Feasibility Project Final - WordPress.com · The!footwear!industry!in!Jordan!is!much!like!that!in!the!US!and!other!firstZworld! countries.!The!competition!is!very!high!and!most!of!the!large!footwear!brands!such!

A l e x a n d e r K a h l • C h e l s e a H e j n e y • R i v e r J a n g d a • B i l l y J e s b e r g • N i k k i V e l e z

Marketing Feasibility Study Crocs, Inc. in the Hashemite Kingdom of Jordan

Fall 11

08 Fall

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Contents Executive summary ................................................................................................................................... 3 General Information ................................................................................................................................. 4 History ....................................................................................................................................................... 4

Consumer Target Market and Potential ........................................................................................... 5 Industry and Competition ...................................................................................................................... 6

Retail Environment ......................................................................................................................... 6 Cultural and Social Analysis .................................................................................................................. 8 Profile of a Typical Person in Target .............................................................................................. 10 Company Summary ................................................................................................................................ 11 Technical Feasibility .............................................................................................................................. 12 Manufacturing Capability ............................................................................................................... 12 Channel Structure .............................................................................................................................. 13

Financial Feasibility ............................................................................................................................... 15 Country Economic Analysis ........................................................................................................... 15 Production Cost ................................................................................................................................... 16

Organizational Feasibility ................................................................................................................... 16 Jordan’s Political and Legal Feasibility ..................................................................................... 16 Company Organization .................................................................................................................... 17

SWOT ............................................................................................................................................................ 18 Conclusion .................................................................................................................................................. 18 Target Market ........................................................................................................................................... 20 Positioning Statement ........................................................................................................................... 20 Plan Objectives ......................................................................................................................................... 20 Marketing Mix Strategies ..................................................................................................................... 21 Product ................................................................................................................................................... 21 Distribution ........................................................................................................................................... 21 Marketing Communication ............................................................................................................ 22 Price ......................................................................................................................................................... 23

Revenue and Expenses ......................................................................................................................... 24 Evaluation Plan ........................................................................................................................................ 25 Works Cited ............................................................................................................................................... 27

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Executive summary Team Ignite has developed a feasibility study to assess the marketability of Crocs brand shoes in the Hashemite Kingdom of Jordan. Due to the unique style, durability, versatility, and comfort of Crocs shoes, we believe that the Hashemite Kingdom of Jordan is a suitable market for Crocs brand shoes. The target market for the product includes young females between the ages of 15-‐29 and there is an estimated 1 million people within this target market. More specifically those in our target market are educated, progressive, bi-‐lingual speaking both Arabic and English, and non-‐traditionally dressed Sunni Muslims. Despite their liberal-‐mindedness, family and religious obligations are still important to our target. Initially, Crocs will only introduce one style, the classic “Beach” clog in the first year. The Beach will come in 11 colors, including black, white, pearl, khaki, navy, cotton candy, mango, ruby, sea blue, fuchsia and gold. The introduction of Crocs will only happen in the city of Amman. The malls in Amman will allow Crocs to create awareness in the market before being introduced to smaller outlets in the city, and the rest of the country within the next 5 years. Crocs will be imported into Jordan through sub distributors operating out of locations in the Middle East such Beirut, Lebanon. Extensive distribution will not be necessary in the first year. The initial retailers in Amman will be Sports 4 Ever in the City Mall, and Shoe Mart, Shoes and Bags and Shoe Avenue in the Mecca Mall. We recommend a suggested retail price of $40.00 per shoe or 56.30 Jordanian Dinar (JD). There are three main competitors in the shoe market in Jordan; Nike, who as an average price of 63.34 JD, Adidas, who has an average price of 49.40 JD and Reebok, who has an average price of 43.63 JD. We believe that setting a higher price than our retailer’s average price will be beneficial to our sales, leading consumers to believe that we offer a more exclusive and desirable product. With a selling price of $21.00, we will retain a small profit after covering our expenses and production costs. We estimate that we will have a net income of $249,000 and a profit margin of 23.71% in the first year. 10% of sales will be allocated to marketing incentives, focusing on online ads on popular sites and public transportation busses and stations. With our ads concentrating on colors such as black, cotton candy, fuchsia and gold that will appeal to our female target market. With this plan Crocs should be able to increase their market share in the Jordan’s footwear market to 5% in the first year by selling 50,000 pairs of shoes and substantially increasing awareness for the Crocs brand by 100% in the Hashemite Kingdom of Jordan.

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Part 1 Feasibility Study: Market Analysis

General Information The Hashemite Kingdom of Jordan is located in Southwest Asia in the heart of the Middle East. Jordan’s land is believed to be one of the homes to mankind’s earliest inhabitants, dating back thousands of years. The Arab ethnicity makes up the majority of the population and the Circassian and Armenian ethnicities each make up about 1% (World Fact, 2011). The people of Jordan are predominately Sunni Muslims, over 92% of the population; the remaining population is Christian. Jordan has an area of 89,342 sq. kilometers, which is comparable to Indiana of the United States (Hashemite, 2011). Jordan has borders with Syria to the north, Iraq to the east, Saudi Arabia to the south, and Israel to the west. The country of Jordan has two very diverse climates from the east to west. The eastern side of the country is made up of two deserts, the Syrian Desert in the north and the Ard As Sawwan Desert in the south. On the western side of the country is the Great Rift Valley, which separates the West and East Banks. The Great Rift Valley is made up of high mountains, the Jordan River, The Dead Sea and fertile lands (Hashemite, 2011). The population of Jordan is 6,508,271 (World Fact, 2011). The climate does play a role in where people live in this country. With the arid desert to the east and the limited natural water resources, the more populated cities are located in the western part of this country where more resources are available. The urban population makes up most of the total population. The largest city in Jordan is the capital, Amman, with over 1 million people living in this area (Hashemite, 2011).

