Q&A With Crocs’ John Duerden

NEW YORK — Can Crocs be saved? John Duerden thinks so.

Duerden, who took over as president and CEO of the Niwot, Colo.-based company in March, is charged with untangling the mess at Crocs Inc.

In his first 70 days since replacing Ron Snyder, who remains a board member, Duerden has reached out to major department stores, made some critical cost-cutting decisions and implemented a plan for reining in product distribution.

“The biggest problem for us is reconnecting with our customers, retailers, in particular,” said Duerden. “We need to rebuild our reputation with them, which has suffered as a result of such rapid growth, [and] we need to improve the level of service. Also, we have to manage our inventory down in an effective way. We have too much inventory at the moment.”

Refueling Crocs is going to be a tough task amid major financial turmoil at the firm. Earlier this month, the company reported a loss of $22.4 million for the first quarter, compared with a loss of $4.5 million for the same period last year. What’s worse, the maker of the quirky injection-molded clogs issued a weak outlook for the second quarter.

But the CEO is no stranger to helping companies get back on track. Before joining Crocs, he ran Chrysallis Group, a consulting firm that developed and revived struggling brands. He also worked for Reebok International from 1988 to 1995, eventually becoming its president and COO.

“It’s been a very interesting experience actually getting back into footwear,” Duerden said. “Although I have kept an eye on the industry in the last few years, coming back into [it] has been an interesting and exciting experience.”

The Crocs board is betting that Duerden, 68, has the savvy to stabilize the company. According to a March

Securities and Exchange Commission filing, the executive will receive an annual salary of $850,000 and was granted 400,000 shares of stock upon hiring, plus a $350,000 signing bonus and other performance incentives.

In his first major interview since taking the helm of Crocs, Duerden weighs in on the challenges he faces and how he plans to return the company to consistent profitability.

FN: You’re 70 days into the job. What’s been the biggest surprise so far?

JD: I don’t think there’s anything that surprised me that I had not already been aware of when I was considering taking the assignment. I recognized fully that here was a company that had been through a dramatic period of growth, followed by a sudden and quite precipitous collapse over the last year or so — part of which was driven by the economy and part of it [because] a number of the controls and information systems necessary to support a company of this size [hadn’t been in place]. The growth had just outpaced the ability to do it. That’s not uncommon in companies that have grown at that speed.

FN: Why did you decide to return to footwear full time?

JD: Once I’d set up my own consulting group, I’d found myself drifting back to the footwear industry to some extent, maybe it was because I had made a lot of friends and acquaintances during that period. But I’ve always found the industry fascinating. It’s one of those few industries where it’s possible to build an iconic brand in a relatively short period of time. It’s an industry that has a dynamic about it. And I guess I enjoyed my six-and-a-half years with Reebok as much as any aspect of my professional career.

FN: Before you joined Crocs, what observations had you made as an outsider?

JD: It was difficult for Crocs not to be on anyone’s radar. It was kind of like a shooting star. I was interested and, I suppose, I had probably dismissed it as a fad. I thought, this is not going to last, but as I began to look at the company, it became clear to me that there was a passionate group of consumers out there, and that sparked my interest — and [the fact] that the brand has worldwide recognition, recognition that is right up there with the major brands. Those are two very powerful components, which led me to believe there was much more to this than I perhaps imagined.

FN: Are you worried that Crocs’ popularity has waned?

JD: My intention is to stimulate the brand. There are various stages of a brand. Obviously, it takes 12 months of cycle time to get a new product line in the marketplace, so my ability to rapidly influence the product coming to the market now is limited. But I still believe there is a buzz out there in the marketplace; there are consumers who like the idea of Crocs shoes. They are very comfortable. The materials we use are specifically focused on providing an extremely comfortable shoe that can be manufactured at a relatively low cost. And we’ve got a very good competence in injection-molded technology, and I intend to develop that competence to a point where we can be leaders in [that area].

FN: What do you see as the biggest problem facing Crocs?

JD: The biggest problem for us is reconnecting with our customers, retailers, in particular. We need to rebuild our reputation with them, which has suffered as a result of such rapid growth, [and] we need to improve the level of service. Also, we have to manage our inventory down in an effective way. We have too much inventory at the moment, and getting that distributed effectively without damaging the brand is a major challenge for us. We’ve made some reasonable progress on it and we will continue to manage that carefully. The second thing is to bring the cost base in line with revenue. We need to bring that down to more sustainable levels now so that we meet the relevant competitive benchmarks in the marketplace. We have to continue to focus on cash generation, of course. But we’re fortunate in that we have very limited bank debt.

FN: In March, just as you joined Crocs, auditors Deloitte & Touche raised doubts about the firm’s ability to continue as a going concern. What do you think they’re missing?

JD: They’re missing the impact of management intervention. That is what I do: look at companies and try to turn them around. The auditors are obviously entitled to a view; we take that view very seriously. But by the same token, I believe there is sufficient energy in this company and that we can secure the financing necessary for this company. Therefore, it is possible to turn this company around. But if you look at the balance sheet of the company, then the auditors are right to raise a flag of concern. But my job is basically to acknowledge it and to put in place the plans to make this company sustainable in the future.

The company has taken a lot of actions over the last 12 to 18 months to correct an adverse situation. Some of those are taking effect now. There are additional actions we need to take in order to correct the performance of the company going forward. The auditors’ report wasn’t about this year, it was about last year.

FN: How would you describe your leadership style?

