Europe could show way for clog maker Crocs' revival

BERLIN Wed Jul 30, 2014 5:34am EDT

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BERLIN (Reuters) - The success of Crocs Inc in Europe, where the U.S. shoemaker has focused on its trademark colorful foam clogs rather than branching into other products, proves the brand has a future despite difficulties at home, its European head said.

Crocs, founded in Boulder, Colorado in 2002, quickly built a cult following for its springy-soled clogs, selling more than 300 million pairs of shoes. It now runs 624 stores and has expanded into accessories and more fashionable shoe styles.

But profits went into decline as sales growth stalled at home and it expanded rapidly overseas. Last month, the group said it would focus back on its "core molded footwear heritage", cut 40 percent of its 350 product lines and close 75-100 stores as it trims investment in small markets.

"You say 'Crocs' and a lot of people will frustratingly say 'are you still around?'" Vince Gunn, Crocs European managing director, told Reuters in a telephone interview.

"We are here, we're doing pretty well. If we can get the shoes on you twice, then we've locked you in," he said. "The company is growing up again ... You have to go through changes and get fit again for the future."

While sales fell 5.1 percent in the Americas in the first half of 2014, they grew 9.4 percent in Europe to account for a fifth of the total and rose 10.5 percent in Asia-Pacific, helping total group revenues climb 2.6 percent.

"The European business was ahead of the game in managing the cost base," Gunn said, noting that his unit already only offered about 170-190 products of the 350 in the global range, keeping a lid on complexity. "We've tried to keep the range tight."

The European business has kept a closer focus on the traditional clog rather than straying too far into other products, with clogs or derivatives accounting for about 70 percent of sales, compared with 50 percent globally.

Crocs, in which a fund affiliated with investment firm Blackstone invested $200 million in January, has seen its shares jump since it announced restructuring plans on July 21 but they are still a fraction of their 2007 peak.

Crocs is looking for a new chief executive officer after the departure of John McCarvel in April. Andrew Rees, who helped develop the company's new strategic plan while at management consultants LEK Consulting, joined as president in May.

Europe will still be hit by the global store closure program, with 25-30 of the region's 230 stores set to go, Gunn said, but should benefit from the firm's plan to increase marketing spending by about 50 percent.

Gunn rejected suggestions that part of the company's problem was the durability of its clogs as one pair can last for years. All Crocs shoes feature a trademarked material that is soft, light, non-marking and odor-resistant.

"There are a lot of rip-off products out there. If we begin to dilute the quality and the strength of the product, it is a very dangerous path to go down," he said.

Crocs, which makes about a third of group sales from products for children, has forecast that 2015 revenue would be hurt by store closures before growth resumes in 2016 and beyond.

(Editing by Mark Potter)

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