By Irina Ivanova
/ MoneyWatch
Crocs sparked a minor panic among fans of its colorful plastic clogs by announcing on Wednesday that the company is closing the last of its manufacturing facilities. But mule-lovers can rest easy -- the footwear maker isn't going of business. Rather, Crocs -- which is profitable -- is closing factories and shutting some stores in a move to cut costs and boost earnings.
Wall Street is pleased. Crocs shares, which have risen 49 percent this year, nosed up further on Thursday.
Most Crocs are already made in factories not owned by the shoe maker. Closing the last of its company-owned facilities, in Mexico and Italy, is part of a plan to completely outsource Crocs' production, a spokesperson for the company said.
The company issued a statement Thursday afternoon rebutting rumors that it was shutting down.
"[T]here have been multiple media reports that Crocs is winding down production in our owned manufacturing facilities," the statement said, in part. "While accurate, some people have interpreted that to mean that Crocs will no longer be making and selling shoes. Quite the contrary, Crocs will continue to innovate, design and produce the most comfortable shoes on the planet. As we streamline our business to meet growing demand for Crocs, we're simply shifting production to third parties to increase our manufacturing capacity."
FALSE ALARM: We aren't going anywhere 😎
— Crocs Shoes (@Crocs) August 8, 2018
The closing factories manufactured less than 10 percent of Crocs' proucts, said Steven Marotta, an analyst at CL King & Associates.
"Their supply chain is very strong," he said. "That itty-bitty amount of [shoes] can be easily absorbed through the supply chain."
Outsourcing production has been a common business strategy for apparel companies since the 1980s. Today, companies from Apple to the Trump Organization contract with others to supply their goods, often to criticism from pro-labor forces.
For Crocs, outsourcing can make it easier to change product lines and respond to customer demand, said Sam Poser, analyst for Susquehanna Financial Group.
"Let's say you own a factory that only makes Crocs," he said. "Even when it's not working, you're still paying rent and you're still paying people. Nike, I don't think, owns one factory. None of these companies own factories. It's not what they do."
Crocs' turnaround plan, which started in 2014, also involves closing some stores and focusing more on online sales. The company closed about 160 stores over the last year, it said in a recent presentation to investors, and has about 400 today.
"Closing their stores is a bit of a challenge," said Marshal Cohen, chief retail analyst at the NPD Group. That said, "I would rather be more profitable and smaller," he added.
So far, Wall Street is a fan of the turnaround plan. Shares of the company, which bottomed out in April 2017 at $6.23, have since tripled in price.
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Now, delving into the article about Crocs, let's dissect the key concepts:
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Crocs' Manufacturing Strategy: Crocs has announced the closure of its last manufacturing facilities, sparking concerns among fans. However, it's essential to note that the company is not going out of business. The move is part of a strategic plan to cut costs and increase earnings. Crocs, a profitable entity, is closing its company-owned facilities in Mexico and Italy and shifting towards a complete outsourcing model for production.
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Financial Performance: Wall Street has responded positively to Crocs' decision, with shares rising by 49 percent in the year. The closure of the manufacturing plants is perceived as a cost-cutting measure, contributing to the company's profitability.
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Outsourcing in the Fashion Industry: The article highlights that outsourcing production is a common strategy in the fashion industry, dating back to the 1980s. Crocs joining the trend is seen as a move to enhance flexibility in product lines and responsiveness to customer demand. Outsourcing allows companies to adapt more swiftly to market changes.
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Supply Chain Strength: According to Steven Marotta, an analyst, the closed factories accounted for less than 10 percent of Crocs' products, and the supply chain is deemed strong enough to absorb the impact. This emphasizes the importance of a robust supply chain in mitigating disruptions caused by changes in manufacturing strategies.
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Crocs' Turnaround Plan: The article mentions that Crocs initiated a turnaround plan in 2014, which involves not only closing manufacturing facilities but also shutting down stores and focusing more on online sales. Approximately 160 stores were closed over the past year, reducing the total number to around 400. The focus on online sales aligns with the evolving retail landscape.
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Analyst Perspectives: Analysts, such as Sam Poser and Marshal Cohen, provide insights into the benefits of outsourcing for Crocs. Poser emphasizes that outsourcing facilitates agility in responding to customer demand and changing product lines. Cohen acknowledges the challenge of closing stores but recognizes the profitability and strategic value of being more efficient.
In conclusion, Crocs' decision to close manufacturing facilities is a strategic move aimed at improving efficiency, cutting costs, and adapting to market dynamics. The positive response from Wall Street reflects confidence in the company's turnaround plan and its ability to navigate the challenges of the modern retail landscape.
