Table of Contents
Company History + Overview
Product + Product Strategy
Growth Opportunity
Competitive Strategy
Bonus Materials
The history of Birkenstock is a story of a German footwear company that has stood the test of time. Founded in 1774 by Johann Adam Birkenstock, the company has evolved from a small, local cobbler's shop to a global brand known for its iconic sandals and comfortable footwear. We will cover the key developments in Birkenstock's history, tracing its journey from its humble beginnings to its current status as a prominent player in the footwear industry and views on the outlook for the company from here. Birkenstock might be the ultimate ‘Lindy’ company in footwear.
1/ Company Overview & History
Company history:
Foundation and Early Years (1774-1896): The roots of Birkenstock can be traced back to 1774 when Johann Adam Birkenstock was registered as a "vassal and shoemaker" in a small German village called Langen-Bergheim. However, the company's real breakthrough came in 1896 when Johann's great-great-grandson, Konrad Birkenstock, developed the first contoured insole.
Invention of the Footbed (1896): Konrad Birkenstock created a flexible and contoured footbed (“Fussbett”) that provided support and comfort for the wearer. This marked a significant innovation in the footwear industry.
Orthopedic Focus (1902-1963): The company continued to develop and refine its footbed design, focusing on orthopedic comfort. In 1902, Konrad's son, Carl Birkenstock, launched the first flexible arch-supporting insole. Birkenstock's orthopedic footwear gained popularity in Europe and became widely recognized for its health benefits. In 1947 Carl wrote the book “Podiatry - The Carl Birkenstock System,” one of many books that Birkenstock released over the years.
Expansion and International Growth (1960s-1980s): In the 1960s and 1970s, Birkenstock sandals gained popularity as a symbol of the counterculture movement. The company also expanded its product range to include various sandal styles. By the 1980s, Birkenstock had established itself as a global brand, exporting its comfortable and supportive footwear around the world.
Ownership Changes (2003-2010): In 2003, Birkenstock Orthopädie GmbH & Co. KG changed ownership when Christian and Alex Birkenstock, members of the Birkenstock family, sold the majority of the company's shares to a private equity firm.
Global Success and Revival (2010s-Present): In the 2010s, Birkenstock experienced a revival in popularity, particularly in fashion circles. The brand's comfortable and iconic sandals became fashionable once again. Collaborations with designers and celebrities helped boost its image. In 2021, L Catterton and Financière Agache, the investment firms of LVMH's Bernard Arnault and Groupe Arnault, respectively, acquired a significant stake in Birkenstock.
2/ Product + Product Strategy
Birkenstock's product strategy is based around the company’s core values of Function, Quality and Tradition.
Function
The proprietary footbed ("Fussbett") has evolved over successive innovations since the original innovation of a contoured insole in 1896. At it's core the Birkenstock footbed is promoting natural walking ("Naturgewolltes Gehen").
See the below illustration from the company:
The footbed provides natural support and stimulation, promoting even weight distribution, fully supported arches and no unnatural pressure points from heel to toe. The orthopedic benefits can include pain reduction in the foot and throughout the body, improved mobility, and a more natural posture.
This footbed forms the base of all new Birkenstock lines.
Quality
Birkenstock makes it's product to be long-lasting, durable and repairable. Over 90% of the materials are sourced from Europe. The company has also vertically integrated it's manufacturing operations in the EU, in order to maintain the standards over the quality and craftsmanship of their products.
Tradition
The company has an approach of "celebrate the archive, build the archive" to product architecture and innovation.
“Celebrating the archive” involves creating new distinct design elements to existing silhouettes to introduce newness in a low-risk manner. An example is the Arizona, first created in 1973, which has gone through multiple innovations including a more recent water-friendly version made using EVA. See image below.
Revenues from the Arizona silhouette have grown at a 24% CAGR from FY2018 to FY2022. The top five silhouettes (illustration below) collectively generated nearly 76% of annual revenues in FY2022.
“Building the archive” leverages the footbed to create whole new products and silhouettes. New silhouettes introduced since FY2017 represented nine of the top 20 selling products in FY2022. Closed-toe silhouettes has been a key focus, they have grown to over 20% of revenues in FY2022, supported by silhouettes such as the Zermatt, Buckley and Bend. This approach has enabled Birkenstock to expand our brand reach across seasons and usage occasions, as well as drive growth through higher ASPs.
