Crocs – Record Demand for Casual Footwear & Customer

Acquisition Strategy – 27 October 2021

Disclaimer

The information, material and content contained in this transcript (“Content”) is for information purposes only and

does not constitute advice of any type or a trade recommendation and should not form the basis of any investment

decision. This transcript has been edited by Third Bridge and may differ from the audio recording of the Interview.

Third Bridge Group Limited and its affiliates (together “Third Bridge”) make no representation and accept no liability

for the Content or for any errors, omissions or inaccuracies in respect of it. The views of the specialist expressed in the

Content are those of the specialist and they are not endorsed by, nor do they represent the opinion of, Third Bridge.

Third Bridge reserves all copyright, intellectual and other property rights in the Content. Any modification,

reformatting, copying, displaying, distributing, transmitting, publishing, licensing, creating derivative works from,

transferring or selling any Content is strictly prohibited.

Specialist:

Title:

Ben Hemphill (BH)

Former VP, Global Digital Marketing, Analytics & CRM (Customer Relationship Management)

at Crocs Inc

Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst

Agenda:

1. Crocs' (NASDAQ: CROX) category positioning and market share gains from increased demand

2. Pandemic trends and supply chain challenges

3. Crocs' digital marketing and customer onboarding, discussing customer focused strategy and impact

of ad-privacy changes, and wholesale vs D2C

4. Outlook in Asia given lower demand and Crocs’ ability to market there

Contents

Q: What are the challenges of acquiring customers through digital channels, whether deriving ad spend,

different avenues for retention or overall onboarding dynamics? It seems a lot of companies weren’t that

digitally savvy until they were forced to be.

Q: What do many casual or athleisure footwear companies struggle with most out of the tier structure you

mentioned?

Q: What consumer demand trends were you noticing across consumer behaviour pre-pandemic and how

have they changed? What has coronavirus done to the digital landscape? Has it put strain on D2C

capabilities and forced organisations to reconsider their structures?

Q: You mentioned the three major advertising channels – Google, Facebook and Amazon – have made it

harder for consumer companies to monetise their ad spend. Have consumer goods corporations tried to shift

ad spend to areas where they can monetise it a little better?

Q: How did Crocs’ category offerings change through your time at the company? What is its overall strength

outside its core clogs product?

Q: What’s unique about the customer demand for Crocs clogs? Is it about the fit, the style or a combination

of both?

Q: Demand for Crocs is up 21% in Asia, but this lags almost 100% growth in America and 42% elsewhere. Is

the company struggling with something more profound in Asia or is growth just taking a little more time? 6

Q: Would you say Crocs sandals are doing well in Asia?

Q: You touched on a few aspects of Crocs’ production process, but when considering supply chain issues, the

backlog in Vietnam and a 2-3-month delay, what about the material used in Crocs clogs allows the company

to have such healthy margins?

Q: Why is the manufacturing focus in Vietnam? Could Crocs open a shop in New Mexico or the US?

Q: How sustainable could the demand coronavirus has provided for Crocs be over the next 2-3 years, given

that as consumers go out more they may seek more functional types of casual footwear?

Q: How has Crocs’ strategy across channels shifted? Was this more of a wholesale-centric business that

shifted to D2C, or was the company always D2C?

Q: How does Crocs’ traditional channel strategy compare to today’s growth in D2C, and what are the risks?

Some brands seem to lose their brand identities because they push through wholesale. How would that

compares to Crocs, where a volume play may be much better than a brand preservation play?

Q: Can Crocs scale quickly enough to meet demand? As you said, for 1% of the global market, volume seems

to be a plus. Is it an issue of the company not scaling into as many towns as it could be?

Q: How much control has Crocs exerted over its brand and pricing in wholesale channels? You touched on

the pricing aspect, increasing to USD 45 from USD 29. Some brands send their products to wholesale and

give up all control of price.

Q: How does Crocs apply wholesale trends such customer acquisition, loyalty and brand relevance to its

digital strategy, given that this data is fairly restricted?

Q: How does building an understanding of customers work in the wholesale channel, given retailers or

wholesalers tend to keep customer data to themselves? How is that relationship structured, given that

wholesale has taken such a hit from other brands that they have to share more?

Q: How would you assess the success of Crocs’ marketing emails, considering the company’s customer-

centric approach? At what point does a consumer just unsubscribe?