History With the fall of the Ottoman Empire in 1921, the Middle East’s country borders were redrawn and The Hashemite Kingdom of Jordan was born. Jordan did not claim complete independence as a country until 1946. In 1952 Jordan became a Constitutional Hereditary Monarchy under King Abdullah II (World Fact, 2011). Jordan has experienced many increases and decreases in their economy. There is a strong western influence in Jordan, and joining the World Trade Organization (WTO) was a big stepping stone for them in 2000. Along with joining the WTO, Jordan and the United States formed a contract to allow free trade agreements, opening up doors and creating opportunities for both countries. Jordan also signed an association agreement with the European Union in 2001 to implement economic reform. In 2011, the Finance Minister Mohammad Abu Hammour claims Jordan’s

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economy is projected to have a 5.0% increase from last year (Bloomberg, 2010). Jordan has a population growth rate of 0.98%, rated 116 among other countries (Hashemite, 2011). Population growth in the years to come is going to be important for the Jordan economy to ensure a growing consumer market.

Consumer Target Market and Potential Jordan has a population of nearly 6.5 million people with the following age structures: • 0-‐14 years, 35.6% (male 1,174,409/female 1,108,685) • 15-‐ 64 years 59.6% (male 1,940,378/female 1,880,747) • 65 years and over 4.7% (male 148,916/female 153,950) The Jordan population is predominately young, as the median age for a male is 21.6 years and the median age for a female is 22.1 years. Additionally, more than half of Jordan’s population is below the age of 30. 42.2% are 14 years or younger and approximately 31.4% fall between 15-‐29 years of age (UNESCO Institute of Statistics, 2007.) Over 1 million people live in Jordan’s capital, Amman. The urban population makes up for 78% of the total population of Jordan, with a rate of urbanization of 3.1% annual rate of change (2005-‐2010 est.). Subsequently, about 20% of Jordanians make up for those living in rural areas (Culture Grams, 2011). Regarding religion, the population is primary composed of Sunni Muslims. Specifically, 92% of Jordan is Sunni Muslim, 6% Christian (majority Greek Orthodox) and 2% other (several small Shia Muslim and Druze populations) (World Factbook, 2001 est.). In Jordan education is free for both primary and secondary school and is required through the age of 15. An importance on education and higher learning is strongly reflected in Jordan’s current and expected attendance rates for school. A recent study indicates that between 2008 and 2013, the number of Ministry of Education students is expected to increase by 124,634 (World Bank, 2009). Additionally, it was reported that between 1997-‐1998, Jordanian women accounted for 66.6% of community college students and 44.7% of the university population. Presently, these figures remain representative of the current female enrollment into higher education, as females’ enrollment rates are still higher than the enrollment rates for males. Derived from the accumulated statistics above, the target market for Crocs International in Jordan is educated woman between the ages of 15-‐29. Of an

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approximate 6,407,085 people in Jordan, 31.4% are between the ages of 15-‐29. As there is 1.04 male/female ratio (World Factbook, 2010) it can be estimated that there are roughly about 1 million in our target market, with a market penetration of about 55.65% based on those women who are likely to pursue education past the age of 15. Market penetration was calculated through averaging the two percentages based on higher education enrollment percentages in the past: 66.6%, women accounted for in community colleges and 44.7% women enrolled at university (66.6+44.7/2= 55.65%) Therefore, 55.65% of our 1 million projected target market size justifies the absolute number in our target to be around 556,500.

Industry and Competition The footwear industry in Jordan is much like that in the US and other first-‐world countries. The competition is very high and most of the large footwear brands such as Adidas, Reebok, and Nike have a presence in the country. However, as in any industry, there is always room for more competition, especially from a creative and cutting edge company that brings innovation to the footwear market, as Crocs has done. The retail sector in the Middle East has been booming and will continue to grow, and is estimated to reach $682 billion by 2013 (Saudi Gazette 2011). As Jordan becomes more modernized every day, American brands continue to see success with the population, especially with the middle and upper classes. Because of Crocs’ unique brand image, combined with the success they have had in the US and other markets, there is sure to be a demand in Jordan. Crocs has a huge variety of unique products that could be offered in the country, targeting educated women ages 15-‐29. The Crocs brand has seen success since entering other Middle Eastern markets over the past few years, including the U.A.E, Bahrain, Kuwait, Lebanon and Qatar. Revenues from Crocs’ Asian segment, which includes the Middle East, constituted 36.1% of total revenues for the year ending December 31st, 2010 (Nasdaq).

Retail Environment

The largest distribution channels for footwear in Jordan are malls, especially in the larger cities like Amman. Amman has many malls where shoes are sold at retailers like Shoe Mart, Max, Zara and Aldo. There are many large retail groups that currently do business Jordan, most of which sell private label

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brands. The private label brands would compete directly with the Crocs brand, whether Crocs are sold in footwear stores or in official Crocs stores. The three major retail groups doing business in Jordan are Landmark Group, Inditex and Aldo Group. Landmark Group was founded in 1973 in Bahrain and has grown to be one of the largest retail groups in the Middle East. They now operate over 1000 outlets in 15 countries, including 11 stores in Jordan. In terms of footwear, Landmark operates five different stores in Jordan that sell shoes. These five are Max, Shoe Mart, Splash, Babyshop and Lifestyle. Shoe Mart, Splash, Babyshop and Lifestyle are all part of Centrepoint, an all in one shopping destination located in malls that sells clothing and shoes to all demographics. According to Matthew Simon, manager of Landmark Jordan PSC Limited, the company has plans to expand in Jordan in the future, especially with the Shoe Mart brand, which only has one location in Jordan currently. Shoe Mart is the largest footwear and accessories retail chain in the Middle East, and offers a range of affordable, world-‐class brands for men, women and children (Landmark Group). Top brands such as Sketchers, Adidas, Reebok, Clarks, Nike, Converse and Timberland can be found at the Shoe Mart in Amman. Max is Landmark’s value fashion retailer, operating 114 stores in the Middle East with two locations in Amman. Max offers fashion and footwear at value pricing with a target market of middle class Jordanians. Unlike Shoe Mart, however, Max sells only private label products made specifically for the Max brand. This makes Max a direct competitor to the Crocs footwear brand in Jordan. Another huge retail group in Jordan is Inditex, founded in 1975 in Spain. Indexite operates over 5000 stores in 77 countries and 13 stores in Jordan specifically. These stores include Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and Uterque. All of Inditex’s stores sell private label brands, and every store except Oysho and Zara Home sell shoes of their own that cater to our target market, making them direct competitors. The Aldo group operates three Aldo outlets in Jordan. Aldo is another private label brand that is popular in Jordan, selling a wide variety of styles of women’s shoes. According to Matthew Simon, other than these private label brands, other major retail competition in the footwear market comes from “unorganized retail,” and smaller retailers that may be independently owned. In terms of brand competition, Crocs would be competing with most of the same brands they compete with in the rest of the world. According to Nasdaq, competitors include Nike, Kenneth Cole, K-‐Swiss, Sketchers, Steve Madden and others. Other worldwide brands, such as Adidas, have a large presence in country already. Adidas has nine official Adidas shops in Amman alone. These brands and thousands more are already offered in Jordan, making the shoe market very competitive.