3/ Growth Outlook
Footwear TAM
The global footwear industry is a vast and fragmented market. According to Euromonitor, it estimated that it generated approximately €340 billion in retail sales in 2022, with the top 5 brands accounting for 20% of the overall footwear market. On average, the global footwear market is projected to grow at a CAGR of 5.1% over the next five years, reaching approximately €440 billion in sales by 2027.
Key Growth Trends
In the S1 Birkenstock notes the key growth trends supporting Birkenstock as:
Growing preference for healthy products
Casualization across usage occasions
Breakthrough of modern feminism
Appreciation and affinity for heritage and craftsmanship
Distribution Model
Birkenstock has a multi-channel distribution approach, what it calls “engineered distribution model,” which balances the growing demand for their products with constrained supply to create scarcity in the market. Basically, Birkenstock allocates inventory between it’s wholesale partners in the B2B channel, and their faster growing DTC channel.
Over the last two years the company’s B2B revenue has grown from €506m to €773m, a 24% 2Y CAGR. In comparison, the DTC channel has grown from €220m to €467m, a 46% 2Y CAGR.
Birkenstock notes that historically demand for their products has exceeded supply. Over time they have invested in fewer and more important or strategic wholesale partnerships, and increased the share of product through their own DTC channels. By deliberately restricting supply and creating scarcity in the market, it enables them to generate predictable and consistent growth over time.
By increasingly focusing on their DTC channel, they can optimize for margins, have tighter control over presentation of their brand and build a direct connection to their customers. The U.S. market approach was an important case study for the company which now serves as the blueprint for all of their regions. In the U.S. the company has converted from third-party distributors to owned distribution, accelerated DTC penetration, strategically expanded their retail footprint and increased their share of closed-toe and other high ASP products. Building on their success in the U.S., Birkenstock have taken back distribution in key markets, including the UK, France, Canada, Japan and South Korea, reducing the share of business in third-party distribution from 32% of revenues in FY2018 to 14% in FY2022.
In FY2022 Birkenstock worked with approximately 6,000 carefully selected wholesale partners in over 75 countries, ranging from orthopedic specialists to major department stores, to high-end fashion boutiques.
Online Platform
To support the shift in owned channels, Birkenstock has invested significantly in their online platform. They have built e-commerce sites in more than 30 countries with ongoing expansion into new markets. In FY2022, e-commerce accounted for 89% of their DTC channel. As at June 30, 2023 Birkenstock also operated a network of 45 owned retail stores, complementing the e-commerce channel with the live experience of their best product range. Germany has the largest number of stores with 20 locations, other locations include Soho and Brooklyn in New York City, Venice Beach in Los Angeles, Tokyo, London and Delhi.
Global Reach
Birkenstock divides it’s global regions into Americas, Europe and APMA (“Asia Pacific, Middle East and Africa”).
Over the last 2 years, Americas has had the fastest growth at a 40% 2Y CAGR. Europe and APMA 2Y CAGR at 21% and 23% respectively.
Another way of looking at the relative strength of Birkenstock vs. Crocs, is the Google Trends data on relative search volume for each country. Not surprisingly, European countries such as Denmark, Italy and Germany are dominated by Birkenstock. The U.S. is about 30% Birkenstock vs. 70% Crocs.
4/ Competitive Strategy
Birkenstock views the company’s competitive advantages as:
Global Fan Community Enabling Efficient Demand Creation / Broad and Democratic Fan Base
Unparalleled Consumer Engagement and Loyalty
Efficient Demand Creation
Vertically integrated manufacturing
Birkenstock has high levels of loyalty and engagement with their customer base. The average U.S. consumer owns 3.6 pairs. In a recent company survey, approximately 90% of recent Birkenstock purchases indicated a desire to purchase again and 40% indicated they did not even consider another brand when last purchasing Birkenstock.
Google Trends Data - Birkenstock vs. Crocs
A common comparison for sandals is between Birkenstock and Crocs. The Google Trends search data below shows on a global basis that both companies were relatively even through to 2020, when Crocs has gone through a significant step-up in popularity, ahead of Birkenstock. The question will be how sustainable this is and whether Crocs may be more prone to fad risk than Birkenstock.
6/ Bonus Materials
Articles:
https://www.bloomberg.com/news/articles/2021-03-06/how-birkenstock-s-hippie-sandal-ceo-jilted-an-ex-goldman-star
https://www.businessoffashion.com/articles/finance/the-investment-giant-behind-some-of-fashions-biggest-deals
Luxury strategy:
The Team @ IPO Window
The content herein is purely informational and should not be relied upon as fact. Do your own diligence before making any investment decisions.