Jibbitz & Crocs: The Perfect Fit

One homegrown small business has pinned its way to a lucrative future with Crocs shoes.
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Imagine a fun day of arts and crafts with your kids turning into a multimillion dollar business idea: This is the reality that Sheri Schmelzer, the creator and founder of Jibbitz, wakes up to every morning.

Less than two years ago, Schmelzer was a stay-at-home mom in Boulder, Colo., with three children, whose several pairs of

Crocs

(CROX) - Get Report

were lying by the back door. One July afternoon in 2005, Schmelzer and her children were having an indoor crafts day when she took a little white flower from her daughter's sewing kit and stuck it into one of the holes of her Crocs shoe.

"It just exploded from there," Schmelzer says. She and the kids went around the house finding cute little things such as rhinestones that they then glued on the back of plastic cufflinks Schmelzer had gotten from the dry cleaner and stuck through the holes of their Crocs clogs.

By the time Rich Schmelzer, Sheri's husband, got home from work that evening, they had decorated all of their shoes. Rich immediately saw the potential of this idea. Within a couple of days the Schmelzers had filed a patent and decided to call their homemade, buttonlike charms Jibbitz.

The First Steps

Kids were crazy about the Jibbitz, and Schmelzer's daughters were begging her to make more so they could give them to friends. Meanwhile, the Schmelzers were faced with the tough decision of whether they should take the financial risk and try to build a business around the idea.

"When Rich and I started this, it was really scary in the beginning," Schmelzer recalls. "We took out a home equity line, and we tapped it when we first started making product."

"We went out on date night, sat there, looked at each other and said 'Are we going to do this?'" she says. "And the answer was 'Yes, let's take a chance. At least we can say we tried.'"

The Schmelzers then went to work launching a Web site for their product. In the meantime, their children ran into Duke Hanson, the co-founder of Crocs, in a coincidental encounter at the local swimming pool.

"He saw their shoes, went up to my oldest daughter Lexie and said, 'What do you have in your shoes?' and she said, 'Well, they're Jibbitz, and my mom makes them,'" Schmelzer says. "And so he handed her his business card and said, 'Why don't you have your mom call me.'"

The Schmelzers called Hanson and scheduled a meeting, in which they showed him the idea and the framework of the Web site they were about to launch. Although there was no outcome from the meeting, at this early point, Crocs was introduced to the Jibbitz concept.

The Jibbitz Web site was launched on Aug. 9, and requests started rolling in immediately. Schmelzer set up shop in the basement and continued to make the jibbitz by hand. By the end of the month, they were receiving over a hundred orders a day.

Initially they launched their product directly to consumers, not to retail stores, because they wanted to feel out their audience -- to see if customers liked the product, what their feedback was and what improvements could be made. At the same time, the Schmelzers collected a list of stores interested in selling their product.

Expansive Moves

After picking up even more volume in ensuing months, they decided to add a manufacturing partner in November. "Sheri was literally gluing her fingers together in the basement," Rich recalls. "She couldn't keep up with all of the orders,

and that was including all the friends and family we had recruited to help us."

At the same time, the Schmelzers made the decision to place Jibbitz in 40 to 50 stores, including Philly Scissors and Pedestrian Shops, the single largest retailer of Crocs. "We wanted to keep it very limited," Rich says. "Our philosophy was: Let's screw up on a small scale and have the stores tell us what the problems are from there."

But screw up they did not. In fact, by February, they had a few store reorders. It was confirmed: The Jibbitz were selling well, and it was at this point that the Schmelzers decided to "turn it up a bit."

That month, the Jibbitz crew went to Las Vegas to participate in the World Shoe Association show, and "that was it," Rich says. "The store orders from there started to roll in." They expanded to more than 200 stores, and they met big players such as

Dick's Sporting Goods

(DKS) - Get Report

,

Nordstrom

(JWN) - Get Report

and

Dillard's

(DDS) - Get Report

at the WSA show.

Crocs, which was also at the show, noticed Jibbitz as well. "I think they were kind of surprised," Sheri says. "They came by the booth and were asking questions like how many stores we were in, but nothing serious," Rich adds. "More just socializing."

The Schmelzers continued to grow on their own. Within a year of launching the site, Jibbitz went from being sold out of a basement to 3,000 retail outlets. "By August 2006, we were selling well over a million pieces a month," Rich says. "It was 10-times growth inside of one year."

Shortly after, the Schmelzers met with Crocs yet again, and both parties decided the time to join together was right. In October 2006, Crocs entered into an agreement to buy Jibbitz from the Schmelzers for $10 million in cash and an additional $10 million based on Jibbitz' future earnings goals.

"I thought from the very beginning that Jibbitz and Crocs would be a perfect fit," Schmelzer says. As far as running the company, things are still the same -- Sheri continues to hold her role as the chief design officer, with Rich as president.

When asked if they would have done anything differently, the Schmelzers seem confident. "Not me," says Sheri. "This has been a dream."

"The whole thing is just perfect," Rich agrees.