Q: Is Asia an easier market for Crocs to collect customer data, given how digitally focused the region isand

the amount of data the company would have access to?

Q: What ROI have you noticed from the different digital channels available in the US, such as TikTok,

Amazon or Facebook?

Q: What has been the impact of Apple rolling out more privacy restrictions and limiting viability for very

targeted adverts?

Q: Crocs spends so much on getting insights and data on acquiring consumers, but what would you say is the

main reason for customer attrition? Would you highlight any correlation between customers leaving and any

other data point, such as the number of SKUs?

Q: What is the importance of ESG and sustainability to consumers and building brand perception around

this, given Crocs is a consumer-focused business?

Q: What are Crocs’ weaknesses? Where does the company not perform well or could be better, given it seems

to have a very solid structure and foundation?

Crocs – Record Demand for Casual Footwear &

Customer Acquisition Strategy

Transcription begins at 00:00:00 of the recorded material

NH: Welcome to Third Bridge Forum’s Interview entitled Crocs – Record Demand for Casual Footwear &

Customer Acquisition Strategy. I’m Nyree Hinton and I will be facilitating today’s Interview with Mr Ben

Hemphill, former VP for Global Digital Marketing, Analytics and CRM at Crocs.

Ben, before we get started with today’s Interview, please state I agree or I disagree to the following statement:

You understand the definition of material non-public information and agree not to disclose any such

information, or any other information which is confidential, during this Interview.

BH: I agree.

NH: Thank you, Ben. Could you start with an introduction of your background and various roles you’ve held

in the industry?

BH: Thanks, Nyree. I joined Crocs in 2012, leading up the analytics function within the e-commerce group

and also overseeing what we, at the time, referred to as product development, which was in digital space,

expanding our websites and improving their customer function around the world. I had that role for a couple

of years and eventually moved into overseeing our global digital marketing spend that was intended to acquire

customers into our digital channel and support our other wholesale and retail channel partners where we

could. That’s a role I held for several years before leaving Crocs late in 2019.

[00:01:31]

Q: What are the challenges of acquiring customers through digital channels, whether deriving ad spend,

different avenues for retention or overall onboarding dynamics? It seems a lot of companies weren’t that

digitally savvy until they were forced to be.

BH: I think it starts with attention, which is what, as an advertiser who’s trying to break into a customer’s

consciousness, is the expensive, challenging thing to reach. Footwear is a very large market, but it also is very

lumpy in the individual sense as to when somebody is in market for shoes. We have the big purchasing figures

around change of seasons or holiday or back to school, but that really doesn’t account for the majority of all

footwear purchases, and so building awareness in consideration of a particular brand within a new consumer

individually is difficult, expensive and takes a lot of capabilities from understanding who’s going to be a likely

customer to target. All of the functions necessary to actually go out and target those people, either through an

in-house digital marketing team or an agency, who can deliver performance you actually want them to do. The

third is creative. You need to be able to execute and deploy, create those connects with the consumers’

consideration journey and provide different levels and information and enticements along the way. Then over

all of this is the cost to do that, and I think one of the things that is unique about Crocs is the margin of the

products, and I think it’s underappreciated generally how much flexibility the brand has to creatively acquire

customers, given the margins that they can generate on sales that they derive from those customers. There are

three pillars. There’s organisational capability, technical, like technology-based capability, and then business

model structure. All of those things make it really hard to break into footwear in a digital environment.

Private and confidential 3

[00:04:12]

Q: What do many casual or athleisure footwear companies struggle with most out of the tier structure you

mentioned?

BH: I think organisation is really important, especially for the legacy brands. Crocs now is a relatively old

brand, but compared to the Nikes, Adidases of the world, it’s really young. If you see how Adidas, Nike and the

others built their market position, it was generally through a wholesale type of distribution strategy, so they

think about everything from ordering to inventory management to customer service in a different way, just

inherently in how they’re organised, than a more digital-native brand would. This requires different

relationships with your finance department, different approaches to how you measure the digital teams vs the

wholesale team, because everything from percentage of marketing they’re going to spend on revenue to the

gross margins are going to be drastically difference when you’re selling direct to a consumer vs into a

wholesale channel. I think the organisational difference and the changes that are necessary, as we’ve seen in

Nike’s, I forget the tag name for their digital pivot strategy, but it’s taken them years and they’re still not all the

way there. I think one of the big barriers to being successful. Then if you flip it around and you try to go as a

digital-native brand into this market, you end up running squarely into that margin cost challenge, where it’s

very difficult to grow fast enough to pay for all the marketing you have to do to get awareness and

consideration of your brand as we’ve seen in, say, the Allbirds’ filings about their upcoming IPO.

