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The Honolulu Advertiser
Posted on: Sunday, April 23, 2006

Ugly shoes pretty for investors

By Leslie Earnes
Los Angeles Times

Lauren Stanton, 13, of Newport Beach, Calif., shops for a pair of Crocs at Fashion Island shopping center. The shoe company saw sales grow to $108.6 million last year from $13.5 million in 2004.

DON BARTLETTI | Los Angeles Times

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California has always had a soft spot for ugly shoes.

Birkenstocks and Tevas have caught on here, fortifying the state's reputation as a haven for gimmicky fashion. Not everyone thinks Ugg boots are ugly, but even people who do seem to wear them. Now comes Crocs. They're rubbery. They're garish. They're a lightweight sandal-clog hybrid, and if the Niwot, Colo.-based company has its way, they're about to be omnipresent in Southern California.

On Monday, Crocs Inc. announced that it has replaced Nissan as the main sponsor of the L.A.-based AVP Pro Beach Volleyball tour, which automatically adds the shoemaker's name to the tour title. The move signals that the company, which initially hesitated to push into more heavily populated U.S. markets for fear of not being able to keep up with demand, has set its sights on California.

Initially imagined for boating, Crocs have snagged a wider-than-expected following of fans, from children to chief executives. Made from a shiny resin, in colors that can only be described as relentlessly cheerful, they are the rare fashion statement that can be hosed off. And at just 6 ounces apiece, they don't bog you down.

The company, which made its first shoe in late 2002, saw sales swell to $108.6 million last year from $13.5 million in 2004. Crocs, which retail for $30 to $60, now sell in 6,500 U.S. stores and in 40 countries.

"It's this generation's Earth Shoe," said Marshal Cohen, chief industry analyst for NPD Group, a market research firm in Port Washington, N.Y.

Crocs CEO Ron Snyder said the company is expanding its geographic reach after beefing up its production capabilities around the world over the past year. At the beginning of 2005, Crocs could make just 100,000 pairs a month — and was selling all of them. By the end of that year, it had the capacity to make 2 million pair a month, he said.

"Now we have ample production to ship into the more populated areas of the U.S. and abroad as well," Snyder said.

The AVP Crocs Tour, as the volleyball event will now be called, will seek to heighten the brand's visibility here and elsewhere as the Crocs name is attached to TV and radio advertising, posters and billboards. The tour, which began in Florida in March and continues through September, has four major events in Southern California — Santa Barbara, Huntington Beach, Hermosa Beach and Manhattan Beach.

Tour commissioner Leonard Armato said that as part of the sponsorship deal, Crocs and the AVP will develop some co-branded footwear, including a beach volleyball sand sock. Armato said Crocs approached the AVP last year to discuss its marketing goals.

"We told them we could do some extraordinary things for them ... and they agreed," said Armato, who donned a pair of yellow Crocs with a black pinstripe Monday (but admitted he planned to slip back into his black Pradas before heading out to a business lunch). "AVP has all kinds of rabid fans, particularly in Southern California."

So, apparently, do Crocs.

Nordstrom said the brand has been one of its strong sellers. And the shoes are moving rapidly at the Adventure 16 store at The Lab shopping center in Costa Mesa, store manager Rolf Abro said.

"They're very popular," he said. "They're really comfy to wear and very cushiony. It's hard for us to keep a stock on them."

Mike Bill, general manager of Becker Surf and Sport, a Hermosa Beach-based chain of five stores, described the phenomenon as "a Hollywood thing."

They sell best at Becker's Malibu store, Bill said, where sales picked up after star big-wave surfer Laird Hamilton and some of his pals began wearing them around town.

But assistant manager Mitch Taylor said the shoes, which he stocks in orange, blue, turquoise, red, navy, chocolate brown, tan, pale pink and hot pink, are less popular with shoppers 18 to 30 than with the older and younger crowd. And he thinks he knows why: "They're pretty much the ugliest thing that ever hit the earth," he said. Snyder, Crocs' chief executive, doesn't take offense at such talk. In fact, the company played up the homely factor in an "ugly can be beautiful" ad campaign last year. And Snyder bragged that Faith Hill described the shoes as ugly but comfy on the Oprah show.

Besides, they're pretty enough, as far as investors are concerned.

When the company went public in February, its share price quickly shot up 55 percent. The company sold 9.9 million shares during the IPO, raising $240 million, Snyder said. The company took in about $109 million while the remainder went to shareholders who were selling, he said.

Not everyone on Wall Street is equally enthusiastic.

"Do the words 'irrational exuberance' ring a bell?" John Shanley, with Susquehanna Financial Group, asked in a report earlier this year.

Bill Boettge, president of the National Shoe Retailers Association, said Crocs' real challenge is "how do you stop all the knockoffs that are coming a dime-a-dozen down the street?"

Snyder said Crocs is suing those who infringe on its patents. It is also adding new styles quickly to try to stay at least a step ahead of imitators. The company has added 10 models in 18 colors and expects to have 20 styles by the end of the year, including some that are more stylish.