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For Crocs, the best distribution channels as far as selling in retail outlets would be the various clothing and footwear stores in the malls of Amman and Aqaba, including City Mall, Mecca Mall, Abdoun Mall, Amman Mall, Plaza Mall, and the Aqaba City Centre in Aqaba. Footwear retailers in these malls that don’t sell private label brands would be ideal for Crocs, including Shoe Mart, Sports 4ever and Shoe Avenue. Official Crocs retail stores and outlet stores should also see success just like Adidas, in these malls and new ones as they are built in the future.

Cultural and Social Analysis Founded on top of the original holy land, Jordan is a country rich in both tradition and religion. Over 92% of the country is Sunni Muslim, although the country is open to religious freedom. There are occasions of hostility towards members of less common religions such as Christianity and other religions. Christianity studies are offered in most schools, but are not required. Jordan has the lowest percentage of people regularly attending religious services for an Arab country. This could be due to many reasons such as; a strong western influence, or the number of people that live outside of urban cities and have little access to worship institutions. Arabic is the official language of Jordan and the most widely spoken, but English is very popular. English is taught in most schools, elementary through middle school. English is seen as the language of business and education. When in a business situation English is spoken but sometimes Arabic is as well. It is acceptable to make small talk in either language as long as religion and politics are not in the conversation. The citizens of Jordan have grown accustom to a high standard of living. They view expensive items as a sign of status. The strong western influence, especially in the capital city of Amman makes people strive for more luxuries. Jordan is considered to be the richest of all the Arab countries that do not deal heavily in oil. In Jordan lunch is the most important meal, as it is the time that most of the family can be together. A short prayer is said before every meal and it is custom to serve the guests first. Everybody eats from a common platter, with his or her right hand. It is an accepted custom to leave a small amount of food on your plate, to show you are full. The national dish of Jordan is mansaf, which is large tray of rice covered stewed lamb served with jameed, a yogurt sauce. Another popular Jordanian dish is Hummus, which is mostly eaten with falafels. The most popular forms of protein are lamb and chicken as they are the most accessible. Pork and alcohol are banned in the Muslim religion. Jordanian citizens are also very fond of locally grown vegetables, which can be anything from tomatoes to eggplants.

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Most of the traditional Muslim holidays are celebrated in Jordan such as Ramadan, Eid al-‐Adha, and Mawlid al-‐Nebi. Jordan also celebrates some of its own national holidays like Arab Revolt and Army Day, King Hussein's Accession to the Throne and King Hussein's Birthday. Jordan has made a strong effort to enrich its own culture and promote people to become active in their own countries history. Education is a top priority in Jordan. All children attend elementary education, making the illiteracy rate of 6.9% the lowest of all Arab countries. Jordan has raised its secondary education rate to 97%, which is extremely high for an Arab country. Jordan also has a program of secondary education where students can continue with more of a traditional education or they can go to vocational school for two years to be skilled in a more specific trade. Jordan also has 10 public universities and 16 private universities. 76.3% of females who enroll in upper secondary education graduate (UNESCO institute for Statistics). Jordanians love sports and art. Football (soccer) is by far their favorite sport. They have their own league similar to America’s MLS or England’s Premier league, which sees growth every year as teams continue to improve. Jordan is also starting to get some national attention. In 2004 they reached a ranking of 37th in the FIFA world rankings. Basketball is gaining attention and more money is being invested in it. Art and music in Jordan are other examples of how well the country is thriving. King Abdullah II ordered government workers to have Fridays and Saturdays off so they can dedicate more time to art and cultural festivals. While traditional art and music are still quite popular, folk art is the growing trend with Jordan’s youth. Everything from death metal to electronic trance music is popular with today’s youth. A possible successful marketing strategy for the youth of Jordan could involve an alternative form of music. Family life in Jordan is very important, but it is also very different from America. For instance men completely control the family. They have all the say and can tell their wives to do anything they choose. Men are also allowed to take on multiple wives, but it is not completely socially accepted. Also divorces are starting to become more common, but men almost always get custody of the children, so many women are reluctant to file for one. Women in Jordan are fighting for more rights. They obtain jobs and hold higher positions in the community. Women can be judged for breaking the norm and not wearing traditional dress, but it’s less common these days. The men still want to control the women and are fighting their rebellion, but losing. Age and gender play a very strong role in the social life of Jordan. As people get older they become much more respected and get to have more of say in how things are done, especially within one’s own family. Also the segregation of men and women is starting to diminish, but there are many Jordanians who believe men to be superior to women. Up until the late 1980’s children were supposed to listen to their parents until they were married. Many children were being forced into arranged marriages that they didn’t necessarily want. Recently this is beginning to

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change as more kids are going out on their town for college or to start their own careers. Less and less arranged marriages are happening every year. Jordan is considered a high context culture because the traditions and culture of a society can have a huge impact on how business is conducted. Business practices in Jordan are relatively laid back. Meetings can often start late or not happen at all and no one is concerned. But as a visitor to the country you must be at all meetings on time, it is only acceptable for the counterpart to be late or not show up. Offense must not be taken if a meeting does not happen or is interrupted. It is common practice to shake someone’s hand when you are introduced, although be aware that some women will still not shake hands with men. Public displays of affections are not very welcome in Jordan and people should probably refrain if they can. Men and women are even still sometime separated for meals. Also it is common practice in Jordan to smoke argeeleh (hookah) prior and post meals. When eating try not to touch anything with your left hand as that is still considered being dirty and unclean. It is not disrespectful to leave food on one’s plate, so feel free to pass on anything that does not look appetizing. Also be aware many Jordanians do not drink alcohol, so do not expect any when going to a meal. Business dress can be casual, but it is still best for both men and women to dress modestly. Men should dress in full suits and ties in more traditional colors. Women should dress in conservative dresses or suits as well.