[00:06:17]

Q: What consumer demand trends were you noticing across consumer behaviour pre-pandemic and how have

they changed? What has coronavirus done to the digital landscape? Has it put strain on D2C capabilities and

forced organisations to reconsider their structures?

BH: I like to look at that from both sides. One, sitting in the consumer’s chair in front of Zoom and thinking

about how they are choosing what situations in their life they need buy footwear for, so I think it’s drastically

changed the approach to consumers’ desire for which shoes they want to own. We already have had a couple of

decades’ trend in casual taking over the more formal style of dress in a number of different, what the industry

calls wearing occasions. Then when you delete half the wearing occasions, going out to a movie, going out to

dinner, going to a conference, demand for traditional, whether construction or even fancier, less comfortable

shoes, goes to zero and customers still do like to have a number of different footwear options to buy, and so

that pushes them into the more casual comfort category when they think about shoes to buy. On the actual

marketing and sales front, you cut off half of the places and times where you could buy shoes in person at a

store. Then you increase the amount of attention that people are spending on digital screens and you get a

huge shift to e-commerce transactions, a drastic increase in the amount of time people are spending on the

digital platforms where brands like Crocs can advertise, which should push down the cost-per-thousand

impressions, but it looks like you got outweighed by both the power of the oligopoly in the marketing sphere,

Google, Facebook, Amazon, and also the number of brands trying to reach customers directly in those digital

channels.

You asked about operational challenges that this would impose. If you don’t already have a digital team or a

combined in-house agency team who is used to adjusting their marketing spend and tactics on a day-to-day,

hour-to-hour basis, you’re going to waste a ton of money in a volatile situation, because the platforms, Google

and Facebook especially, have made it harder and harder to optimise your spend to your goals, and have taken

a bigger cut out of the total benefit driven by advertising. I think there are all kinds of ways to waste a ton of

money very quickly when you have to move from, say, event sponsorships or talent sponsorships, which may

have been your typical way to generate awareness of the brand or a particular style, and put it into the direct-

response-type advertising ecosystem. If you weren’t already set up to do that properly, I think you lost a ton of

money. Second, if you didn’t have e-commerce capability from the website to the payment options you offered,

including now buy now, pay later, and the ability to fulfil the customers’ orders accurately and on time at a

profitable cost for you, you’re also going to get just eaten up. I think those were a set of situations where if

somebody is trying to rapidly build their e-commerce capability, they’re going to bleed a ton of money learning

all the lessons that you should have learned from 2010-20 in how to do business online.

Private and confidential 4

[00:10:34]

Q: You mentioned the three major advertising channels – Google, Facebook and Amazon – have made it

harder for consumer companies to monetise their ad spend. Have consumer goods corporations tried to shift

ad spend to areas where they can monetise it a little better?

BH: I’m not sure if there’s a good answer to your question, because even in a low-signal, hard-to-optimise

environment, digital ad spend is still better than your TV, billboards and print-type ads, so digital is so much

more effective, even if you can only see half your conversions, than legacy media, that I think the brands are

better off overall, but each of the individual advertising platforms is able to take more of the margin off of how

that advertising is executed. What that has driven brands to do is focus on first-party data, and we’ve seen that

from the non-Apple advertisers in the last two weeks in their public statements. They’re also building their

own first-party information about impressions and conversions where they can. Second, it’s driven companies

to spend a lot more on attribution, which is either model based or other forms of data collection and

monitoring, in order to understand which particular ad impressions or campaign-level impressions drill the

customer to taking action, like purchase. That has been beneficial for the technology platforms such as

Salesforce and Adobe, who most of these brands use, but it’s also been a totally different mix of employees that

the brands have to bring on board or bring in through a third-party agency. Machine learning is not

necessarily a number one type of internal capability for a legacy footwear manufacturer, but if you don’t have

that in-house today, you’re most certainly sub-optimal in how you’re deploying your advertising spends, and

probably also in how you’re managing your website, your supply chain, etc.

[00:13:22]

Q: How did Crocs’ category offerings change through your time at the company? What is its overall strength

outside its core clogs product?

