revenues are running at a $17-18 billion run-rate with healthy operating margins of 14%. Nike is truly a great American success story.
Crocs has the same opportunity and it may even be larger.
Crocs went public in February 2006 and has not looked backward since. The market capitalization has just topped the $3 billion mark on the heels of the recent 3 quarters results that were outstanding. Revenues for 2007 are now expected at nearly $700 million and 2008 revenues could top $950 million. The results opened the eyes of many skeptics and non-believers as this company is progressing from the fad/ niche category to becoming another full-blown phenomenon.The company has a funky, cool line of shoes that appeal to almost every demographic set, and at affordable price points, ranging from $29.99 to $59.99. The shoes come in bright rainbow colors and are actually quite comfortable. Crocs shoes are manufactured from a proprietary resin called Croslite. Crocs has also begun to go north of the ankle with a new line of T-shirts, backpacks and many other neat, innovative products. To become a full-grown multi-billion dollar market cap company, Crocs must include product variation and innovation. This company appears poised to do exactly that.
Crocs has a major advantage that Nike did not back in the 1970s: a dynamic, commerce-generating web site. Growing revenues and branding are two goals of the web site as well as customer-gathering data. Crocs currently distributes its products in over 24,000 retailers of which more than half are outside the United States. International sales are very important as they carry a higher average selling price. Crocs was smart to "globalize" its brand early in its development cycle.
The real secret sauce for Crocs ongoing expansion and success is its unbelievable margin structure. Crocs has a gross profit margin at almost 60%, but what is salivating to any investor's palate is the operating margins are a stunning 25-27%. For such a young company in the building/expansion mode to have such a high operating margin is extremely rare. This is what will set it apart from other young concepts: Crocs has the pricing power and high free cash flow to fund expansion and development of new product concepts.
Revenue and earnings growth are visible and sustainable for the next several years at 30% plus. The company has the vision and understanding that fad/niche players can vanish quickly and become answers in a game of trivia. Crocs will expand the shoe line and other product lines to remain fresh and innovative. Companies that achieve phenomenon status are always looking 2-3 years ahead and planning for change and meeting the challenges.
Crocs could be the next Nike ...
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Reader Comments (Page 1 of 2)
5-26-2007 @ 7:59AM
questlove said...
Not with only one style of shoes. Eventually all the nurses in the world are going to have them. This whole 'who is the next Nike? UA, Crocs, etc' is getting a bit out of hand.
Maybe we should be asking ourselves who's going to be the next hot two year trend.
5-26-2007 @ 9:07AM
BhhStudios said...
I really wish the authors on this site would stop comparing a rubber pressed clog made in china to a sweat shop made apparel / sporting goods company. Its just not going to happen.
Until crocs start making hockey sticks, football cleats, baseball gloves, Jogging shoes that sync with your iPod they will not be the next Nike.
You should compare them to there fellow competitors, birkenstocks. I see birkenstocks as the one to worry here, not Nike.
Please please please stop saying crocs will be the next nike, the only company right now that can even compare to nike is Under Armor, we all know it so lets end this nonsense.
5-26-2007 @ 2:40PM
tteach said...
I just got back from Disney World. Guess what I wore? Crocs regulars and sandals--the whole time. guess what everyone else was wearing? right. Guess what was selling like hotcakes in the disney stores (with little holes like MMouse?)????? Right.
5-26-2007 @ 2:42PM
Gumby said...
I just bought a pair of Beach Croc sandals. At first look, they look like cheap WalMart junk sandals or even those found in Chinatown shops. It was sore breaking in for first couple days. Now, I just started loving it this morning. The old sandals with the stupid Nike swoop shit enblazened on them had been smelling bad even though I washed it repeatedly. End of dog and pony show!
5-26-2007 @ 8:54PM
secretwebfinds.com said...
At our office crocs are the new standard for friday causal with the girls....and has been for a while.I have to agree with the article, Crocs is postioned
well.
5-27-2007 @ 2:40PM
Mims said...
Croc's has some excellent hockey equipment coming out with their purchase of Fury. I can see them moving into other sports in the future. Every parent hates their kids sweaty, stinky sports equipment and crocs is just the answer to this problem.
5-28-2007 @ 12:32PM
Barry said...
Crocs are cool but I like Cloggens better. They fit better and are more comfortable. Also more styles.
5-29-2007 @ 3:39AM
Sharon said...