Profile of a Typical Person in Target

Crocs target consumer profile, Amira, is described with the following psychological and social attributes: Amira

• 22 year old Jordanian Arabian female with no children

• Sunni Muslim • Dressing primarily in western attire • Lives in the capital city of Amman • Speaks both Arabic and English

fluently • Recipient of higher education at

University level • Enjoys watching movies with friends

in leisure time • Greatest values in life include her

religion, family and education

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Part 2 Feasibility Study:

Technical, Financial, & Organizational Analysis

Company Summary Crocs shoes are those ugly pieces of fashion that people cannot get enough of. They create a love hate relationship with consumers. If the market can overcome the ugly factor they will soon come to love the lightweight comfort that is unique to Crocs. Crocs uses the ugly factor to their advantage in their advertising such as the “Crocs Make Me Angry” commercial. The ugly factor has gathered the attention from celebrities, thus making them cool and fashion ugly. The Crocs brand was founded off the idea of lightweight breathable shoes that are worn on sailboats and for other outdoor activities. Originally the idea came from a sailing shoe made out of a reactive resin that is lighter than rubber, forms to the foot, and absorbs little odor, manufactured by Foam Creations through Western Brands. The three founders of Crocs, George B. Boedecker Jr., Lyndon V. Hanson III, and Scott Seamans were young entrepreneurs in Boulder Colorado. Once they knew the Foam Creations process worked, they trademarked the process and material, naming it Croslite™, and Crocs where born. Seamans tweaked the design of the shoe while Boedecker took over as chief executive officer and lined up some small investors to start up the company. Hanson set up most of the operation and oversaw the day-‐to-‐day operation of the company. They settled on Crocs for the name as an abbreviation of crocodile. The attributes of a crocodile fit the attributes of the product: comfortable both on land and water, durable, and long lasting. The Crocs original clog model, “The Beach” made its debut in November 2002 at the Ft. Lauderdale International Boat Show. The company came to the event with 1,000 pairs and sold out. In March of 2003 at the Shoe Market of the Americas, the clogs made their first debut at a shoe convention. They were surprisingly well accepted by the retailers and the brand grew rapidly with many new partnerships. The shoes intended market was the active community, the ones who are interested in outdoor sports. But soon after the release to the public market the consumers defined new markets. Research in early sales showed consumers using Crocs for occupational purposes, specifically jobs that require people to be on their feet all day such as restaurant workers and hospital employees. They became popular because of their comfort, price, and ease of cleaning. The baby boomer generation, with swollen feet and fallen arches, liked the way Crocs felt on hardwood floors. Middle school trendsetters liked the bright colors. Children liked the tradable back

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straps. During their first full year on the market, 76,000 pairs of Crocs were sold, generating $1.2 million in sales. Just one year later, Western Brands sold 649,000 pairs, resulting in revenues of $12.3 million. In 2006, Crocs became a publicly traded company with a share price of $13 to $15 with 9.9 million shares to be sold. Soon after the stock was placed on the NASDAQ, the share price quickly increased by over 50%. With the company’s rapid growth they were able to open in new markets in other countries and release new products. The company now maintains manufacturing facilities in Canada, Italy, Mexico, and China. In addition to the United States, Crocs are sold in more than 40 countries. Their products are available through many distribution channels like traditional footwear retailers, sporting goods and outdoor retailers, department stores, uniform suppliers, specialty food retailers, gift shops, health and beauty stores, and catalogs. The company also sells the shoes on its web site and in kiosks located in places with heavy foot traffic.

Technical Feasibility

Manufacturing Capability There are two options when deciding where to manufacture Crocs for Jordan: 1. Use a manufacturing plant in Jordan and manufacture in the country 2. Use existing manufactures in Canada, Italy, Mexico or China 1. To manufacture Crocs in Jordan, there are many expenses to think about. The first cost is acquiring a building to manufacture the shoes, probably in Amman. Average industrial buildings in Amman costs $68-‐$368 per square meter (Jordan Investment Board). A modest building that includes factory floor space, offices, and storage space would be around 1000 square meters and would cost anywhere from $68,000 to $368,000 just for the building. Other costs would include manufacturing equipment, utilities, labor and training costs. All of these expenses combined would be immense compared to using the factories already established in China. With a target market size of 556,500, and an estimated adoption rate of 10%, our potential market is only around 50,000. With this market, the factory costs would be hard to justify. Even if the factory were producing enough shoes for Jordan and neighboring Arab countries, it would still not be enough to get a return on the investment. Crocs would be losing money until the brand became popular enough to sell as many shoes as would be necessary to break even. 2. The other option would be to use the same factories in China or Italy that are being used to create most of the Crocs for the world currently. A new factory would not have to be built to handle the Jordan market; output would simply just be

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increased at the current factories. This would save money because a huge new investment would not have to be made, and assuming the current factories can handle the small increase in production, there would be no new fixed costs. The only costs associated with manufacturing the Crocs for Jordan would be the variable costs that go into making the shoes and shipping.

Channel Structure There are three options when deciding how to distribute and sell Crocs in Jordan: 1. Import semi knockdown (SKD) or complete knockdown (CKD) kits from

