John McCarvel, 55, CEO of Crocs, talks about how the 10-year-old company's lightweight clogs and other footwear are finding their niche in more 90 countries. His answers were edited for clarity and space.
Q: You were named CEO in February 2010, at a time when the company's sales were plummeting. What was your priority as CEO?
A: You're transitioning from the original founders and management team. The challenge is, how do you build the same culture of trust that the original founders and management had? New innovative product was (also) key. We've expanded into work shoes, into women's casual shoes. We have over 325 styles.
Q: Crocs' signature clogs are not known for being the prettiest footwear. Why do you think they caught on?
A: Comfort. We think the comfort of the product is what really sold people to try them. We had our early tag line, "You've got to try them on." Once people put them on their feet, the ugly factor kind of went out the door.
Q: The popularity of the clogs waned in recent years. Why?
A: Actually, (customer) demand for our product has been pretty consistent for the past four to five years. Every year, consumers have purchased about 40 million pairs of shoes. In 2007, we sold 47 million pairs of shoes. The next year, we sold 35 million pairs. We just didn't sell as many to retailers. We became over-distributed and in some cases, we weren't selling in the right distribution channels.
Q: The company returned to profitability in 2010 for the first time since 2007, and last year, reached $1 billion in sales. What was the key to restoring profitability?
A: We restructured the business to be at the right size. We had too many factories in Brazil and Canada that weren't cost-effective. We shut down a number of distribution centers that had been built to facilitate that growth. We (ended a contract) to spend over $10 million a year to market with the AVP (beach volleyball tour). Companies of our size can't do that.
Q: You expect Crocs sales to double in less than five years and for Asia to become the largest market by the end of 2013. Why the focus on Asia?
A: It's a younger market; it's a trendier market. Asia is the future for many brands, and especially for ours. We think our product fits well into the Asian lifestyle. Easy off, easy on, more casual footwear. The products are so popular (in Asia) that we have significant counterfeiting of our original and lower-end products. People even open up counterfeit Crocs stores.
Q: Shoe, apparel and other companies are competing for the growing middle class in emerging markets, including Asia. What are you doing to stand out?
A: For the price point that we sell at (generally between $25 to $50), we're a very high-quality product.
Q: Do Crocs sell well in style-conscious markets such as Hong Kong?
A: Absolutely. They're fun and fashionable.
Q: You sell your products in more than 90 countries. What is a challenging market to sell Crocs shoes in, and why?
A: Russia is a challenging market in terms of distribution and demographics, as well as tariffs. It's a large country with a fairly small population, and the distance between major cities is significant. China (is challenging) for many of the same reasons.
Q: You've recently moved part of your production from China to Vietnam. Why?
A: First, we can ship products from Vietnam to more countries duty-free. It's a slightly lower (production) cost. Also, diversification of supply. We have major partners we build with, and this is a new supplier for us.
Q: Does it make sense to manufacture Crocs in the U.S.?
A: When we restructured the business in 2008 and early 2009, we ceased our manufacturing partnership in Florida. But at some point, if you get to cost parity, it may make sense (to manufacture again in the U.S.).
Q: You're expanding the Crocs name beyond footwear, to socks, backpacks and hats. Why do you think customers will want to buy hats and bags under the Crocs name?
A: It's a natural extension. We did expand into other categories of apparel (including sunglasses and swimwear) in 2007 and 2008. That was not successful. What was successful were T-shirts, hats, hoodies.
Q: You started as a consultant for Crocs in 2004, and now you're CEO. Luck or skill?
A: I think anything in life is a combination of things. I knew one of the three original founders and one of the CEOs of the company quite well. But you don't build a $400 million business in Asia just strictly on luck. It's a lot of hard work.
Q: You attended Carroll College in Helena, Mont. How did a liberal arts college prepare you to be the CEO of Crocs?
A: Liberal arts education offers you something different. My liberal arts background led me to a more liberal arts career. Running a global company with a diverse global background is a huge benefit.
Q: As you've expanded overseas, what lesson have you learned about global competition?
A: Be local. How different is Hong Kong from Taiwan, Guangzhou from Beijing and Shanghai to the average person? We have great people in all of our markets. Like the book Good to Great (by Jim Collins), it's about the "who" first.