JD: There are several roles for a chief executive. In many ways, I regard myself as being the representative of the customer inside the company. That might sound strange, but that’s the most critical thing — for us to be in touch with our customers and our consumers. If you take your eye off that ball in this industry, you run into serious trouble. My role then is to arrive at the right balance between dealing with short-term problems and long-term investments, and try to balance those two. I also think my role is to hire good people — and there are a number of very good people inside the company — and give them responsibility to do their jobs and provide an environment in which they can be successful. My natural instinct and background is really marketing. Companies are about marketing, and even if you have operational problems or financial problems in the short term, eventually you have to come back to the marketing equation, which deals with the price and margin of the business and the way you get your product into the marketplace.

FN: How does your leadership style differ from Ron’s?

JD: I wouldn’t want to draw a direct comparison. Ron did a terrific job in building this company. Very few people have ever built a company this fast and gotten this much recognition around the world. I really give Ron a lot of credit for that. I think different management styles are appropriate for different stages in the development of companies. So am I the same as Ron? Probably not. But hopefully, my skills will be complementary to what he’s accomplished in the company.

FN: What do you need to do to complete a turnaround?

JD: We need to come up with a business model that is much more suited to the footwear business today. We need to be leaner, we need to be able to move more quickly and respond more effectively to changes in the market. We need to concentrate on producing great product and bringing that to the marketplace in an effective manner. We need to improve our information systems — they are already improving, there’s been a big investment in our information systems. Once those projects are completed, we will be in a much better position to lower the cost base of the company and provide the level of service that is essential in this industry today.

FN: Crocs’ initial success led to copycats, which stole market share and buzz. Is that still a problem?

JD: Yes, there’s been an impact from knockoffs. But that’s not something unique to Crocs. I can remember the days when Reebok was constantly being assaulted by knockoffs in the marketplace. You have to build the brand positioning so that you distinguish yourself from the competition either with the design of the product, the way in which you manufacture the product, the quality of the product or the way you service the customer. You’ve got to build a competitive advantage.

FN: The company had tried to branch out into higher end shoes with the You by Crocs line. Is that still a priority?

JD: You by Crocs is not. It has been temporarily shelved. But there is a female market out there that we are doing quite well in with injection-molded shoes. You by Crocs is something I’ll take another look at [down the road]. But at the moment, we’re focusing on the core Crocs product.

FN: And what about the apparel Crocs launched?

JD: Apparel has been shelved as well. We need to focus on what we do well.

FN: Two weeks ago the company said it will close its distribution center in Colorado, and also had another round of layoffs. What other cost-cutting measures will you take?

JD: We will be taking further actions to bring our costs in line with revenue. I don’t want to be very specific at this stage, but we’ve got a line of sight on where we need to go with the organization.

FN: So you could lay off more employees or part ways with underperforming retailers? Is everything fair game?

JD: Yes. You need to take a look at what’s profitable and what’s not, and you take a very close look at what’s not. That’s really the exercise I’ve been going through in the last 70 days, finding out where we are making money, where things can be adjusted relatively easy or if there are things where we are going to have to make some hard calls.

FN: Some analysts say Crocs’ downward spiral began with inventory problems. What’s the inventory situation today?

JD: Inventory was a big problem for the company. It was almost what I’d call a “perfect storm.” The economy collapsed and the retail market started to suffer just as Crocs had geared itself up for continuation of its amazing growth. So that’s a lot to deal with. We have made some good progress on inventory. Our inventory is a lot lower now than it was a year ago. We’re down 50 percent. We need to bring it down further. I’m hoping to bring it more in line with what I regard as industry norms in terms of turnover by the end of this year.

FN: One of the other criticisms is that Crocs’ shoes were overdistributed and lacked exclusivity. What changes should retailers expect to see regarding distribution?

JD: The comment that the product was overdistributed is absolutely right. We need to come up with a much more selective distribution strategy for this product, which would clear the market effectively. That’s a very high priority for me and something that we’re working on as we speak. It’s going to take us awhile to finalize that and get it implemented in the marketplace, but it’s very high on my radar.

FN: Another issue was that Crocs failed to buy brands that would add product diversity. Any plans to acquire?

JD: I’m not certain I want to acquire anything else at this stage. We need to focus on our core business, doing what we do best. If that means stabilizing the growth of the company, that is what we should do. Jibbitz has been quite successful, some of the others have been less successful and we’ve either terminated those brands or just put them on the backburner. There’s one or two of them that will be interesting in the future. Ocean Minded, for example, when we have time to spend on it, can have some good potential. But I’m not about to institute a major acquisition strategy right now.

FN: On the flip side, are you readying Crocs for a sale?

JD: No. That’s the short answer. My task, the one the board has given me, is to get this company turned around and moving in the right direction. To do that we need to concentrate on the basics, to take care of our retailers, to come up with an effective distribution and channel strategy, and we need to bring in a progressive stream of interesting new products that are still recognizable as Crocs products, but maybe extend the brand into some new areas. For instance, the Prepair shoe we recently introduced as a sports-recovery product is an interesting area for us.

FN: Growth outside the U.S. has been a major push. What markets are you focused on?

JD: Crocs has about 50 percent of its sales now outside of the U.S. To grow the international business is an important priority. In Asia, in particular, we have good operations there. Japan, mainland China and the whole of Southeast Asia represent a significant opportunity for us. The brand has had a good reception there. The European market has been a tough market for us. But we’ve put a good team in place in Europe and our business will improve there this year.

FN: What’s the healthiest part of the Crocs business?

JD: The kids’ business is doing well and that’s an area I want to focus on. It’s just a natural shoe for kids. And the shoes are at a good price point, they’re attractive, they’re fun. They are a lot of the things you want in a recession. And the kids’ business certainly helps to stimulate the women’s business, and for us, those are the two strongest bits of the market.

FN: What are you enjoying most about the job?

JD: It’s great to be back in [product] line operations again. I’d been working on putting together deals and investing in companies and doing some consulting work over the last three years, some of which has been in the footwear business, but running an operation again is the ultimate challenge, and I’m enjoying being back at the helm.


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