China or Italy and finish the assembly of Crocs in Jordan 2. Use entrepreneurs to buy Crocs on their own in the grey market and bring

into the country and sell however they please 3. Use sub distributors from nearby countries to import Crocs and sell in third

party shoe and apparel stores 1. One option in terms of distributing Crocs in Jordan would be to import a semi knockdown kit or a complete knockdown kit and have the product’s final assembly done in the country. An SKD or CKD is basically just a kit containing all the different pieces of a product. The pieces would probably be manufactured in China, packaged into a “kit” and then imported into Jordan. The advantage of SKD and CKD is that Crocs avoids some of the steep import duties and fees that would be placed on each shoe if they were imported into the country fully assembled. A duty of around $3.00 is tagged onto each Croc that is imported into Jordan; so avoiding this saves a lot of money (David Chapman, International Sales Manager, Crocs ME). Even though money is saved on import duties, there would be much more expenses devoted to overhead and labor for the kits to be assembled into final products. Labor costs are much higher in Jordan than they are in China, and although the manufacturing has already been done, the cost of simply assembling the shoes in Jordan by hiring Jordanians would outweigh the savings incurred by avoiding a majority the import duties. 2. Another option would be to utilize a private business or entrepreneurial individual who would buy Crocs in bulk and then sell them in Jordan. Basically, Crocs would sell a large inventory of shoes to a private entity not associated with the company and have them sell the shoes in the country however they like. This is called the grey market. These shoes could be sold in small mom and pop shops, street vendors, or footwear and apparel chains in the malls of Amman. This channel is appealing because Crocs does not invest any money at all in the venture. We do not have to actually worry about selling the shoes to the consumer. On the other hand, though, all control of the product and brand image is lost. Crocs has a unique brand image and position in the eyes of consumers around the world, and by selling to an individual or company that has no affiliation and complete control of the product might not be ideal for Crocs.

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3. The third option is to use sub distributors who are credible and reliable to import products into the country and sell at third party stores such as Shoe Mart and Sports 4 Ever in Amman malls. Sub distributors would be based out of neighboring countries such as Israel, Lebanon, Syria or Saudi Arabia. By using sub distributors, Crocs can be assured that the shoes will be sold in stores that are trustworthy and uphold the brand image that Crocs has developed because Crocs will have agreements with them. This also eliminates overhead and labor costs because the products will still be manufactured in China. The only disadvantage is that in order for these sub distributors to import the shoes into Jordan and get them into stores, Crocs will have to sell them at a discount with a very small profit margin. The goal with this distribution strategy would be to slowly make the Crocs brand popular in Jordan without losing control of the products, eventually creating enough demand to open official Crocs stores in the future. There are also three different options when considering where to sell Crocs in Jordan: 1. Official Crocs stores owned by Crocs 2. Official Crocs franchise stores owned by franchisees 3. Shoe and apparel stores that sell many brands in large malls 1. First, Crocs could be sold through official Crocs stores. Currently, there are no official Crocs stores in Jordan, so these would have to either be built from the ground up, or remodeled from existing retail space. The stores would then have to be staffed, stocked and marketed to be successful. The costs associated with official Crocs stores would be significant. 2. Alternatively, Crocs could franchise stores to individual entrepreneurs in Jordan, and they would be responsible for opening them. Crocs would license the brand along with official marketing materials, products, etc. to the franchisee. This option would allow Crocs to have official brand outlets without any fixed or variable costs. Currently, there is not enough demand in Jordan to make it financially feasible for a franchise to be profitable, but it could be a possibility in the future after the brand has grown in the country. 3. The third strategy would be to sell Crocs in retail outlets not officially associated with the brand. These include footwear and retail outlets like Sports 4 Ever and Shoe Mart. These outlets are similar to stores in the US like Footlocker and Sports Authority that sell many different footwear brands. Contract agreements would have to be made with these outlets in order for them to sell Crocs. These retail outlets are located in retail malls in Amman, specified in Part 1. Using third party retailers would eliminate many of the costs associated with opening official Crocs outlets, and could be a very attractive temporary strategy until it makes sense to open official outlets.

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Financial Feasibility

Country Economic Analysis Jordan is a small country, but growing in its economic size. It is slowly moving towards a more western economy, with large opportunities for new companies to open up in the market. It is considered to be an emerging knowledge economy. In 2010, its GDP was $34.5 billion, putting it right in the middle of most countries at 103 out of 227. The GDP per capita is only $5,400, but considered an upper middle-‐income country by the World Bank (Central Intelligence Agency, 2011). Jordan has a very diverse economy. From the large western style city of Amman to the farmers living in rural areas of the country, there is quite a difference. As the rate of urbanization continues to improve, the economy will continue to shift and the per capita GDP will continue to rise. Right now 14.2% of the country is below the poverty line and the official unemployment rate is 12.5%, although the unofficial rate is around 30%. The rate has gone down 3.39% in the last year (Central Intelligence Agency, 2011). Jordan’s currency is the Jordanian Dinar (JD). It was introduced in 1949 as a replacement for the Palestinian Pound. When it was first introduced it only had the denominations written in Arabic, but in 1992 they started putting English denominations on bills. The exchange rate has stayed at a consistent .7105 to the US Dollar (Central Intelligence Agency, 2011). Jordan has many Free trade Agreements including agreements with the United States, Canada, Singapore, Malaysia, the European Union, Tunisia, Algeria, Libya, Turkey and Syria. They are also continuing to open up to more agreements. Jordan is a member of the Greater Arab Free Trade Agreement, the Euro-‐Mediterranean Free Trade Agreement, the Agadir Agreement, and does lots of work with the WTO and EU (Central Intelligence Agency, 2011). Jordan imported $15.26 million worth of goods in 2010. This is up from $14.24 million in 2009 (FITA, 2011). Most of Jordan’s imports come from Saudi Arabia (19.8%), after that is China (10.8%), Germany (6.1%), US (5.6%), Egypt (4.5%), and South Korea (4.2%). The reason that Saudi Arabia is the largest import partner is because of their need for crude oil. Other high import items are machinery, transport equipment, iron and cereals. Imports are suspect to a tariff of up to 30%, although most consumer goods are less than 20% (Central Intelligence Agency, OTEXA, 2011). Jordan exported $7.02 million in 2010, which is also up from 2009’s amount of $6.37 million. Its best partner for exporting is the US (15.6%), followed by Iraq (15.4%), India (13.2%), Saudi Arabia (10.6%), UAE (4.3%), and Syria (4%).

