Should You Rock the Crocs?
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We often joke that guys buy shoes for comfort, and women buy for looks. I think there is a lot of truth to that. Whether that statement is true or not, neither of us buys for practicality's sake. You scoff, but let me ask you “how many of you own a pair of tennis shoes?” Ok, now how many of you actually play tennis? That’s what I thought. You see, there seems to be this tendency among human beings to not buy shoes to fit the person that they are, but to buy shoes to portray an image of a person that they wish they were.
The Timberland Company had this image deal going for them. They symbolize everything rough and tough for their wearers, yet most people who wear Timbs have never even scuffed them up. But they do have steel toe, you know, just in case a 2 ton iron beam falls on your foot…at church. A working man normally doesn’t buy a pair of Timberland Boots for work; he gets what’ll “be good enough.”
This principle doesn’t just completely have to be about shoes; clothing brands and specialty stores can have the same effect. That is the case with Pacific Sunwear of California (NASDAQ: PSUN). They are self-described as “a specialty retailer rooted in the action sports, fashion and music influences of the California lifestyle.” Notably they have stores in all 50 states. I have many southeastern US friends who apparently like to dress as if they were from California.
Because people are attracted to certain products for image reasons and not practical reasons, it leaves these companies vulnerable to the ever changing whims of what image people feel like. There may be a movement towards a certain look, only to be fashionably set aside a few years later.
Sketchers (NYSE: SKX) I’m sure would nod their head in agreement to that statement. They have ridden the popularity train up and down several times. Their products haven’t changed, the momentary “in” has. Right now, Sketchers is "out" and has been riding the train down. Straight down. For 2011 they had a net loss of $67 million, opposed to a 2010 $136 million gain. So far this year it isn’t looking too promising either.
This reason that I’m elaborating on is an oft cited reason to stay away from the shoe and clothing sector. It’s a roller coaster. One day people can’t get enough; the next day people apparently could get enough. This is the reason that I steered clear of Crocs (NASDAQ: CROX) back in 2006. It seemed too faddish to me to have any sort of real lasting mark. Everyone had those ridiculous sponge-like-swiss-cheese shoes except me.
While the company did experience a spike in revenue (and stock price) in 2007, with a subsequent crash, it seems that I greatly underestimated a shoe company being able to broaden the scope of their products. I remember my wife wearing a pair of shoes I didn’t recognize, so I asked her if they were new. She said that they were her new crocs. I stared at them. They were shoes…without holes…without foam construction. Could this be?
Have you been in a Crocs store lately? They have got all sorts of stuff that don’t look like Crocs. They even have an active line of footwear that contains a hiking shoe. I wouldn’t want to hike in swiss cheese, but these hiking Crocs would actually work. By being able to broaden their horizons a bit, management has been able to take net losses in 2008-2009 to steady gains ever since 2010. A remarkable feat.
This last quarter looked pretty good, as they beat the Street. Stock prices surged about 10% on the news. But Crocs was quick to lower Q3 guidance below analysts' expectations. It seems that while everything is going good now, they are very aware of how quickly things could turn. They are being cautiously optimistic.
As remarkable as it is, I still would cite the ever-changing consumer climate as a reason to be skeptical of the long-term growth prospects of Crocs, or any similar company. If you really want to play the shoe market, you could try investing in a shoe sales company like Foot Locker (NYSE: FL) or a shoe maker behemoth like Nike (NYSE: NKE). Both of these companies have the history to make them the exception to the fad rule. But then by that logic, you might ask, will Crocs break the fad rule too?
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Crocs and SKECHERS USA. Motley Fool newsletter services recommend Nike and Pacific Sunwear. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.