Revered by hippies, Birckenstock enters the Stock Exchange – 10/12/2023 – Market

This may be a story about the rise of a German sandal brand, but it’s not a simple fashion story.

After all, for much of its 249-year history, Birkenstock was synonymous with extremely unfashionable stereotypes. Sandals were often worn by hippies and off-duty hikers, eccentric aunts and science teachers with a fondness for pairing them with ankle socks.

Over time, these orthopedic-looking shoes gained a loyal following thanks to the comfort of their molded cork and latex insoles and their durability. They found particular favor among German healthcare professionals and a handful of high-profile anti-establishment and anti-conformist people, such as Apple founder Steve Jobs, who owned a beat-up brown pair that sold for US$ 218,750 (around R$1.1 million) at an auction last year.

High-quality fashion, however, was definitely not Birkenstock’s strong suit.

But then something strange happened. Birkenstock, pronounced “Bírken-schtóque” in its homeland, started to become hip. In 2012, Phoebe Philo, then the fashion maestra at French luxury house Céline, presented a fur-lined version of what appeared to be the Arizona double-strap sandal at Paris Fashion Week, sparking industry excitement and glowing articles.

Birkenstock, which went public in New York on Wednesday morning, may not have initially been prepared for this attention — Furkenstock, as it was known, wasn’t even an official collaboration — but the company soon realized that consumers wanted comfort endorsed by fashion’s most revered designers. Other partnerships emerged, with brands such as Dior, Valentino, Manolo Blahnik and Rick Owens, which continue to this day.

In the 2010s, as work environments became more casual and comfort became a priority, Birkenstocks emerged as the winner of the “ugly shoe” trend. Today, driven even further by the effect of pandemic clothing and working from home, sandals have become the informal footwear of choice for people everywhere who previously wouldn’t have been seen dead wearing them.

“Weird and ordinary have become extremely cool, as has looking authentic and feeling healthy,” said Valerie Steele, director of the Museum of Fashion and Technology in New York.

“Its popularity these days is pretty impressive,” Steele added. “It’s not common to see a complete shift in public perception of the brand like we see with Birkenstock.”

Today, five main styles represent 76% of business, said the company, with prices starting at 40 euros (about R$214.30). For limited edition luxury styles, this value can be 40 times higher, reaching US$1,700 (R$8,583). The company stated that 30 million pairs of Birkenstock sandals were sold in 2022, with sales of 1.24 billion euros (R$6.6 billion), an increase from 292 million euros (R$1.56 billion) in 2014.

According to shopping platform Lyst, the established clog known as the Boston was the most sought-after shoe of 2022, thanks in part to super fan Kendall Jenner. After a cameo in a pivotal scene in “Barbie,” online searches soared.

Now, Birkenstock is betting big to seize the moment. This Wednesday, under the symbol BIRK, the company began trading on the New York Stock Exchange with a valuation of more than US$9 billion (R$45 billion), selling just over 32 million shares at US$46 (R$ 232.25) each. Although Birkenstock carried out the share sale, its share price fell 11% once trading began.

Birkenstock said it raised US$1.48 billion (R$7.5 billion), which will be used to pay down debt. The company also wants to make the Birkenstock empire truly global; Today, 90% of sales are in Western Europe and the United States. AL Catterton, a private equity group with ties to French luxury mogul Bernard Arnault, became the main owner of Birkenstock in 2021 and will maintain ownership after the initial public offering (IPO).

While there are many industry observers who feel optimistic about the company’s long-term prospects, others are cautious. “While Birkenstock is profitable, we think it’s fair to say the valuation markup is too high, especially for a company that was valued at just $4.3 billion at the start of 2021,” wrote David Trainer of the birth research firm New Constructs investments, to investors. He added that the only shoe companies with a larger market capitalization are Nike and Deckers (owner of the Ugg and Hoka brands, among others).

