Could Crocs’ supply chain mitigation steps work for others?

Discussion
Photo: Crocs
Oct 22, 2021

Crocs, facing both factory shutdowns overseas and port congestion in the U.S., on Thursday unveiled a multi-step plan to circumvent supply chain challenges and drive another year of strong growth in 2022.

The clog footwear maker reported that sales jumped 73 percent in the third quarter and raised its guidance slightly for the full year. Revenues are now expected to expand between 62 and 65 percent.

On an analyst call, Andrew Rees, CEO, also said wholesale bookings for the first half of 2022 “have been exceptionally strong,” and 2022 revenue growth is expected to exceed 20 percent. He said, “Consumer demand for our products is high.”

For the first half of 2022, however, Crocs expects to face “limitations around how much demand we can fulfill.” He outlined five steps Crocs is taking to minimize the supply chain damage:

  1. Production diversification: Crocs is shifting its sourcing from Vietnam to other countries, including China, Indonesia, India and Bosnia. Factories in Vietnam, which make up about 70 percent of production, were closed for several weeks during the third quarter due to COVID-19 spikes and began reopening in early October. Said Mr. Rees, “Today, most of our factories in Vietnam are operational, although they are in various stages of restarting. We expect the situation to remain fluid as the vaccination rates increase in the country.”
  2. Port diversification. The company is diverting some shipments to the U.S. to East Coast ports and northern ports on the West Coast to avoid the port congestion at Los Angeles and Long Beach. Said Mr. Rees, “We definitely have product on ships outside of Long Beach.”
  3. Prioritizing best-sellers: Crocs’ SKU count at the production level will be narrowed to focus on top sellers. Said Mr. Rees, “While still preserving newness, we’re able to improve factory throughput.”
  4. Prioritizing inventory by channel: Arriving inventory will be prioritized to support its three most important channels: owned e-commerce, third-party e-tail and its major wholesale customers.
  5. Leveraging air freight: Crocs plans to invest approximately $75 million in air freight to support 2022 spring/summer deliveries.

DISCUSSION QUESTIONS: Which of the steps Crocs is taking to mitigate supply chain constraints make sense for other vendors and retailers to embrace? Are there maneuvers it might add?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Production diversification seems to be the most popular measure these days, with IKEA, Benetton, and now Crocs resorting to that strategy."
"A combination strategy of diversification (production, ports) mixed with prioritization (top channels, top SKUs) should help others as well..."
"Diversification is without question a critical path to weathering this latest storm."

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8 Comments on "Could Crocs’ supply chain mitigation steps work for others?"


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Doug Garnett
BrainTrust

I suspect Crocs is doing the right thing and that other retailers are already doing these things as well.

Zel Bianco
BrainTrust

Perhaps some but not all strategies will be effective for other suppliers/retailers. Most can at least rationalize their SKU count to focus on best sellers. If we all need to live with not having the huge variety we enjoy in most categories, at least until the supply chain issue improves, so be it.

Venky Ramesh
BrainTrust

Production diversification seems to be the most popular measure these days, with IKEA, Benetton, and now Crocs resorting to that strategy. Another example that comes to mind is how Conagra worked its way around lack of driver availability by shipping products directly from their plants to the customers.

Mohamed Amer
BrainTrust

The steps taken by Crocs are worth considering, but each company must study its situation and range of assortments.

Diversification of sources and ports appears promising but is not easily or quickly achieved. Country capabilities, capacities, labor cost, and logistics networks represent new risks unless you are already doing business there. Shifting volume to other U.S. ports carries additional issues such as labor and trucking constraints and potentially significantly longer trips over water with negative inventory impact.

Patricia Vekich Waldron
Staff

These are all best practices/contingency plans that good organizations should have in place. Here in San Diego our port has had a banner year picking up new business from carriers who were unable to off-load in Long Beach or LA.

Ryan Mathews
BrainTrust

These are all good steps, but if I were forced to pick one I’d say production diversification since it protects the brand in both the short- and long-terms. Port diversification isn’t as sexy as channel strategies, but it might find its way to Number Two on my list. And yes, I think all vendors and retailers who rely on offshore production should follow their example.

Natalie Walkley
BrainTrust

A combination strategy of diversification (production, ports) mixed with prioritization (top channels, top SKUs) should help others as well — although perhaps not the exact same “mix.” In terms of additional steps, anytime inventory is low it is critical for brands to have transparency into all inventory and availability to consumers. Investment in technology and tracking to do so will provide retailers the ability to make decisions more quickly.

Dave Bruno
BrainTrust

Diversification is without question a critical path to weathering this latest storm. Their supply chain strategy puts Crocs ahead of many retailers, and Crocs also has the advantage of a relatively narrow assortment. Prioritizing from an already limited range will be easier for Crocs than retailers with much broader and deeper assortments. Careful, thoughtful and measured assortment planning processes will be critical to the success of broad-range retailers’ efforts to both diversify and prioritize.

wpDiscuz
Braintrust
"Production diversification seems to be the most popular measure these days, with IKEA, Benetton, and now Crocs resorting to that strategy."
"A combination strategy of diversification (production, ports) mixed with prioritization (top channels, top SKUs) should help others as well..."
"Diversification is without question a critical path to weathering this latest storm."

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