At UBT Corporation we enjoy sharing industry news and information with you. So please enjoy this article where Kai Robert Worrell of http://www.worrell.com interviews Joe Ranieri CEO, Crocs China.
Q: Joe, Please tell us a little bit about your background. You have been described as a serial entrepreneur. How did you get started?
Right from the very beginning as a child I was trying to figure out ways to make money. I had a lot of jobs at a time and worked through college. It was a non-stop process of starting things and trying things. That carried on into my first jobs, I was called a “maverick”, and sometimes an “intra-prenuer”. I liked taking on projects other people wouldn’t take. That was always my mode of operation. I left the corporate world in 1996 when I started a corporate consultancy, then a venture capital advisory firm, which turned into an investment bank. I have been in investment banking since 1998.
Q: When did you come to Asia?
I came to Asia in 1988 with a corporation. It was one of those “going into the hinter lands” kind of assignments. The company was having some problems in Asia. I made some recommendations and the president of the company said “well, we’ll see you in 6 months…”
Q: Great, go do it?
Yeah, great go do it… I still have the return ticket 20 years later. Once you get involved in Asia you find it’s a go-go world. There’s always something new and something different to develop and do more with. I like the Asia work habits, the 24×7.
Q: There is a funny story how you got involved in Crocs. Do you mind sharing it with us?
A couple of buddies, originally from the company that sent me here over 20 years ago, had carried on through their careers in various electronics firms and then found this interesting product and bought the company. They came to me and asked me to invest, which I passed on. Actually, tragically passed up on is the better way of saying it. After I passed on the investment, they IPO’d for a billion dollars. So then right about the time of this IPO they called me up and asked if I was going to miss this train twice, and I ended up, with some friends from the investment baking business, investing and going back into business. We got the rights to India and China and raised a few million dollars and started to open the two largest markets that were still available for Crocs.
Each of us took a function and a region, I became the CEO of China, another guy became the CEO of India, and another guy the CFO. We put our heads down and focused on the start-up and in one year we sold the rights back to Crocs.
Q: Unbelievable, that’s a pretty quick turn-around.
Yeah, that was a great return on investment. What we’re doing now is finishing up those earn-outs and finishing our plans that put Crocs on the growth path in both of those countries.
Q: So you didn’t get in on the ground floor, but you took up the task with zeal on the second time around.
Yeah, the second time around. Not quite the same level of profitability as the IPO, but we’ve had a lot of fun and accomplished a lot in the last two years.
Q: How many sets of personal crocs do you own and which ones are your favorites?
Well, I don’t have to buy them, I probably own close to 25. My favorite is the Venture if I’m dressed up, leather top. Summer time, my preference is the o-road.
Crocs in China
Q: Crocs are extremely popular in China. Tell us how the brand extended to this hemisphere with such success?
I’m lucky. People say that entering China with any brand is a daunting and difficult task. The good thing about Crocs is that it’s a unique product – it’s different than anything else. This product has it’s own style, characteristics, and materials. So that has made it easier than most brands to bring into the China market. Crocs had already translated to Asian communities like Hong Kong, Singapore and Japan for all the same reasons. For me, I believe it was having a unique product.
Q: In a country full of knock-os and low price competitors, how do you defend your IP rights and manage your brand?
Well, obviously we do have a unique looking shoe and everyone that sees the shoe, whether it is ours, or one that looks like it, calls it a Crocs. So, we’ve been able to own the brand in that sense. To compete against all the people knocking us o, you have to take a two-pronged approach.
One, of course, is an aggressive offensive approach where you go after the manufacturers that are stealing your IP and close them down at the source. We are actively doing that throughout China, which benefits us globally, because China is the main manufacturer of knock-offs.
On the other side of it, we take a different view and we say that the more of this style of shoe that is walking around, the more popular it will become. So we look at it as free marketing, a free promotional perspective. In order to capitalize on this more passive approach we need to educate people on the differences between materials, the quality of workmanship and why one is not equal to the other.
In all the other markets, where knock-os have become popular or have gained some headway, they eventually fall o because people will become used to a look, but won’t like the feel or the ultimate quality that they are getting. So they will ultimately come looking for us, for the real deal. In every market that we have been in, our growth has been consistently strong even with knockoffs coming in.
Q: So are the competitors actually helping you expand your market?
That’s what we feel. We can’t close down all the little shops so you may as well turn them into an advantage.
Management in China
Q: We’ve discussed your management approach and how you encourage risk taking. Tell us a little more about how you do that?
We are growing team, we have about 250 people here today and we’ll probably be closer to 400-500 by the end of the year. This growth is primarily driven by the need to service a rapidly expanding retail store base. We’ll have over 1000 stores in China by the end of the year. The problem in China, however, is that there is a relative lack of experience, particularly around management experience. The workforce, especially relative to brand and brand management, is a very young workforce. So there are a lot of developmental needs. The basics: How to conduct a meeting, how to communicate, how to work within teams.