BH: I think the biggest change that happened while I was there was an understanding that the customer is the

important party in the relationship between brand and customer and you should probably just give them what

they want. You can see that today in the navigation on the website and how the categories are displayed there

vs if you went to the Wayback Machine and looked at the website from 12 years ago, what the customers

wanted were the clogs and the sandals and the flip-flops, that were also the cheapest things to produce. Fully

moulded is something you’ll see as a construction style in investor day presentations and on earnings calls, etc,

and early on in my time there, management was optimising to drive the proportion of revenue against fully-

moulded styles down, but that was a bad strategy, because the other construction methods, cut-and-sew or

partially moulded, were significantly more expensive, sometimes suffered worse (? 14.51) and were harder to

sell to the customer.

The fully-moulded styles, which are colourful, comfortable, durable, is what the customer always wanted and,

once they cut the product line basically in half to focus on those things, I think you can look back at the

acceleration in results and they align. I don’t think that’s 100% of what happened, but definitely that’s what

the customers want, that’s the company is uniquely able to deliver, both from an honest store perspective,

that’s the identity of the company, but also unique sets of intellectual property for supporting enforcement

mechanisms, vendor relationships on the supply side. All of those things, they’re aligned around that style of

construction and that’s what the customer wants and that’s where they really see success. Even if you look on

the website now, there are a couple of sneakers, but in fact they’re fully moulded, so it’s not like you can go and

buy a canvas sewn sneaker with a rubber sole from Crocs today, because customers don’t want it and it’s

expensive to do.

Private and confidential 5

[00:16:08]

Q: What’s unique about the customer demand for Crocs clogs? Is it about the fit, the style or a combination of

both?

BH: It’s a little bit of all of that. I’m not a fan. The last doesn’t work for me, personally, but footwear is a large

market. In the United States it’s close to USD 100bn, so how many people do you really have to convince to

make a really profitable business? It’s not that many really, so it’s very personal. I think at some other point

we’ll probably talk about personalisation and trends in footwear, but the ability to produce two-dozen

colourways is unique in that style of construction, and if you’re going to try and do 2,000 colourways in a cut-

and-sewn leather shoe, it’s not going to work, because the investment you have to make in raw materials and

your inability to actually match up design to customer demand, or they’re not going to fit, so if you can offer a

couple of different colourways in a popular style on a website and get it to the customer in a couple of days, all

of that without taking on enormous inventory costs, customers that want that level of uniqueness don’t have

another substitute for you.

Then you add in the personalisation aspects of the Jibbitz charms that can go in the holes of the shoes, and the

investment that the company has made in delivering things that people actually want when they want them.

Not quite fast fashion, but I think it’s close in footwear as anybody else is to fast fashion. Go-to-market

strategies with the charms, it’s just unique in the purer sense of the term offering in footwear, and a lot people

find them very comfortable and they are very durable. If you have small children, they’re super easy to take

care of. Kids can put them on and off by themselves, which is, if you don’t have toddlers, an under-appreciated

aspect of footwear purchase.

[00:18:43]

Q: Demand for Crocs is up 21% in Asia, but this lags almost 100% growth in America and 42% elsewhere. Is

the company struggling with something more profound in Asia or is growth just taking a little more time?

BH: I only have thoughts here, because I think these are all hypotheses that need to be tested and the brands

are doing it. These are really large, very competitive markets, but they’re populated largely by consumers who

are relatively newer to the global variety that they can now access through the digital platforms in these

markets. They’re very competitive, because they are so large, and so many brands who are already quite big on

the global stage need to find other areas of growth, so that forces them to try to go hard at these buckets and

that drives down returns and just makes it a messy marketplace for the consumer to navigate. Then I think

another thing which is underappreciated is the multi-lingual and multicultural aspects of doing business in

Asia as a non-Asian brand. Crocs’ legacy in Asia is quite long from a manufacturing standpoint and also a

business standpoint. They’ve been a big brand in Japan for a couple of decades at this point. That means a lot

in these non-western markets, where it takes a long, long time to build up internal talent and reputation in the

marketplace as an employer, in addition to reputation and distribution as a brand itself. I think clogs are not

as popular a style in Asia, but sandals and flip-flops are incredibly popular, and so I think that’s probably

where brands like some of the Deckers’ brands and Crocs and the big two are putting a lot of effort.

