From LSD to IPO: Birkenstock saunters to Wall Street

This may be a tale about the rise of a German sandal brand, but it is not a straightforward fashion story.

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

Over time, these orthopedic-looking shoes drew a loyal following thanks to their comfortable cork and latex molded footbeds and their durability. They found particular favor with German health care professionals and a handful of high-profile anti-establishment, anti-conformist types like Apple founder Steve Jobs, the onetime owner of a battered brown pair that sold for $218,750 at auction last year.

High fashion, however, Birkenstock definitely was not.

But then a weird thing happened. Beerken-schtock, as it is pronounced in its homeland, started to become cool. In 2012, Phoebe Philo, then the fashion maestro of French luxury house Céline, showed a fur-lined version of what appeared to be the double strap Arizona sandal at Paris Fashion Week, prompting industry excitement and gushing articles.

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

In the 2010s, as workplaces grew more casual and comfort became a priority, Birkenstocks surfaced as winners of the “ugly shoe” trend. And today, spurred further by the effect of pandemic dressing and working from home, the sandals have become the informal footwear of choice for people everywhere who once wouldn’t have been caught dead in them.

A Birkenstock shoe shop is pictured in Dortmund August 27, 2013.

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

“Their popularity nowadays is pretty wild,” Steele added. “It’s not often that you see a total turnaround in public brand perception in the way we have with Birkenstock.”

Today, five core styles make up 76 per cent of the business, the company said, with prices that start at 40 euros (about $42). For limited-edition luxury styles, that figure can be 40 times as much — up to $1,700. The company said that 30 million pairs of Birkenstock sandals were sold in 2022, with sales of 1.24 billion euros ($1.3 billion at current exchange rates), up from 292 million euros ($307 million) in 2014.

According to shopping platform Lyst, a clog style known as Boston was the most searched for shoe of 2022, thanks in part to superfan Kendall Jenner. After a cameo in a pivotal scene in “Barbie,” online searches appeared to spike.

Now, Birkenstock is betting big in a bid to capitalize on the momentum. On Wednesday, under the ticker symbol BIRK, the company began trading on the New York Stock Exchange at a valuation of more than $9 billion, selling just over 32 million shares at $46 each. Although Birkenstock pulled off the stock sale, its share price fell 11 per cent once trading began.

Birkenstock said it raised $1.48 billion, which it will use to pay down debts. It also wants to make the Birkenstock empire truly global; today, 90 per cent of sales are in Western Europe and the United States. L Catterton, a private equity group with ties to French luxury magnate Bernard Arnault, became the majority owner of Birkenstock in 2021 and will retain ownership after the IPO.

In a lofty pitch to investors in its prospectus, Birkenstock said that it was “undeterred by fashion trends and proudly German, with shoes that could be found on surgical wards and fashion runways, in law firms, school — and everywhere in between.”

“Birkenstock is more than a shoe,” the prospectus read. “It is a way of thinking, a way of living.” The company isn’t the first footwear brand to go public. AllBirds and Doc Martens had IPOs in recent years, with mixed results.

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

Sleeping giant, swimming whale

Much of Birkenstock’s recent success can be attributed to Oliver Reichert, 52, who was named CEO in 2013. A 6-foot-6 mountain of a man with a booming voice and a reddish-gold beard, he grew up in the Bavarian countryside wearing Birkenstocks. From an early age, he wore a US shoe size 12.5; Birkenstocks were the only shoes that fit.

In 2008, Reichert’s interest in the brand turned professional, when he became an adviser to Christian Birkenstock, a scion lost in a chapter of dysfunctional management and infighting among the family heirs.

The Birkenstock legend began back in 1774, when church records from the rural village of Langen-Bergheim, near Frankfurt, registered Johannes Birkenstock as a local cobbler. In the early 20th century, the company specialized not in shoes but in their 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 furthered 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 styles were given geographical names). His sons — Stephan, Alex and Christian — had taken over the company in 2002. The status quo was not a happy one.

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

Reichert was the first CEO from outside the Birkenstock bloodline. (A co-CEO appointed at the time, Markus Bensberg, left to run the family office of Alex Birkenstock in 2021.) Reichert quickly set about reorganizing the 38 subsidiaries into a group with cohesive sales and distribution channels.

He also invested heavily in the company’s German factories. His aim was to transform what he called “this sleeping giant” into a global sandal sensation, albeit with foot health at its core. Savvy collaborations, primarily via the Birkenstock premium line 1774, were part of the plan.

“Birkenstock customers had this long-standing reputation for being female, old and sick,” Reichert said. “But we loved them because they loved our products for the right reasons — functionality and purpose.”

“Those ideals are why we exist,” he continued. “But I was also afraid we would wake up in our own museum, surrounded by traditional pieces that had no relevance to today. Which is why it is important to build bridges to other people’s creativity and energy — to offer them a white canvas and the paint and say: ‘Go!’’’

Reichert avoids “fake” influencer marketing, as he describes it, and said his favorite designer collaborations are the weirder ones in which “one plus one equals three.” Rather than following elitist or whimsical trends, he wants Birkenstock to be perceived as a producer of steady, democratic goods. “Barbie” may have given him the kind of blockbuster marketing that most companies would kill for (and for free, given that it wasn’t paid placement), but he hadn’t yet seen the movie.

“I just don’t like the idea that people think Birkenstock is having ‘a moment’ when in fact it is the world that is now coming in our direction,” he said.

In his sunlit office, a child’s train set was set out in one corner. The whitewashed walls were lined with several electric bikes, a Louis Vuitton steamer trunk and images of artists Joseph Beuys and Ai Wei Wei. A fan of metaphors, he compared the company with a deep-sea whale, always swimming under the surface.

“With these high-end collaborations, we pop our head out of the water, and then some people go, ‘Oh, there’s a whale!’” Reichert said.

Even our haters love us

Birkenstock’s plan was laid out in the IPO filings released in September. Today, baby boomers, millennials and Generation X all generate about 30 per cent of sales, the company said. Almost three-quarters of customers are women, and 45 per cent of revenue comes from people earning more than $100,000 a year.

A little more than half of Birkenstock’s sales comes from North, South and Central America. The company’s growth may be tied to new markets like India and China, and could also be fueled by expanding distribution and a directly controlled online store that currently reaches customers in more than 75 countries.

The influence of LVMH, the world’s largest luxury fashion group by sales, is also getting stronger. Alexandre Arnault, the son of Bernard Arnault, will sit on Birkenstock’s board after the IPO.

Sales growth has slowed since the pandemic, and there is no shortage of counterfeit products and brazen rip-offs by rivals. (Birkenstock had a falling out with Amazon over its policing of copycat shoes and stopped selling directly through Amazon in 2018.)

And for a footwear name long associated with family ownership and social movements linked with critiques of capitalist systems, going public at a time of global economic volatility could create reputational blowback. Especially if pleasing investors means compromising on quality or shifting production away from Germany, where 95 per cent of products are assembled, then hand-checked in factories owned by the brand.

Reichert was adamant that moving production out of Germany wouldn’t happen “in a million years.” He pointed to Birkenstock’s profit margins compared with many rivals and scoffed at the suggestion that the company might struggle to drum up consumer desire for another pair of Birkenstocks, noting that the average customer owns three to four pairs. (For the record, he owns more than 500.)

“Whether you like fashion or not, wearing Birkenstocks shows that you care about yourself and your sense of well-being,” he said. A significant appeal for consumers was “being perceived as real.” Birkenstock doesn’t “just have customers but fans,” he said. Then, with a chuckle, he went one step further.

“Even our haters still wear our shoes because they know they are good for your feet. Not many other businesses can say that.”