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Production Cost With an estimated target market size of 556,500, and a market adoption rate of 10%, production for Crocs in Jordan would be approximately 50,000 units. With the cost of producing Crocs now at $10 per shoe, the initial production cost would be $500,000 just to make the new shoes (Crocs Inc., 2011). All items entering Jordan are suspect to up to a 30% import tariff and a 16% value added tax. With Crocs most likely having a 15% tariff that puts the production cost up to $655,000. Distribution costs are approximately $41,000 to ship 13 40’ steel containers containing 50,000 pairs of shoes from the Port of Shanghai, China to the Port of Beirut, Lebanon (Maersk Line, 2011). This puts the total production costs at $696,000. Crocs could easily increase their production in China without having to raise capital through equity or debt offerings because sub distributors would quickly buy inventory. An increase of production would also likely bring the production cost per item down (Austrade, 2011). Facilitation payments, grease payments and bribes are not allowed and are considered illegal in Jordan. Doing so is not considered good business practice in Jordan. Jordan businesses put a high value on traditions and continue those practices when conduction international business (Thomson Reuters Foundation, 2011).

Organizational Feasibility

Jordan’s Political and Legal Feasibility

Jordan is considered a constitutional monarchy. Their Legislative power is vested in a bicameral National Assembly. Their National Assembly is made up of a 55 member Senate (House of Notables) and a 120 member House of Representatives (House of Deputies). Executive power is vested in their king, Abdullah II, and his council members. Jordan, a founding member of the League of Arab States, also participates in the Council of Arab Economic Unity, the Arab Monetary Fund, and is a member of the Organization of the Islamic Conference (OIC). What’s more, since 1995 Jordan has been an official member of the UN and since 2000 they have been a part of the World Trade Organization (WTO). One year after joining the WTO, Jordan entered the U.S.-‐Jordan Free Trade Agreement. Jordan’s agreement with the US encouraged further economic reform (Jordan Investment Board). Jordan has close relations with both the US and the UK, as they have been a major non-‐NATO (North Atlantic Treaty Organization) ally of the US since 1996 (Jordan Investment Board). However, relations were damaged during the first Gulf War but since have been restored. Jordan is very much known as a mediator, a country with

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a reputation for usually following a non-‐confrontational foreign policy, which has resulted in good relations with their neighbors. As a member of the WTO, Jordan thereby follows the laws consistent with that agreement regarding Trade-‐Related Aspects of Intellectual Property Rights (TRIPS). The agreement protects trade secrets, plant varieties and semi-‐conductor chip designs in Jordan. Registration of patients, trademarks and copyrights is required. As part of Jordan’s Ministry of Industry and Trade, copyrights must be registered at the National Library and patents require registration with the Register of Patents and Trademarks (Jordan Investment Board). According to the Jordan Investment Board website, “Jordan has signed the Patent Cooperation Treaty and the protocol relating to the Madrid Agreement concerning the registration of marks, but ratification was still pending in early 2005. Jordan has also acceded to the World Intellectual Property Organization (WIPO) treaties on copyrights (WCT) and performances and phonograms (WPPT).” The below table shows Jordan’s currently instated Intellectual Property laws. Table 1 ( Jordan Investment Board ) IP laws in Jordan

Patent Law No. 32 of 1999 and its amendments. The Law of Unfair Competition and Trade Secrets No. 15 of 2000

Trademarks law No. 33 of 1952 and its amendments. The Geographical Indications Law No. 8 of 2000.

The Protection of layout designs of Integrated Circuits No. 10 of 2000

Copyright Law No 22 of 1992 and its Amendments

The Industrial Designs and Models Law No. 14 of 2000 The Protection of New varieties of Plants Law No. 24 of 2000

Goods Marks Law No. 19 of 1953 Trade Names Law No. 22 of 2003

Company Organization

After talking to David Chapman, International Sales Manager for Crocs Middle East (based in Dubai, UAE) he was able to give great insight on the feasibility of Crocs’ entry into Jordan. In terms of overall feasibility, Mr. Chapman said, “due to the dynamics of that (footwear) market, Jordan has been, and continues to be, a very difficult market from a brand perspective. The main reason appears to be the prohibitive import duties, starting at around USD $3.00 per shoe, plus a whole raft of other additional direct and indirect taxes that result in very high retail prices.” Based on the number of enquiries he receives about Jordan, however, Mr. Chapman said there is evidence of a growing demand for Crocs. Based on Chapman’s experience and recommendations and our research, a business structure using sub distributors is the most feasible action to take for Crocs to have

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a successful entry into Jordan. As it is extremely costly for Crocs to invest their own money and resources into opening up new stores, the more economically cautious and practical option is to rely on third party sub distributors to import into the country. The sub distributors get special pricing to allow them to make a small margin on the shoes while investing in Crocs’ sales in Jordan. Using sub distributors from neighboring countries, Crocs will be saving on initial startup, overhead and labor costs. These middlemen will do all of the “dirty work” of importing while making a small profit. Even though that doesn’t allow Crocs to make a huge profit in the Jordan market, the point would be to increase awareness, popularity, and market share. Eventually, this will lead to Crocs opening franchise outlets in Amman and increasing business activity in Jordan from there.

SWOT

Strengths • Patented CrosLite Technology • Low cost manufacturing facility in

China • Strong alliances with popular

retailers worldwide • Competitive prices • Extensive customer base • Strong brand reputation • High quality products and

services • Development innovation

Weaknesses • No manufacturing facilities in

Middle East • Under developed distribution

chain in Middle East • Small target market • Low estimated product adoption

rate

Opportunities • Changes in technology • Change in market growth • Growing economy • New product opportunities • Online market growth • Rising per capita GDP in Jordan • Growing demand for western

style and products in Jordan

Threats • Life style changes • Demographic changes • High import duties taxes and fees

in Jordan • Rise and fall of foreign exchange • Competitors products • Low per capita GDP in Jordan

Conclusion The popularity of Crocs in the Asian region, which includes the Middle East, has grown substantially in the last year. There was a 40.6% increase in revenue streams, which is about $111.2 million from September 2010 to 2011 (Crocs Inc., 2011). The

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Jordan market will offer many opportunities for Crocs because of the Jordanian’s strong western influence in clothing and culture. The Crocs brand has a strong reputation that has potential to grow due to the quality products and new innovations in style and performance in the shoe industry. The Crocs shoe is also very unique in look and design, which allows consumers to recognize the brand very easily. There are some weaknesses in the Jordan economy that will prove to be difficult when entering this product into their market. Jordanians have very extensive monetary regulations on the imports in their country that include high taxes, import duties, and fees. Also another obstacle will be pricing the product at an affordable price for both the company and the consumer. With the regulations and the low per capita income, setting a price will be crucial. However, despite the potential threats and weaknesses that Crocs will have entering into the Jordanian market, we recommend that Crocs enter the market. The rapid growth in the Middle East region and the strong brand recognition that Crocs has already established in surrounding countries, combined with the amount of inquiries we receive about Jordan specifically, we believe the potential revenues for Crocs will prove substantial. It is feasible for Crocs to enter into the market and begin to retain market share. The goal for now is to enter the market and become sustainable, and then move towards becoming profitable.