If you want to learn about how to make a really successful footwear in China, you’ve got to look back at Vans

over the last 15 or 20 years. They are just an absolutely massive brand. I don’t think anybody who spends most

of their life in Europe or America understands just how big and important Vans is in the China marketplace. I

didn’t know, until I got on the ground. Even though I was competing with them, I didn’t know, but they are

very localised. They don’t take the US marketing campaign and just copy-paste it into Asia, they build it. They

have a China-specific Off The Wall tour with music and other events, so while strategically that is a similar

marketing activation to what they do in the US and elsewhere, it’s rebuilt from the ground up, and that is

difficult and expensive to do if you’re not really looking long term and intending to build a real presence there.

I honestly don’t know what’s going on with footwear in non-native or non-Chinese brands in China with the

recent crackdowns. I would imagine it’s getting difficult to do business even more than it was. If your major

partner was Alibaba and they’re under a bunch of pressure, I don’t know, as a western brand, what that would

look like from an account management standpoint, inventory, placement on the platform. All those things are

Private and confidential 6

really, really important in being successful in the market and I don’t have current insight into how that works

today. I know it’s very difficult to go see your team there. If you are in the United States and you manage a

team in China, you have probably have not been together in person for a long time, which is not the end of the

world, but it’s really important in building those relationships and maintaining them, especially as turnover

happens among teams just naturally. You’re going to have a whole cohort of employees in these Asian markets

that you’ve never met, and from a culture standpoint we’ll see how that turns out.

[00:23:10]

Q: Would you say Crocs sandals are doing well in Asia?

BH: My recollection is that sandal market share was okay, but globally it represented an enormous

opportunity. I haven’t seen an MPD report for a long time, for example.

[00:23:41]

Q: You touched on a few aspects of Crocs’ production process, but when considering supply chain issues, the

backlog in Vietnam and a 2-3-month delay, what about the material used in Crocs clogs allows the company to

have such healthy margins?

BH: It’s less labour intensive than other methods of footwear construction. It’s largely line-made in injection

moulding rather than piece by piece, cut and sew, so the number of human hands involved in producing a run

of shoes is far lower. Outside of that, I don’t…

[00:24:37]

Q: Why is the manufacturing focus in Vietnam? Could Crocs open a shop in New Mexico or the US?

BH: No. I’m not involved in the supply chain and was not closely involved when I was there. I’d have to point

people to public statements about sourcing strategies. There’s everything from time and cost of shipment to

capability and labour costs on the ground, to tariff situations, and those three types of aspects drive every

sourcing decision for a footwear manufacturer. I don’t know what their current thinking is, but it’s not as easy

as just opening up a factory, due to everything from mould costs to quality assurance and training. The moulds

are not cheap.

NH: I always wonder that since Crocs’ manufacturing process is largely automated, it could provide some

flexibility, but as you said, it’s very complex.

[00:25:33]

Q: How sustainable could the demand coronavirus has provided for Crocs be over the next 2-3 years, given

that as consumers go out more they may seek more functional types of casual footwear?

BH: I would look at it through the lens of the categories and their current market share in those categories.

That does not include sneakers or athletics, just within casual categories of clogs and sandals and flip-flops.

Let’s say those categories make up a third of global footwear, which will put those categories together and

more than a USD 100bn annual global market, that would put Crocs’ market share just roughly 1%. I just think

that the map is such that, and we’ll talk about customer acquisition and retention, the customer is more likely

to buy another pair of shoes, whether it’s in the same category or a different category than they bought before,

Private and confidential 7

and let’s just say that they picked up twice as many new customers in a year as they usually do and that now is

fuel or momentum on the flywheel of customer acquisition and sales generation. In the short term, and I am

not an investment adviser, I don’t have an interest here in this particular company, but I just think if you take

those things independently, you’ve got 1%-ish of a huge global market that could just grow faster than

underlying retail sales, so it’s making a bigger percentage of consumer purchases than some other categories

which are shrinking, and they just doubled their number of new customers in a given year, and definitely

outperformed a lot of brands. I think the next couple of years should theoretically provide a lot of

opportunities to further monetise those new customer relationships and the other customers, who are already

really devoted fans.

[00:28:17]

Q: What is the LTV [lifetime value] of a Crocs customer? Do you have enough data to know that? You alluded

to Crocs customers potentially buying another pair.

