Burning Rubber

A few years ago, three friends from Boulder started a shoe company called Crocs, created a worldwide fashion phenomenon, and made millions of dollars for themselves. Then the trouble began.

At 11:30 a.m. on a Thursday in March, Ron Snyder enters a conference room at the Crocs headquarters, furiously scrawling on his PDA. A look of frustration is etched on the CEO's round face. He doesn't look up. "I'm sorry—I'll be with you in a moment," he says before walking right back out of the room. A few minutes later, Snyder returns and finally takes a seat at the table. At 51 years old, he is of average build and today is wearing a form-fitting black sweater, jeans, and black-rimmed, chunky glasses. His lips are thin and his hair—with some pepper sprinkled in his salt—is short-cropped and lies flat on his head. He's wearing a new Crocs shoe model, a canvas number called the Santa Cruz. He stares at the handheld device again. "Excuse me," he says, standing up. "I need to take care of something. A distributor problem."

That was an understatement. A day earlier, Costco had announced that it was now carrying Crocs, a revelation that would send Wall Street into a tizzy amid growing concerns that Crocs' sales had slowed extensively and excess inventory needed to be dumped in the discount market. Snyder's concern was not without merit. In a few short months, the company had been turned upside down.

Last fall, Crocs announced that it accumulated more than $50 million in inventory during one quarter (more than $195 million overall), a problem Snyder repeatedly dismissed in conference calls with investors and analysts as nothing more than the company's thoughtful buildup of shoes for the spring and summer months in 2008—not, as widely believed, attributed to a lessening of demand. Within two weeks of the news, by early November of 2007, the stock plunged from its $74 high to $35 a share. On the heels of the stock dive, a handful of investors filed lawsuits against Crocs, alleging that the company made false and misleading statements and violated securities laws.

A few months later, the company forced its employees to take mandatory vacation time to "right-size" the business. Throughout the winter, there were more troublesome developments: Crocs laid off 17 employees from its Jibbitz shoe-charm division (about 20 percent of that workforce) and lost an international patent dispute that could eventually allow hundreds of thousands of rivals' knockoffs to flood the market. In February, the company reported its 2007 inventory had soared to $248 million while year-end revenues fell $2 million short of analysts' expectations.

If Boedecker's departure had eliminated one set of problems, it appeared that Ron Snyder was presiding over an entirely new set of messy issues. While Snyder was credited with the company's dramatic expansion amid his goal to become a global presence—international sales skyrocketed to more than $400 million last year, from virtually nothing when he arrived—the utter collapse of Crocs' stock has critics calling for his head.

It certainly wasn't supposed to go down like this. In fact, Crocs' founders had taken painstaking steps to ensure this would never happen. From its inception, the company's executives thought they had 18 months to develop a recognized brand. Then they'd have to diversify their product offerings before knockoffs hit the market.

And that's where Snyder came in. As the new CEO in 2005, Snyder had both the pedigree (finance and accounting degrees from the University of Colorado) and the practical experience to lead the company. In the late '80s, barely after his 30th birthday, Snyder had developed the Dii Group, a private, $10-million-a-year manufacturing firm. He took Dii public, then merged the company with Flextronics International, an electronics manufacturing giant that now has contracts to build everything from high-end servers to Microsoft's Xbox 360 video game console.

By the time he assumed the top spot at Crocs, Snyder's work already was well-known around the company. As a consultant, and then as CEO, Snyder convinced Crocs' management to look at markets in Asia and Europe, with an eye toward expanding into the Middle East, Russia, and beyond. Snyder pushed to open manufacturing sites in China, Mexico, and Bosnia. The company eventually would grow from its two original shoe models to around 250. "From Ron's start, he challenged the company to become more than what it was," says Tom Doran, one of Crocs' first employees and a close friend of the three founders. "He took it to the next level."

Snyder's vision seemed to work. By the summer of 2007, Crocs had outperformed the company's quarterly revenue projections without fail, seemingly pushing the bounds of reality with each public report. Snyder saw the rest of the world as an untapped market: The company opened dozens of Crocs-specific stores from Dubai to London, and purchased Jibbitz and several smaller shoemakers along the West Coast. In the meantime, the company developed licensing agreements with Disney, Nickelodeon, the NBA, the NHL, and several universities; Crocs sponsored a professional volleyball tour; and Hanson and Snyder made cameos on The Celebrity Apprentice as the duo kicked off a program that recycled old Crocs and gave them to the needy worldwide.

Crocs stock reached its high of $74.75 last October, and the company was on pace to reach $1 billion in annual revenue in 2008. "It looked like nothing was going to stop them," says Georges Yared, an author and owner of Yared Investment Research, who at one time called Crocs the next Nike. "You had this great product and huge demand everywhere. It was almost like a once-in-a-lifetime thing."

Ron Snyder could do no wrong, and he was rewarded for it: His 2007 compensation totaled $6.97 million.