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Part 3 Marketing Plan

Target Market Our target market, consisting of educated Jordanian women between the ages of 15-‐29, has a projected size of 556,500. Those in our target market are more than just educated, they are progressive, bi-‐lingual speaking (Arabic and English) and non-‐traditionally dressed Sunni Muslims, breaking through their country’s more widely accepted traditional mold. Despite their liberal-‐mindedness, family and religious obligations are still very much important to our target.

Positioning Statement As Jordan’s demand for western style increases, entering into the country we will market Crocs as an affordable, yet high quality, fashion-‐forward and brand-‐smart shoe.

Plan Objectives Based on the current market potential and the research we have done, the following are three objectives we have for Crocs entering into Jordan in the first year: Objective 1: To increase Crocs’ market share to 5% of Jordan’s total footwear market in the first year. Objective 2: To sell 50,000 pairs of Crocs shoes within the first year. Objective 3: To substantially increase awareness for the Crocs brand by 100%.

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Marketing Mix Strategies

Product About Crocs, Inc. A world leader in innovative casual footwear for men, women and children, Crocs, Inc. (NASDAQ: CROX), offers several distinct shoe collections with more than 120 styles to suit every lifestyle. As lighthearted as they are lightweight, Crocs™ footwear provides profound comfort and support for any occasion and every season. All Crocs™ branded shoes feature Croslite™ material, a proprietary, revolutionary technology that produces soft, non-‐marking, and odor-‐resistant shoes that conform to your feet. Crocs™ products are sold in 129 countries. Every day, millions of Crocs™ shoe lovers around the world enjoy the exceptional form, function, versatility and feel-‐good qualities of these shoes while at work, school and play. Crocs’ competitive advantage comes from the patented Croslite material, which allows the company to make a lightweight, but durable shoe that is non-‐marking, odor resistant and stylish. Crocs clogs are wildly popular around the world, worn by American celebrities, kids, moms, outdoor enthusiasts and professionals. While Crocs has successfully brought the benefits of their shoes to 129 countries, Jordan has been left out. By bringing Crocs to Jordan, Jordanians will finally be able to see what they have been missing out on. The products do not have to be specifically adapted to the Jordanian market, because the same shoes continue to be popular worldwide, and there is nothing significantly unique to Jordan to warrant a new style specially for the country. In terms of branding, labeling and packaging, everything is already in place because of Crocs’ current operation in U.A.E. and other parts of the Middle East.

Distribution Crocs will only introduce one style, the classic “Beach” clog in the first year. The Beach will come in 11 colors, including black, white, pearl, khaki, navy, cotton candy,

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mango, ruby, sea blue, fuchsia and gold. After the first year, depending on the success of the initial launch style, more women’s shoes and styles will be added to the market. In the next five years, we foresee adding men’s and children’s shoes, as well as the CrocsRX line. The CrocsRX line was created with the relief of foot patients in mind. These shoes are targeted towards diabetic patients and medical professions, but have also gained in popularity with professionals that are on their feet all day long.

Crocs are manufactured in Shandong, China and then transported in containers by truck to the Port of Shanghai. From Shanghai the shoes are put on Maersk Line shipping barges and shipped by sea to the Port of Beirut in Lebanon. They will be shipped FOB destination, so the sub distributor will purchase the shipment and take liability for the products as soon as they come off the ship. Crocs will be imported into Jordan through the sub distributors operating out of locations in the Middle East such Beirut, Lebanon.

Extensive distribution will not be necessary in the first year. Partnerships with prominent retailers in Amman malls will allow Crocs to create awareness in the market before being introduced to many smaller outlets across Amman, and then the rest of the country in the next five years. The initial retailers in Amman will be Sports 4 Ever in the City Mall, and Shoe Mart, Shoes and Bags and Shoe Avenue in the Mecca Mall (the Mecca Mall is very large and has many footwear outlets).

Marketing Communication The Middle East is currently undergoing a change in attitude toward digital marketing. With an increased acceptance toward web communications and commerce, one form of marketing communication that we plan to use for Crocs is marketing online through banner ads on several popular websites that our target frequents. Another way in which we plan to advertise Crocs will be through bus and transportation print displays. Public transportation is used by about 30% of the population; therefore, advertising in public transportation vehicles should prove effective in reaching a great number of our target market. Also, advertisements at bus stops and on bus benches in Amman will not only be seen by those using the busses, but also those walking by.

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The message that will be portrayed in both our online and print advertisements is that Crocs is a fun, dependable, alternative shoe brand-‐-‐ this message is vastly adapted from Crocs’ brand message in the United States. For our progressive and forward-‐thinking target market, a shoe that is unique in style and different from the traditional shoe will be appealing and catch their interest. We will further appeal to Jordanians in our target by showing in our advertisements products in colors that are viewed as more attractive to women; colors like black, cotton candy, fuchsia and gold. We will dedicate 10% of our sales revenue to marketing efforts, approximately $105,000.

Price The price of Crocs in the Jordanian market will be based on our cost to produce each pair with an added 50% markup per pair. We have a production cost of $10 per pair of shoes, with a $3.10 import tax, and shipping costs of .82 cents per pair. This determines a sale price to distributors of $21.00 per pair of shoes. We recommend a suggested retail price of $40.00 per shoe or 56.30 Jordanian Dinar (JD). There are three main competitors in the shoe market in Jordan; Nike, who as an average price of 63.34 JD, Adidas, who has an average price of 49.40 JD and Reebok, who has an average price of 43.63 JD. We believe that setting a higher price than our retailer’s average price will be beneficial to our sales, leading consumers to believe that we offer a more exclusive and desirable product. With a selling price of $21.00, we will retain a small profit after covering our expenses and production costs. We estimate that we will have a net income of $249,000 and a profit margin of 23.71% in the first year. Beginning in October of 1995, the Jordanian Dinar was officially pegged to the International Monetary Fund’s Special Drawing Rights. Since then, the Jordanian Dinar has not fluctuated very much, only moving up and down a few cents periodically. The Jordanian Dinar equals .7105 US dollars. This will benefit Crocs tremendously by not having to worry a great deal about the inflation or deflation of the Jordanian Dinar (What is the Jordanian Dinar, 2011).