BH: I can’t provide them, because the company doesn’t break it out, but I can say that I’ve spent a ton of my

time building a capability and a team that can understand it and tie it back to marketing and advertising

activity, pricing, promotions, product development.

[00:29:29]

Q: How has Crocs’ strategy across channels shifted? Was this more of a wholesale-centric business that shifted

to D2C, or was the company always D2C?

BH: Their wholesale partners are massively important to how they were able to establish a market position

and where they remain today, and in each new international market that they entered, wholesale was how it

almost always started. Those are going to be really durable relationships in all those markets and you’ve got to

deal with the general conflict if you want to open up an online store in any of those new markets, but at this

point they’re everywhere, basically, except like Africa and Iran, other places you can’t do business as an

America company. Wholesale is super important, and you can look at the leadership team and where they

come from to see a little bit of that, but you can also members of the leadership team who have been doing

nothing but digital for over a decade at Crocs and elsewhere. Digital was really important. When I joined in

2012 we were updating the last of our non-US countries to become an e-commerce store code and related

technology deployments that they use everywhere around the world, so that’s almost 10 years ago now that

they’ve been on a (? 31.11) platform. I don’t think you’ll find too many other footwear or other multi-channel

retailers who are at that point, and I think that’s important in how they’ve been able to handle the volatility of

the last couple of years.

[00:31:34]

Q: How does Crocs’ traditional channel strategy compare to today’s growth in D2C, and what are the risks?

Some brands seem to lose their brand identities because they push through wholesale. How would that

compares to Crocs, where a volume play may be much better than a brand preservation play?

BH: I went to see new shoes, so I was actually in DSW yesterday. Crocs had like 30 feet on the wall. I think the

way that the shoes get displayed on a hanger and the way that fits into retail environments, I think it fits with

the brand’s position as a value comfort option with the ability to personalise your colour, but they’ve also taken

a lot of price over the last 10 years. I think when I joined, the clog was USD 29.99 and I think now it’s USD 45,

so this is a another place where having a really excellent unit cost structure in your product and being part of a

marketplace where not everybody has that unit cost structure allows you to grow your top line and then grow

the bottom line even faster, because your clogs don’t necessarily follow. I think it’s really underappreciated

Private and confidential 8

how important the margin profile of the construction method and the shoes and the entire global operation is

to how this machine works, so I think to your point, it’s helpful to be mass for products, because it’s a mass-

appeal brand. It’s not exclusive. It’s not exclusionary, and that’s true in the brand itself in how customers feel

about and talk about the brand on social and how the brand positions itself on social. Their tag line is “Come

as you are”, or, “Everyone comfortable in your own shoes”, depending on where you’re looking and where you

are, so I think those two things work really well together.

[00:34:00]

Q: Can Crocs scale quickly enough to meet demand? As you said, for 1% of the global market, volume seems to

be a plus. Is it an issue of the company not scaling into as many towns as it could be?

BH: I’m pretty sure that the number of wholesale partners is down over the last five years. Nike has been the

most vocal in focusing on a top list of wholesale partners who they’re going to stick with while they build out

their direct-to-consumer strategy. My understanding from public statements is that Crocs is following a not

dissimilar strategy, especially in the big markets, America, Europe, where they’ve historically had that

relationship, so I don’t think they’re looking to expand that way. If I were them, I would want the best

wholesale partners, that is good terms, good placement, responsive to what I’m trying to do with my brand or

what the wholesaler is going to do, and push volume through those people, rather than trying to have a shoe in

every store.

[00:35:26]

Q: How much control has Crocs exerted over its brand and pricing in wholesale channels? You touched on the

pricing aspect, increasing to USD 45 from USD 29. Some brands send their products to wholesale and give up

all control of price.

BH: No, I can’t. There are laws in the US about how you do that, and there are also stricter laws in Europe

that get into multi-country positioning in the common market, but I didn’t deal with those things day-to-day

and I can’t really speak to it. You can see it in their public disclosures as far as margins.

NH: What about promotional activity to control prices and therefore margin? Or would that still fall out of

Crocs’ purview?

BH: That’s outside of our control. As a wholesaler, as a brand, you sell to an account at a percentage of retail,

and that percentage is negotiated, sometimes negotiated by style and you may have other special terms, but

once you sell it, you’re not in charge of pricing, and so it becomes up to the retail point of purchase what price

they charge, but it’s an ongoing game, and so if you find there’s an outlet that’s selling all your stuff at discount

when it’s supposed to be full price, that conversation with the account rep is not going to go great. They have

off-price channels, (inaudible 37.16) the TJX, TJ Maxx type of relationships where they can move excess, but

that’s a strategy. They don’t carry the full line in those off-price channels, and it’s the same with all footwear

brands. You don’t find the same Nike at Coles that you’re going to find at Footlocker.