My daughter, a nurse, bought me a pair for Xmas. She said it might save me from constant falling. Since I am waiting on a liver transplant falling often was very bad. I have not fallen since and found a dealer in the area where I bought 2 more colors and am planning to get a white pair for summer. I wear the closed in toe kind which protects me if anything were to fall on me. They are the greatest find ever and I plan to use them always. I even took them on a cruise and wore them cause my feet swelled. The only thing I am not happy about is the colored ones do not have the color dyed through and sometimes the paint wore off. Thank you for allowing me to endorse such a wonderful shoe.
5-30-2007 @ 12:32PM
SMC said...
The next Nike?? We have got to get perspective here. While CROX may be on a tear right now, I would bet money that this fad will fade in time. Consumers are fickle and love new stuff, fashion or otherwise. I don't see consumers buying another pair and another over the years. Consider Ughs...trend. Thought they're trying to expand their product line, rubber sandals is their core product. I suspect they will miss on earnings, however slightly, in 12-18 months and the stock will take a good hit in the downward direction. That's where I'm looking to make some money.
5-30-2007 @ 4:21PM
Bodacious Baby Bandit Bear said...
So, today I just bought my first shares of CROCs stock (CROX). Two days ago, a lady with her 2 year old grandaughter rode by in their golf cart. The little girl had on a pair of CROCs. Grandma said she had to go from store to store trying to find them. It took her over a week to find a pair. She then added that all of then nurses in the hospital were she works wear them..as do many of the doctors making their rounds. I read with great interest some of the other blog comments about 'all the nurses will be wearing them' as well as comments about how they help prevent people who stumble when they walk (hey, all those retirement communities - -I know of at least 5 elderly people who have 'tripped' wearing their regular shoes). There are more aging baby boomers out there then anyone realizes and that is the market for those ugly rubber shoes..also saw many folks wearing them at a NASCAR race (yeh, men included)-- what a market! Glad I bought the stock..can't wait to see what happens after it splits in June!
6-06-2007 @ 8:53PM
Michael White said...
Sorry but I wouldn't wear those to a pig's bris! Yeeeech, rubber shoes = stinky feet and they are pretty ugly too..
6-06-2007 @ 9:00PM
JOE said...
IKnow no one is dumb enought to really compare a rubber sandal to a nike shoe?The author must really be old or out of touch with the word.Look at nike sale and then these.Nike sells more shoe laces then this companiesentire year to date sales lol.Old people and gay people wear these.Dont think you will see these on the court, field, school, or anyone under 40 crods.This statement is like saying " Wow who would have thought Jellys would still be so cool and out sold reebok this year!!" hmmm crocs jellies? fads?
6-06-2007 @ 9:20PM
Rachel said...
OMG Please do not tell me that more people are going to wear these horrid shoes (crocs)... except in the garden... they seem well fit for the garden... or mayble little kids play shoes, but they are sooo ugly they makes Uggz look good...
6-06-2007 @ 9:21PM
susan said...
I must be out of the times.. I dont own a pair, nobody in my family owns a pair BUT at crewing events I see all the kids wearing them to carry the boats back up the ramps. I personally think they are ugly and maybe that's why I dont own a pair.
6-06-2007 @ 9:21PM
Bee said...
Crocs will be the next Nike? I think that's a CROC of SH.... You know what I mean. Can't say it here.
6-06-2007 @ 9:43PM
michelle said...
Lol I agree with you, rachel. I have always thought those shoes were ugly! I wouldnt wear those damn things even if I were gardening lol!
6-06-2007 @ 10:09PM
Pretty said...
I can't believe that CROCS will be the next Nike. I swore I would never buy or wear real ones or knock offs...well I did buy the K-Mart version. They are comfortable. We love them for gardening, running outside, dogging walking even for slippers, etc. Would I wear them out to the store or wherever......NO!
6-06-2007 @ 10:36PM
The truth is said...
They are ugly as hell...They look low class and they make your feet stink. Nothing looks worse on a person than trashy looking rubber shoes.They look bad on adults and kids.
6-06-2007 @ 10:47PM
CrownsCaster said...
Crocs are ugly. You will never catch me wearing a pair. I always laugh when I see someone wearing them. They look goofy. Clown shoes!
6-06-2007 @ 11:11PM
nbaker12778 said...
These are nothing more than those 80's jellies. One style and many colors. Nike is safe.