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PRODUCTION COSTS PROFIT MARGIN

Per Unit Per Shipment Total Revenue $1,050,000.00

Cost $10.00 $500,000.00 Cost of Goods Sold $696,000.00

Freight Costs $0.82 $41,000.00 Advertising Expense $105,000.00

Value Added Tax (16%) $1.60 $80,000.00 Import Tariff (15%) $1.50 $75,000.00 Net Income $249,000.00 Profit Margin 23.71% Total Cost $13.92 $696,000.00 COMPETITOR PRICING

Competitor Per Unit ($) Per Unit (JD)

Nike $45.00 63.34 .ا.د Adidas $35.00 49.40 .ا.د Reebok $31.00 43.63 .ا.د

Revenue and Expenses The revenue for Crocs in the Hashemite Kingdom of Jordan Market is an estimated $1,050,000. This figure is based on 50,000 Crocs being produced with approximate costs of $500,000 ($10 per unit) additional cost such as shipping and freight at ($0.819 per unit), VAT (16%) and import tariffs (15%) bring the total cost per shoe up to $13.92. With a 44% markup on cost we will sell the crocs to distributors at $21 per pair of shoes. There will be a suggested retail price of $40 or 56.30 JD. The net income is based on sales revenue minus cost of goods sold, taxes and marketing expenses. We predict a 10% market adoption rate with a market size of 556,500, which equates to 50,000 units. We show 10% and 15% market adoption rates for comparison purposes.

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Crocs Projected Sales in Jordan Year 1 Forecast Year 2011

Market Share 15% 10% 5%

Amount Sold 150,000 100,000 50,000

Revenue $3,150,000 $2,100,000 $1,050,000

Cost Per Unit $13.92 $13.92 $13.92

Cost of Goods Sold $2,088,000 $1,392,000 $696,000

Gross Profit $1,062,000 $708,000 $354,000

Marketing Expense (10%) $315,000 $210,000 $105,000

Net Income $747,000 498,000 $249,000

Profit Margin 27% 24% 24%

Evaluation Plan Evaluating the progress of Crocs in Jordan will be a very important aspect after implementing this product into their market. There will be many different ways to evaluate the progress of Crocs in Jordan. One of the main focuses we will have is the relationship we build with our sub distributors. Our sub distributors are going to be our front line for sales and the relationship that consumers develop with our product depends on how well they perform. We will gather valuable information from our sub distributors regarding our product on a weekly basis. Demand of our product, the consumer adoption rate, and also how our inventory levels are holding up in their warehouses will be important information to gather to determine whether or not we are meeting our projections. We are striving to satisfy all involved parties, from the sub distributors to the consumers. Another option in evaluating our performance will be analyzing the numbers that we receive on how our product is performing in the Jordanian market. We will be monitoring the adoption rate of our product and the total sales for specific periods of time, quarterly being the most important. Evaluating the adoption rate will be important in determining if we chose the right target market for the product. If we

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realize the target market needs to be changed or slightly shifted we can make arrangements for that to happen. Overall, we will have a strong focus in all of these different aspects in evaluating the performance of Crocs in Jordan. After the first year we will be able to determine whether or not we have reached our goals by looking if we captured 5% of the total market share and if we sold the projected 50,000 pairs of Crocs shoes. If we obtain the goals that were set at the beginning of the year, then we can determine that we were successful. If we do not meet our projections, changes can be made and new strategies can be drawn up.

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Bloomberg. (2010, November 2). Jordan’s economy to grow 5% next year, minister says. Retrieved October 9, 2011, from ArabianBusiness.com: http://www.arabianbusiness.com/jordan-‐s-‐economy-‐grow-‐5-‐next-‐year-‐minister-‐says-‐359492.html

Board, Jordan Investment. "Jordan Investment Board -‐ Intellectual Property Law." Jordan Investment Board Home. Web. 10 Nov. 2011."Crocs Dubai Website: Customer Feedback." Message to the author. 17 Oct. 2011. E-‐mail.

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Government, A. (2011, February 8). Doing Business. Retrieved November 13, 2011,

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Kelley, Joanne, "Crocs' Amazing Feat Fuels IPO Rumors," Rocky Mountain News, May 26, 2005, p. 1B.

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3 Newman, Eric. "Crocs IPO Rallies on Wall Street," Footwear News, February 13,

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Prendergast, Alan, "A Really Big Shoe," CSIndy, November 24-‐30, 2005. Routledge. (2011). Jordan. Retrieved November 13, 2011, from Europa World:

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Scardino, Emily, "Croc Attack," Footwear News, December 5, 2005, p. 28. Schneider, Barbara, "Crocs Rock," Footwear News, February 9, 2004, p. 122 Shoes & Bags. (2011). Retrieved October 9, 2011, from Mecca Mall:

http://meccamall.jo/?cat=76

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The World Fact Book. (2011, October 4). Retrieved October 9, 2011, from Central Intelligence Agency: https://www.cia.gov/library/publications/the-‐world-‐factbook/geos/jo.html

Pictures:

http://www.yousaytoo.com/the-‐most-‐beautiful-‐of-‐arabic-‐woman/337838

http://marketplayground.com/2010/12/26/crocs-‐nasdaqcrox-‐cfo-‐resigns-‐stock-‐gets-‐hammered/

Video:

http://www.youtube.com/user/QueenRania?blend=10&ob=5#p/u/29/_dDNf4Qybqo

Documents

Feasibility Project Final - WordPress.com · The!footwear!industry!in!Jordan!is!much!like!that!in!the!US!and!other!firstZworld! countries.!The!competition!is!very!high!and!most!of!the!large!footwear!brands!such!