Crocs – SWOT Analysis

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Opportunities

Crocs has three significant opportunities in the external environment. First, it can continue its global expansion. The most perspective regions are Western Europe and Asia. These markets have demonstrated high growth of sales recently. Crocs has specific hopes for the emerging markets. For example, the company plans to become a leader in the market segment of affordable footwear in India, China, and Brazil. Second, it can license the bottoms of shoes to other organizations. Particularly, Crocs is the owner of the formula for resin “croslite”; therefore, it can sell a license for this material. The unique characteristics of this material are outstanding comfort and odor protection. Finally, the company might expand the product variety. The possible source of this is the acquisition of new footwear companies. Crocs used this strategy in 2006 and 2007. Thus, it purchased a number of companies, operating on the sports equipment and apparel market as well as action footwear. As the result of these acquisitions, Crocs started to use leather. Crocs could purchase other non-sport retailers to add new materials and styles to its products.

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Threats

The company also has three outstanding threats in the external environment that might stop its quick growth. First, Crocs might face demand and/or economy issues. Today, the company applies vertically integrated business model. It controls all processes, starting from manufacturing to the shipping to customers. However, this might lead to the reduction of the company’s effectiveness in the future. The problem is that Crocs continues to expand to other countries. It adds new materials (e.g. leather, suede) and models of shoes so it might be difficult to control all processes. At the same time, manufacturing, warehousing, and compounding operations could become more expansive, which would have a negative impact on the company’s expansion to emerging countries where customers are price sensitive. Another threat is the appearance of competitors that would offer more attractive shoes. Crocs’ products are easily imitated so this threat is significant. In addition, other companies sell the imitations of Crocs’ shoes even today. Finally, competitors might launch highly attractive products made of other materials, and Crocs would not be able to win this competition.

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Strengths

In the internal environment, the company has at least seven strengths. First, it owns manufacturing operations that cause such valuable benefits as IP protection and cost decline. The company started to develop its own manufacturing operations after understanding that only China was ready to adopt Crocs’ supply chain model. Manufacturers in other countries refused to react so quickly to the needs of the company’s customers. The first company-owned operations were performed in Mexico and Italy. Crocs also plans to start manufacturing operations in India and Brazil. Therefore, relying on own-company operations allows the company to keep its competitive advantage, which is the fast response to customer’s needs. The company does not lose money due to slow contract manufacturers either. In addition, it is cheaper to produce in its own factories than order the manufacturing of products in other companies. Second, the company’s products have high quality. Patricianly, Crocs’ material “croslite” is comfortable; thus, it is widely used by people who have to stand for a long time at work. For example, Crocs shoes are popular among doctors and gardeners. Other valuable characteristics of the company’s products are their ability to be odor-free and resist water. The shoes also grip surfaces firmly and have bright design. Third, the company manufactures its products in low-tariff countries. For example, Cross does not pay any duties for the products made in Mexico and transported to the USA. Moreover, the production in Mexico allows Crocs to avoid duties for sales in Europe. Further, the production in Canada helps to sell products to Israel without any additional taxes. Fourth, the company produces small order batches so it can fulfill additional orders during a season. This approach helps to mitigate risks, associated with lack or overabundance of products. The latter would force Crocs to sell its produces with discounts at the end of a season, whereas the former would lead to the loss of customers and revenues. Fifth, Crocs has a delayed differentiation; particularly, its products are compounded at each manufacturing facility. As a result, Crocs can easily respond to customer’s needs regarding the color of shoes. Sixth, the company has manufacturing facilities in different countries, including China, Italy, Mexico, the USA, and Canada. Such a global expansion increases the company’s flexibility and improves its supply chain model. For example, the company does not need to transport products for the Canadian market from China. As a result, Crocs can reduce its transportations costs, accelerate the delivery of goods, and respond to the local needs of customers faster. Finally, Crocs’ strength lies in its marketing, especially in channel sales and grassroots marketing. For example, the organization participated in various shows in each industry where it could find customers. For example, it was a participant of garden shows and boat shows. Crocs also visited concerts, festivals, and sports competitions to inform customers about their products. The company’s staff members work closely with the stores. The positive outcome of Crocs’ marketing is the growing sales across the world.

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Weaknesses

However, Crocs also has seven weaknesses in the internal environment. First, it produces one million pairs of shoes, which is more than it is indicated in the production plan. Although this excessive production allows responding to the urgent demand for products, the company has to spend additional money on inventory holding. Second, Crocs has to pay high tariffs for the products made in China; particularly, the duties vary from 3 to 35%. The size of tariffs depends on the material, used in footwear. The company has to pay a low tariff for fully molded shoes and a high tariff for the shoes made of leather or other materials. Third, Crocs does not use all its capacity so it loses potential revenues. At the same time, the company has an excessive capacity in the form of molds and molding equipment. Therefore, these resources would be helpful for a sudden growth of customer’s demand. Fourth, constant expanding of product range leads to growing costs and complications in supply chain. For example, the problems have appeared after launch of the production of leather and suede shoes because these materials are more expensive than ‘croslite’. Moreover, they require other manufacturing operations. Fifth, the organization has only two various suppliers for a compounded material, which is risky because suppliers could decide to stop working with Crocs and switch to other market players. Supplier might also use their power over Crocs to demand higher price for their materials. As a result, Crocs could fail to meet its obligation and lose revenues. It would be difficult to find new suppliers for a short time because the company produces millions of products and needs significant amounts of materials. Sixth, restricted lead time for the manufacturing machinery reduces the organization’s flexibility. It needs to consider the supplier’s limits on a regular basis, and it cannot make urgent large order batches. Finally, the shoe manufacturer tends to make decisions based on the most positive scenarios. It is risky for the company because some day, it might have financial losses. For example, it may produce an excessive number of products that would not be purchased by customers. Even today, it manufactures one million pairs of footwear beyond the plan. All these products can find their customers at the moment but the growth of sales cannot last forever.

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