Strategy in Quality Footwear Essay

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Strategic Management REVISED

Crocs Inc. is a publicly traded corporation on the NASDAQ under the symbol CROX: the company completed its initial public offering in February of 2006, and is thus a little over eight years old. The Colorado-based company is known primarily for its brightly-colored foam-based shoes, which were first manufactured in 2002 as footwear for beaches and spas, but which quickly expanded. The company went public at the precise moment when its popularity with consumers was experiencing explosive growth, and thus the eight years as a publicly-traded corporation have been difficult and tumultuous. At its peak in 2006, shortly after the initial public offering, shares of Crocs Inc. traded at over sixty dollars apiece; in 2014, shares now trade at less than thirteen dollars apiece (Mattoli & Spector, November 2013, para.2). However, because of the limitations inherent in Crocs' business model, the company makes an excellent case study for assessing market strategy. An examination of globalization and technology changes, an analysis of the company according to industrial organization and resource-based models, an examination of Crocs' vision statements and mission statements, and an analysis of the stakeholder categories (which, at the present moment, is arguably the most interesting thing about the business) will offer an interesting glimpse into how strategic management and strategic competitiveness operate in 2014.

As with all businesses in the twenty-first century, globalization and technology changes are affecting Crocs Inc. To start with globalization, it is worth noting that when the company began a dozen years ago, the shoes were being produced entirely within America and only being sold in America. In some sense this is a classic business tale of a product being invented and introduced more or less out of nowhere: if Crocs had pre-existing competition that provided barriers to entry, it was in semi-disposable beach footwear (flip-flops or sandals) which were not generally branded or produced by nameable corporations. By now Crocs Inc.'s sales are substantial enough that the manufacturing of the shoes has more or less been moved out of America entirely, such that the company claims to produce "our footwear products at our internal manufacturing facilities in Mexico and Italy" (Crocs Inc. 2013, p.20). It is crucial to note, however, what precisely Crocs Inc. is selling. The company's basic product rests on patents in two basic categories -- the more significant patent, arguably, is for the soft cushiony waterproof material which is used to make the actual shoes, referred to in the company's SEC fiings for 2013 as "our proprietary closed-cell resin, called Croslite" (Crocs Inc., 2013, p.1). It is worth noting that this material itself was not originally invented or developed by the makers of Crocs, but came from a separate corporation in Canada. When Crocs Inc. began as a maker of footwear in 2002, they did so as an American firm having essentially secured a licensing deal with the original Canadian firm that had developed Croslite -- however, by 2004 (still two years before the initial public offering) Crocs Inc. had grown large enough as a privately-held brand that they were able to purchase the Canadian maker of Croslite and the relevant patents, thus making it Crocs Inc.'s own "proprietary closed-cell resin" by the time of the initial public offering in 2006 (Crocs Inc., 2013, p.2). Although Crocs Inc.'s instant recognition signal for consumers is the shoe's patented form -- a large clog-shaped shoe with holes in the top and thick soles, which the company has successfully defended against imitators / pirates / counterfeiters who infringed upon the patent -- in some sense this form is also the company's chief liability, as when the look of the shoes became less fashionable this seemed to contribute to a steep decline in sales, while subsequent attempts to manufacture other shapes and varieties of shoes (and thus enter the "fashion" market) ultimately failed. In reality, the company's chief resource is its proprietary material, which provides comfortable and easily cleaned recreational quality footwear. There have been no technological changes or developments to compete with this technological advantage held by Crocs Inc., so the chief effect of technology on business performance is in how the Internet might affect sales -- and here Crocs Inc. maintains a lively web presence and manages to do a substantial amount of sales through online retailers.

If Crocs Inc. is widely thought to be a case study in the spectacular rise and rapid downfall of a corporation, however, it should be noted that globalization of sales and distribution is the key way forward for the company.

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For a company that was founded in America twelve years ago, with retail existing only in the domestic American market, by 2013 Crocs Inc. was poised to make Asia its largest market overall: in 2012, for the company's overall $1.1 billion in total sales, Asia accounted for 41% while domestic American sales accounted for 44% (Chu 2013, para.3). The Asian sales continue to increase and indeed the company's 2013 SEC statements reflect this, with one crucial issue: in the Japanese market, Crocs Inc. followed the same pattern of explosive growth followed by rapid contraction. In 2011, 2012, and 2013, Japanese sales accounted for 15.5, 14.7, and 11.3% of "consolidated revenues" (Crocs Inc. 2013, p.10). As a result, the company's annual report for 2013 separates out the Japanese market from the rest of Asia, so as to make it clear that the rapid decline in Japan is distinct from the currently substantial growth in the Asia Pacific market otherwise.

Analyzing Crocs Inc.'s strategic position according to the industrial organization model is slightly tricky. The company's Mission Statement reads as follows: "To become the global leader in sustainable lifestyle footwear, apparel and accessories whilst ensuring that the four pillars of the Ocean Minded brand -- Quality, Authenticity, Responsibility and Community -- resonate throughout our company, products, associates and actions." (Crocs Inc., 2011, para.1). This mission statement indicates that Crocs Inc. no longer sees their shoes as fashion accessories to compete with other shoes, like Christian Louboutin. In reality, Crocs Inc.'s competition comes from small, locally-produced semi-disposable flip-flop-style shoes, and the company's real goal is to establish itself permanently as the recognizable brand in this area, where no other brand has existed. This may explain the seeming failure of Crocs Inc.'s earlier expansion strategy in thinking of itself as a fashion firm like Louboutin, and attempted to produce different styles of shoe (with heel, etc.). Crocs Inc. would like to cushion its faltering market performance by pretending it has lost competitive advantage because of other shoemakers. In reality, Crocs Inc. conquered existing competition so easily that the real issue became its strategy to solidify their brand, and the company failed at this by attempting expansion into areas where it would simply not be competitive (like high fashion). The resource-based model is perhaps more useful in understanding this company: the tangible resources (such as retail stores and manufacturing facilities) reflect the company's high market valuation at the time of the initial public offering and now may be an albatross as share prices and revenues drop, while the intangible resources (the patents on Croslite and on the holey clog style of the shoe itself, and the brand position itself) should be the real source of competitive advantage. However, Crocs Inc. seems to have squandered its competitive advantage in an attempt to make itself into something it is not over the past few years. This is reflected now in the company's mission statement, which defines Crocs Inc. As a provider of comfortable beach wear, not high fashion, while also emphasizing the "sustainable" aspect, indicating that in promoting beach wear Crocs Inc. is also environmentally friendly. Freeman Harrison et al. (2010) note that "managers should acknowledge the legitimate claims of both internal and external stakeholders when developing a mission statement." (p.37). It seems clear that the inclusion of "global" in the mission statement promises external stakeholders that Crocs Inc. is committed to continued expansion in the areas like Asia where it experiences most significant growth.

What is most interesting about Crocs Inc. And its strategy at the present moment, however, is the issue of stakeholders. There are three types of stakeholders: capital market stakeholders (shareholders and other providers of a firm's capital), product market stakeholders (primary customers, suppliers, unions) and organizational stakeholders (the firm's employees, including management). The organizational stakeholders of Crocs Inc. consists of all the firm's employees including both non-managerial and managerial personnel, and the poor performance of the company on the stock market has led to the announcement that the CEO will step down mid-2014. In 2013, the rapid decline of Crocs Inc.'s revenues and share prices since their 2006-2007 peak had caused the management to consider the unusual step of taking the company private, which would of course remove the capital market stakeholders (in the form of shareholders) from the company's stakeholders. The Wall Street Journal reported on November 13, 2013 that "The footwear maker, famous for its colorful.....

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