[00:37:47]

Q: How does Crocs apply wholesale trends such customer acquisition, loyalty and brand relevance to its

digital strategy, given that this data is fairly restricted?

BH: It goes the other way largely, because of the time from action in the marketplace to signal, so it was much

more likely to provide our wholesale partners a report which colourways were selling best in which markets

than the other way around, and then they would then use that push colourways into the wholesale channel. It

Private and confidential 9

goes back to that organisational aspect of being a multi-channel retailer that I was talking about, where having

the ability to share insights across the different channel execution teams gives the customer a better

experience, provides you a better competitive position against other brands in the marketplace, as long as you

can get over the fact that internally, people might feel like they’re stealing from each other. They’re not, and

that’s where you go back to, “We’re only 1% market share. We’re not the competition.” Deckers, Sketchers,

they’re the competition, not this channel vs that channel. I think making that part of the culture is more

challenging than most people understand and would appreciate.

[00:39:27]

Q: How does building an understanding of customers work in the wholesale channel, given retailers or

wholesalers tend to keep customer data to themselves? How is that relationship structured, given that

wholesale has taken such a hit from other brands that they have to share more?

BH: At the granular level, they don’t give you e-mail lists, but they definitely share aggregate information

about consumers and you can see what they’re buying from the pull-through, so like demographic and

psychographic profiles are something that the wholesalers definitely would share with us, or that they would

share with Crocs and Crocs would share the targeting profiles with them. That’s where you would see the social

presence and the other digital presence that Crocs is executing as an effort to try to create an addressable one-

to-one relationship with an owner rather than an affiliated customer, to be a customer of DFW or Dick’s, but if

you can create a one-to-one relationship through a social channel or through an e-mail subscription, then you

have an opportunity to try to bring that customer into your own channels and also to better address their

needs, through targeting different promotions and other marketing messages at them. That is a tension with

the wholesalers, but they’re doing the same thing on their side, and they have the opportunity to do multi-

category marketing against their entire customer base, where they have lots of other verticals to sell besides

just shoes. I think it goes back to, “That’s not the competition.” The competition is the other enormous

footwear brands.

[00:41:31]

Q: How would you assess the success of Crocs’ marketing emails, considering the company’s customer-centric

approach? At what point does a consumer just unsubscribe?

BH: That’s an operational capability that you build over time, because you have to learn how to change your

cadence in targeting, so that people don’t unsubscribe, and so most brands, the person or team in charge of e-

mail marketing would have a dashboard or another set of metrics that they monitor on a campaign-by-

campaign basis and are tenable over time, that looks at unsubscribe as a negative event, tries to quantify that

and tries to tie it to the actions that they take in building and targeting and deploying e-mail campaigns, to

make sure that you get the outcome that you want, which is low unsubscribe, but not zero. Having somebody

unsubscribe from you is a useful signal, because you get to save money by not worrying about them anymore,

not sending e-mails to them anymore, not dealing with them not opening your e-mails, which drags on your

other metrics, so an unsubscribe is not a terrible outcome, but excess unsubscribes, because of over saturation,

is definitely something you want to avoid. Building that capability, like I said, is underestimated in a multi-

channel retailer, or even controlling that in your agency, if you’ve outsourced it, very difficult, because

incentives are not necessarily aligned and communications perhaps are not going to be as smooth with an

outside agency as with an internal team. Then you complicate it by doing multi-lingual global campaigns,

running those from around the world, and it becomes an organisational challenge to set those standards,

objectives, put in place the tracking and hold everybody accountable. I think a really underestimated aspect of

going digital. It’s not just flipping a switch. You have to actually have a management system in place so you

don’t make a bunch of customers mad and waste a bunch of money.

Private and confidential 10

[00:43:58]

Q: Is Asia an easier market for Crocs to collect customer data, given how digitally focused the region isand the

amount of data the company would have access to?

