Birkenstock makes ‘ugly’ cool again
The German leather sandal brand is on a mission to educate the world on foot health as it embarks on a high-value stock market flotation.
It has been a remarkable revival of a shoe described by its own maker as “ugly”. The centuries-old sandals made by Germany-based Birkenstock had fallen somewhat out of fashion but new management and a change of strategy a decade ago transformed the business from a family-owned company into a global enterprise with 20% annual revenue growth. A takeover by private equity firm L Catterton in 2021 boosted it further, with sales surging 70% between 2020 and 2022.
These results laid the perfect groundwork for an initial public offering – a flotation on the New York Stock Exchange (NYSE) in mid-October, just as World Leather goes to press. Analysts expect it to achieve between $44 and $49 per share, which would value the company at around $9.9 billion at the top of its range and make it the third-biggest listing on NYSE this year. This would raise $1.6 billion, with around a third for the company and L Catterton expected to receive around two-thirds, a remarkable coup for the buyout firm.
Pivotal inventions
Birkenstock can trace its origins back to 1774 when cobbler Johannes Birkenstock from Langen-Bergheim began passing his skills down his family line. His great-great-grandson, Konrad Birkenstock, introduced what was later called the System Birkenstock, a combination of orthopaedic doctrine and the pairing of two anatomically shaped shoes with a flexible insole – innovative at the time. Konrad’s son, Carl Birkenstock, created the original open footbed sandal in 1902 and it remains the bedrock of the company; all designs stem from it.
Despite being initially rejected, the sandals were promoted by doctors and podiatrists in the early 20th century and slowly began to find wider favour. By the 1980s, they had been accepted by the fashion circles and even graced catwalks for designers including Marc Jacobs. While growing in popularity, Birkenstock still found itself nestled in the ‘comfortable’ shoe category. It took help in the form of Oliver Reichert, the first from outside the family to lead the company, and a restructuring in 2013 to set it on its current trajectory.
Material gains
One of Birkenstocks’ founding principles lies in the quality of its manufacture: all leathers are sourced in Europe and are 2.8mm to 3mm thick. “We never compromise on material quality,” says Mr Reichert. Around 90% of its components are sourced in Europe and 95% of assembly is based in Germany. “By vertically integrating our manufacturing operations in the EU, we maintain a high degree of control over the quality and craftsmanship of our products, ensuring a consistent consumer experience,” he adds.
The company believes specific trends have boosted the sandal’s appeal in recent years: an increased focus on health and the casualisation of daily life following the pandemic, the breakthrough of “modern feminism” – or women’s increasing preference for functional footwear – and the rise of “conscious consumption”.
“Over the last generation, the use of formal footwear has declined as a result of the ongoing shift towards casual dress and rise of sneaker culture, both trends accelerated by covid-19,” says Mr Reichert. “We find ourselves at a nexus of these changing behaviours as consumers increasingly free themselves from long-standing fashion norms, seeking more functional footwear and apparel choices across usage occasions. This trend also coincides with the shift towards healthy products as consumers seek alternatives to footwear options that do not promote, or negatively impact, foot health.” In summer 2022, the company launched a three-part documentary series in the US – where the average consumer owns three pairs of Birkenstocks, according to the IPO filing – to educate on the role footwear plays in foot health. With a hint of irony, or perhaps stark honesty, the programme’s name is Ugly for a Reason.
Untapped potential
As well as paying debt and returning money to investors, the money raised from the flotation will be used for expansion. Birkenstock plans to capture market share globally, particularly in Asia-Pacific, which is expected to be one of the fastest growing regions and where the brand feels “meaningfully underpenetrated”.
This September, it opened a production facility in the Berlin-Szczecin industrial park that it had been building for 18 months at a cost of €110 million, the biggest investment in the company’s history. Its plant in Görlitz, in which it ploughed €50 million in 2021, will be converted to cork-latex production. The company has also taken back control of its European distribution in recent years, favouring an in-house operation that is more tightly controlled.
“As we ramp up our production capacity, we will unlock the growth potential of Asia, which has generated significant latent demand that we have been unable to fulfil in recent years, given limited supply,” explains Mr Reichert. “Our strategies will build upon our growing popularity in the region’s emerging markets, including China and India, where our brand is nascent, and in countries such as South Korea, Australia and New Zealand, where we have a more established presence and brand awareness.”
Luxury association
All eyes will be on the NYSE to see how much the company lists at, and how the stock fares after. Potential investors include Financière Agache, the family holding company of LVMH CEO Bernard Arnault, whose son Alexandre is expected to join Birkenstock’s board following the IPO – a potential indication of the direction the brand could take.
While it describes its styles as “democratic”, with a retail entry price point of €40, its high-end collaborations can cost more than €1,600. Recently, these have included sell-out collections with Manolo Blahnik, Jil Sander and Proenza Schouler, as well as streetwear brand Stüssy, propelling Birkenstock away from the ‘sensible shoes’ category and straight onto the best sellers’ lists. It is a clear example of how fresh thinking and shrewd marketing can make products desirable again.
There are no signs of a slowdown. “We believe consumers increasingly value brands that have rich traditions, have clarity in their purpose and take significant responsibility for their operations,” adds Mr Reichert. “We have observed these trends across various consumer industries and believe Birkenstock’s functional, purpose-led brand, uncompromising commitment to quality and centuries-old crafting traditions align well with the shift towards brands with authentic heritages and craftsmanship.” Not bad for a 200 year-old ugly sandal.
Creative partnerships include major fashion names such as Dior and Manolo Blahnik and with schools such as Central Saint Martins in London.
Credit: Birkenstock
