Crocs is slowly killing itself with heavy discounts
Things don't look so hot in the house that Crocs ($NASDAQ:CROX) built. Recently, the ubiquitous holey-plastic shoemaker, reported a fourth-quarter loss of $28.3 million. Analysts expected losses of 33 cents per share, but these results put the company's losses at a daunting 41 cents per share. In addition, the company doesn't expect the trend to reverse in the immediate future.
Part of the problem appears to be in the way that shoppers value Crocs' shoes and other products. That's because the company has a habit of deeply discounting its wares on an almost 365-days-a-year cycle. Looking at discount data that we track at Thinknum, the average discount for the entire catalog of Crocs merchandise listed online sits at a whopping 35%.
Combine that with the Colorado company's thick bottom line - retail locations, employees, manufacturing, etc. - and it's easy to see why the company is struggling to improve profits.
Crocs' discount trend appears to be on an upswing, too - average discount spiked as high as 50% last fall and around the new year. A brief lull in discounting was quickly turned around earlier this month, and it appears the company is right back to its comfort zone: around a 30% average discount across all items.
The result is that Crocs' buyers - of which there are many around the world - perceive the value of Crocs at less than retail. Any return to standard retail pricing for the bulk of its inventory would likely be met by lackluster sales. In other words, the company has dug its own sales ditch, and no amount of merchandising or rebranding appears to be filling in the gaps. Like ouroboros, Crocs is eating its own profits and it's too late to slow down the cycle.
As part of a branding effort, the company turned to actor Drew Barrymore to be its face and spokesperson. This has netted a new product collection as well as messaging that echoes Crocs' laid-back image. It's too early to tell if it's working, but the ads are at least making a minor ripple in media, beginning with a 3-minute video starring Barrymore called, simply, "The Musical."
The message of the campaign is clear: like the shoes, you don't have to be beautiful to be great. You just have to get comfortable.
Or something like that.
As to whether or not this equates to a change in value perception for the company's products, time will tell.