BH: No, because most of your data is intermediated by Alibaba or Tencent. It’s like doing business on

Amazon, but harder, because they also have a whole bunch of human components in the operation. It’s not all

machines. There’s definitely a relationship aspect to how you get placed in the stores. It’s very difficult to move

somebody in Asia from buying on one of the major platforms like Alibaba and Tmall to buying from your

website. That’s not just a common behaviour there, and when you’re selling on the platforms you don’t get

very good individual customer-level data and you don’t get the ability to cheaply direct message your existing

customers.

[00:45:22]

Q: What ROI have you noticed from the different digital channels available in the US, such as TikTok, Amazon

or Facebook?

BH: Email. It’s an order of magnitude better to be able to reach somebody on e-mail and transact them on

your brand dotcom, like literally an order of magnitude better return. It’s difficult to build an e-mail list, but

any of the other channels are very, very difficult to attribute and track, as I mentioned earlier on at the top,

and also, you may or may not actually be able to message that customer in the future. The worst-case scenario

is like a Facebook shop, because then you pay to reach the customer. Every time you’re trying to build

awareness and consideration, you pay to transact and you pay to hit them up with the next offer you have that

they might like. You have no transparency on any of that and you’re paying every single step of the way. It’s

renting a customer rather than owning one, because what you really have, when you’ve got an e-mail or an

SMS, that you have permission to send to.

[00:46:57]

Q: What has been the impact of Apple rolling out more privacy restrictions and limiting viability for very

targeted adverts?

BH: It’s frustrating. It’s been going on for a number of years now, and initially it was starting to impact just

like affiliate-referral-type business, because of the tracking changes that they rolled out in Safari several years

ago now, and it’s now becoming more difficult in the ad-based economy to attribute your direct-response

advertising to sales. That’s going to put pressure on brands to better understand a model, their attribution and

their spends across marketing channels and it’s making it, in some cases, much more expensive to target the

customers you wanted to reach on these platforms, because the targeting quality degrades with the level of

data that they’re able to collect, they being the Facebooks and Snaps of the world, but it seems like Google has

been most impacted, because they’re first party everywhere, that they have you as a customer. It’s definitely

challenging, but like I said, it’s still a better environment than trying to do attribution on billboard X vs

billboard Y.

[00:48:43]

Q: Crocs spends so much on getting insights and data on acquiring consumers, but what would you say is the

main reason for customer attrition? Would you highlight any correlation between customers leaving and any

other data point, such as the number of SKUs?

Private and confidential 11

BH: Most of the time I was there, we were in high-growth mode and so attrition was kind of a tertiary

concern, that we tried to manage it through managing down that opt-out rate, the unsubscribe rate, but we

didn’t spend a whole lot of time on the customers we were losing, because their value has gone to zero, and the

existing (audio cuts out 49.58) customers we were acquiring was going up, but I really can’t speak too much to

that.

[00:50:10]

Q: What is the importance of ESG and sustainability to consumers and building brand perception around this,

given Crocs is a consumer-focused business?

BH: We were in the really early stages of addressing that when I was there. I can’t speak to it anymore than to

point people to public statements over the last couple of months about the feedstock that they’re using to make

the shoes and changes that they’re going to make there. I think the main aspect of brand positioning that we

addressed while I was there was around inclusion, and that speaks to a bunch of different identity issues going

on in the world today, or that people are becoming more comfortable with expressing and accepting. The

brand tried to be really out there as far as being accepting.

[00:51:38]

Q: What are Crocs’ weaknesses? Where does the company not perform well or could be better, given it seems

to have a very solid structure and foundation?

BH: I think growth outside those core categories is challenging for them to execute, and going back to what we

talked about with regard to market share, I don’t know if that’s necessarily a limiting factor in the near term,

but that’s something that they don’t do today. I don’t know what the supply chain looks like in a year, and like

I said, I didn’t work in it and so I can’t really speak to it, but for every consumer brand that moves goods

anywhere around the world, there are considerations there on the input flow to the supply chain and then the

actual delivery of goods into markets. That’s hard for everybody and I don’t know that they have any kind of

magic bullet solution available to them that other people don’t.

[00:53:08]

NH: I think that about wraps it up for today. Let me just close by saying thank you, Ben, for your time today.

We were able to go into a lot of detail, and thank you, clients, for joining Third Bridge Forum’s Interview.

Clients, if you would like to speak to Ben in a private call or meeting, please let your relationship manager

know. Have a good one.

Transcription ends at 00:53:19 of the recorded material

Private and confidential 12