Anticipating turmoil in e-commerce, Crocs goes back to physical stores

Plans to focus on offline distribution, ad spends, expansion to Northeast to reboot India presence

International footwear brand Crocs is looking to reboot its presence in India in the midst of a global rebranding effort aimed at moving beyond its beachwear-only image and into the broader casual footwear segment. It plans to do so with a renewed focus on offline distribution, enhanced advertisement expenditure and an expansion drive into the hitherto untapped Northeast states.

The company’s tagline, “Find your fun”, will soon be changed to “Come as you are”, as part of its rebranding. In India, the company’s real focus lies in mitigating the challenges it foresees due to anticipated changes in the e-commerce sector.

The company’s global revenue stands at $1.2 billion. While Crocs does not share its financial numbers for India — considered among the top markets for the brand — it sold 1.5 million pairs of shoes in the country last year. Overall, it sold 55 million pairs of shoes in 2016 globally.

Deepak Chhabra, managing director of Crocs India, feels the e-commerce sector is witnessing a blind race for market leadership with its deep-discounting model. Chhabra and the brand are of the view that the sector cannot sustain it.

“In about two to three years, the current shape and size of the e-commerce segment will change. Since one-fourth of our current business comes from the online channel, such a change could obviously lead to business losses. Therefore, by the time the various e-commerce players move to a bottomline-driven business model, instead of a GMV-driven one, we will see online’s share in our business stabilising at about 10-12 per cent,” says Chhabra.

So, how does Crocs plan to make up for the possible drop in the volume of online sales once the discounts dry up? “We have 1,000 points of sale (POSs) in India, including exclusive stores, departmental stores, footwear chain stores and mom-and-pop stores. This calendar year, we are adding 300 more POSs. In the long run, we will have close to 2,500 POSs, of which about 250 will be our exclusive stores.”

The company isn’t writing off the online channel; however, its strategy for this space is changing. It feels the share from its web-based store would increase once the disparity between e-commerce marketplaces and the brand’s online store, brought about by the former’s reliance on discounts, ceases. “This share could increase to one-fourth of all online sales in two to three years, and up to one-third in five to six years,” says Chhabra. With this is mind, the brand is also renewing its focus on its organic online presence, with exclusive deals and perks for loyal customers on its online store.

Deepak Chhabra, managing director, Crocs India

Crocs, which has seen a year-on-year growth of over 35 per cent in India, does not want to be caught off guard. Even as it takes to cover a market like India in terms of distribution, “moving aggressively” is key, as the company plans to double its India business in the next three years. The brand is present in 100 cities and its reach extends to around 4,000 pin-codes through the e-commerce channel. However, retail operations are not its expertise. Its physical exclusive retail business is driven by the franchise model, with 25 per cent of its overall offline presence falling in that category. The rest of the share is covered by distribution partners. By itself, Crocs does not operate any stores or outlets. Chhabra has no plans to see that change under the new strategy.

He points out that Crocs is a largely partner-based business that does not focus heavily on operating its own retail. “Our entire exclusive retail model is 100 per cent franchise-based. In such a scenario, the investments will largely be in inventory carrying, which is working capital expenditure, and advertising and marketing. These areas will constitute the larger investment. Historically, we have not invested much in advertising. However, for this year, we have earmarked five per cent of our annual operating plan for investment in marketing and advertisement. This is almost double the amount earmarked for the same in previous years,” explains Chhabra.

According to the company, the south has been its key market till now. In fact, Chhabra says that Crocs will be making inroads into tier-II cities in Karnataka, Andhra Pradesh and Telangana as part of this year’s expansion plan. However, the company is eager to expand into new geographies and the Northeast had caught its attention. According to Chhbara, Crocs has added four POSs each in Imphal and Shillong in the last two months. The brand has two exclusive stores in Guwahati, which is the gateway to the region, and it will soon be adding another. “Overall, we will be adding 10 more POSs in Guwahati. In the second stage, we will also be creating a presence in other cities in Manipur, Nagaland and Assam,” says Chhabra.

The population in the region is much more fashion-forward than the rest of the country, feels Chhabra.

“Normally, we believe that people in Delhi and Mumbai generally lead the fashion trends in the country. However, the Northeast is a notch a higher than that; go to Shillong or Imphal and you will see the difference,” he explains, adding, “The hilly terrain, disturbed geopolitical situation and frequent economic embargoes, among other things, have kept a lot of the brands out of the region. So, we see a lot of unfulfilled potential.”