Sleeping Giant, Swimming Whale

Much of Birkenstock’s recent success can be attributed to 52-year-old Oliver Reichert, who was named CEO in 2013. A 7-foot-tall man with a booming voice and a reddish-gold beard, who grew up in the Bavarian countryside wearing Birkenstocks. From an early age, he wore 46.5; Birkenstocks were the only shoes that fit.

In 2008, Reichert’s interest in the brand turned professional when he became an advisor to Christian Birkenstock, an heir lost in a chapter of dysfunctional management and conflicts between the family’s heirs.

The Birkenstock legend began in 1774, when the church in the rural village of Langen-Bergheim, near Frankfurt, recorded Johannes Birkenstock as a local shoemaker. In the early 20th century, the company specialized not in shoes but in its flexible rubber and cork insoles, developed by Konrad Birkenstock, who became an orthopedic authority, as did his son Carl.

It was Carl’s son, Karl, who improved the technology and created sandals that could evenly distribute weight and reduce sole friction, starting with the classic single-strap 410 style in 1963 (called the Madrid after 1979, when most of the styles received geographical names). His sons —Stephan, Alex and Christian— took over the company in 2002. The status quo was not happy.

“This has become a very complicated situation,” Reichert, a former journalist and sports media executive, said recently in his Munich office. “The three brothers were controlling different aspects of the company and taking them in different directions, with a dominant father still watching from afar.” The Birkenstock family, which stepped away from day-to-day oversight of the business in 2013, declined to comment for this article.

Reichert was the first chief executive from outside the Birkenstock lineage. A named co-CEO at the time, Markus Bensberg, left to run Alex Birkenstock’s family office in 2021. Reichert quickly began reorganizing the 38 subsidiaries into a group with cohesive sales and distribution channels.

He also invested heavily in the company’s German factories. His goal was to turn what he called “this sleeping giant” into a global sandal sensation, albeit with foot health as the main focus. Smart collaborations, particularly through Birkenstock’s premium 1774 line, were part of the plan.

“Birkenstock’s customers had this reputation of being women, old and sick,” Reichert said. “But we loved them because they loved our products for the right reasons – functionality and purpose.”

In his sunlit office, a children’s train set was placed in a corner. The whitewashed walls were lined with several electric bicycles, a Louis Vuitton travel trunk, and images of artists Joseph Beuys and Ai Wei Wei. A fan of metaphors, he compared the company to a deep-sea whale, always swimming below the surface.

“With these high-profile collaborations, we stick our heads out of the water, and then some people say, ‘Oh, there’s a whale!'” Reichert said.

Even our detractors love us

Birkenstock’s plan was laid out in public offering documents released in September. Today, baby boomers, millennials and Generation X generate about 30% of sales, the company said. Almost three-quarters of customers are women and 45% of revenue comes from people who earn more than US$100,000 (R$505,000) per year.

Sales growth has slowed since the pandemic, and there is no shortage of counterfeit products and blatant copies by competitors. Birkenstock had a falling out with Amazon over its oversight of counterfeit shoes and stopped selling directly through Amazon in 2018.

For a footwear brand long associated with family ownership and social movements linked to criticism of capitalist systems, going public at a time of global economic volatility could generate negative repercussions for its reputation. Especially if pleasing investors means compromising quality or moving production out of Germany, where 95% of products are assembled and checked manually in the brand’s factories.

Reichert was emphatic that moving production out of Germany would not happen “in a million years”. He pointed to Birkenstock’s profit margins compared to many competitors and scoffed at the suggestion that the company might have difficulty sparking consumers’ desire for another pair of Birkenstocks, noting that the average customer owns three to four pairs. For the record, he owns more than 500.

“Regardless of whether you like fashion or not, wearing Birkenstocks shows that you care about yourself and your well-being,” he said. A significant appeal to consumers was “being perceived as authentic.” Birkenstock doesn’t just have customers, but fans,” he said. Then, with a laugh, he went further.

“Even our detractors still wear our shoes because they know they’re good for their feet. Few other businesses can say that.”