Crocs lose footing

Crocs lose footing

Shoemaker to close Quebec factory as sales slip

Financial Post April 16, 2008

Crocs aren’t hip anymore — news that may make you ecstatic or depressed, depending on your fashion sense– and workers at a Quebec City factory are paying the price.

The namesake shoe of Colorado-based Crocs Inc. isn’t bringing in the same rush of people as in their peak in 2004, forcing the company to ship its Canadian manufacturing south to Mexico after less than six years in operation, putting more than 600 employees out of work.

It only took two years for the company to go from the largest footwear IPO in history to back-of-the-closet obscurity.

“Crocs bites the dust,” Robert Samuels, an analyst at J.P. Morgan Securities Inc., said in a note.

Crocs CEO Ron Snyder blames the slowdown in demand on poor Croc-wearing weather and a dismal retail climate, but the more obvious answer, as with any of-the-moment trend, is that people are shunning the shoes many feel are just plain ugly.

“The brand’s popularity is in sharp decline, and it is tough to argue otherwise,” Mr. Samuels wrote.

The plant’s closure is the negative twist in what was almost a great Canadian success story on two fronts: A Quebec City group developed the shoe while a Vancouver company has seen huge growth distributing it. The closure is much to the dismay of Crocs Inc.

In 2002, shoe company Western Brands bought the rights to a non-slip, breathable resin clog developed by Quebec-based textile company Finproject NA Inc., which was already supplying the footwear to other retailers in Canada. After Western rebranded themselves as Crocs Inc., and added a strap on the back of the shoe, an international fad was born.

The promise of comfort in a rainbow of colours made them a hit among nurses, gardeners and anyone who spends the day on their feet. By 2003, the shoes were selling in 9,500 stores in 70 countries around the world.

In 2004, Crocs expanded its product line, added warehouses and shipping programs, and acquired Finproject, beefing up production while cutting off the factory’s other distributors, like Vancouver-based Holey Soles Holdings Ltd.

In an attempt to squeeze out their competition, Crocs started launching lawsuits against companies with similar shoes citing patent violation, but two international regulatory bodies have recently overturned its claims to intellectual property rights.

“Western Brands was selling the shoe in the U.S., and we were selling it in Canada,” Holeys CEO Joyce Groote said in an interview. “They bought up Finproject and then cut off the supply to everyone,” she said, adding that they had to move their manufacturing to China.

Ms. Groote sees Crocs’ lawsuits as a business strategy rather than a legal entitlement.

Yesterday, Crocs said it will seek a review of a recent ruling by a U.S. International Trade Commission judge on whether Crocs may be allowed to block U.S. imports of what it considers copycat footwear.

Judge Charles Bullock found on April 11 that there was no violation of Crocs’ patent rights by companies the shoemaker claimed were making and selling knock-offs, the commission said.

Holeys has actually seen its sales grow from $60,000 to $18-million in just four years.

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