But there are also higher order needs of training which are: How do you think ahead, how do you plan, how do you logically put forward recommended courses of action for decisions on a financial basis. What we find in China is that there is not an inherent risk taking code or methodology in day-to-day behavior. So we spend a lot of time encouraging people to try new things, take risks, and put themselves out there.
Our management team doesn’t punish people for making mistakes. It’s quid pro quo, we encourage people to make mistakes, so we don’t punish for mistakes. What we need to do is make a learning experience for both sides. Ultimately though, people need to take responsibility for their actions (and that’s another thing that the young people we’re working with are learning rapidly). They need to understand that with authority and opportunity comes responsibility which will give them confidence to do more in the long term whether that is with us or some place else. It has become a learning organization. We work at that every day, the development of a learning organization.
Q: Many Western Brands have done very well here in China. Many brands have been reinvented here in China. What are some of the reasons for the incredible demand for branded products?
And many have failed… The appeal to Western brands, the consumer sees it as having quality, heritage, a story or message. I think the Western brands that have been successful have been able to communicate those attributes well. There are others that have failed over successive tries because they haven’t been able to communicate what their heritage is and what they stand for. We’ll get to the crux of that in just a moment… but some of them have spun into an entirely different thing. Take Converse for example. Converse in America is just a shoe brand, and it’s a cheap canvas sneaker. Here, in China, it’s considered a fashion brand. It has many products beyond just shoes that they’ve been able to establish it as a fashion brand to a young consumer. These are not cheap shoes here, 300 to 600 RMB (approximately $45-$90US) or even higher in some cases. Their apparel is also expensive.
China has a need at the consumer level to find itself, to find an identity as an individual in a very noisy environment. There are 1.3 billion unique people, but there is a history of dull, bleak, and drab around it. So people are trying to find brands that will help them to communicate to those around them who they are, what they think, and how they think. It’s not unlike the West, but there’s not a long history of brands and using brands that communicate, “who you are”.
So only those brands that can clearly define themselves will be embraced fully by the China market and get the value that they need to continue their growth in the marketplace. They need something other than a low-cost, high-volume product.
Q: Crocs is a fashion brand here in China, isn’t it?
Yes, we spent a lot of time surveying the market before we sold into it and what we realized is that we’re an expensive molded shoe. There are other shoes that sell from 8 RMB to 80 RMB ($1-$11 US) and we’re sitting at 200-500 RMB ($35-$80 US) and beyond. We decided very early that we needed to establish ourselves as a fashion brand and we spent a lot of time showing people how this fun, colorful shoe that is very comfortable could be worn in their everyday life. We know that we’ve accomplished that because if you look at our top 10 series, they are all very bright. Yellow, Red, Fuscia, a very bright color palette. Versus if you go to the West, they are selling blue and brown and white and grey. They are a little more utilitarian, so yeah, we’re established as a fashion brand here.
It was no more difficult than simply putting ourselves out there with pictures of fashionable people wearing the shoes. Working with the media and the fashion magazines to get them to understand that here is a product that people can communicate their attitude, identity, and their “altitude” that they could afford the real thing. By getting them to tie those two things together through media exposure and the way we sell and present our shoes, we’ve been able to establish ourselves as fashion footwear.
Q: So that’s an interesting code – Attitude and Altitude?
Yup, it sets us apart from those knock-os….. [a laugh from Joe]
Q: What is the future for Chinese brands competing outside of China?
They would have to figure out their brand value and they also have to figure out their brand heritage. Western consumers are smart consumers; they’ve been immersed in brand identity for a long time. Whether it is a hip-hop guy wearing Tommy Hilfiger or a cool casual like Nautica. People understand the brand heritage very carefully and very well. So a Chinese brand going into the west would need to figure out what they wanted to be to the consumer. They need to think about it very carefully because everything they do beyond that has to t in whether it’s price, the way they sell, or the channels they choose. The problem with Chinese companies is that they are not very sophisticated yet with brand management and brand development. So, they would need to figure that out.
Q: What is your favorite part of the job?
The wonderful people. Challenging people, getting them to think differently and the reverse – having people challenge me and make me think differently.
Q: What can you share with us about the future for Crocs?
Crocs continues to be a rocket ship. Our growth this year again will double. We’ll be well over a billion in sales in 2008, and we’re doing it with a greater sense of who we are as a brand and with a broader product line. This means more opportunities to communicate who we are to our customers.
And good luck to Worrell, I think you bring a unique set of skills and value into China. As we discussed there are a lot of opportunities here for the kind of thinking and innovation that your company employs.