Birkenstock the latest shoe to drop in a tough IPO market

SANDAL company Birkenstock needs to sell more clogs and boots and boost sales from its own website and boutiques to attract new shoppers amid a cost of living crisis, investors and analysts said before it lists on the New York Stock Exchange next week.

Birkenstock is the latest high-profile listing to put investor focus on the initial public offering (IPO) market, which is gradually reopening after two relatively quiet years and a burst of activity in September.

But several companies including Arm, Instacart, and Kellogg spinoff Kellanova that have gone public recently have seen their share prices slump.

And a cost of living crisis – which has seen consumers rein in spending on discretionary items like shoes and clothing in favor of essentials – could be a challenge for the premium footwear company.

Due to recent price hikes, worldwide footwear sales are expected to rise just 2.9% over 2022, according to market research firm Euromonitor International.

“The question is, how do you create desirability for people to buy another pair of Birkenstocks?” said Mamta Valechha, consumer discretionary analyst at asset manager Quilter Cheviot in London. Sandals are a seasonal product, which makes the company’s sales volatile over the year, Valechha added.

Still, Birkenstock has much else going for it – including the ability to stay popular decades since first becoming well-known as somewhat frumpy but comfortable sandals that complete a laidback, hippie look.

Founded in 1774 by Johann Adam Birkenstock, the Neustadt, Germany-based company’s “Birkenstocks” were exported worldwide and first sold exclusively in health stores in the United States.

A trend towards more casual dressing, turbo-charged by the COVID-19 pandemic, has kept them popular in recent years.

Like its footwear counterpart Crocs, Birkenstock has been able to keep up with style trends and rebrand itself as a fashionable item worn by models and celebrities. Barbie, played by Margot Robbie, wore a pink pair of Birkenstocks in the final scene of the eponymous movie released this summer.

“The parallel with Crocs is that both aren’t necessarily known for being beautiful, right?” said Jessica Ramirez, senior analyst at Jane Hali & Associates.

Yet people have continued to buy Birkenstocks and the brand has modernized and built momentum, she said.

“They tap very nicely into many strong structural changes in buying habits: health, comfort and sustainability,” said Siobhan Gehin, senior partner at Roland Berger in London.

Birkenstock has disclosed plans to sell at least 32 million shares priced between $44 and $49 apiece, which would raise about $1.58 billion at the top end of estimates.

In its IPO filings, it said it would use the proceeds to pay down debt.

But Thomas Hayes, chairman of hedge fund Great Hill Capital, said Birkenstock would likely use some of the capital raised through the IPO to further expand, and that its strong position in the U.S. allows it to pass on cost increases to shoppers.

At a time when foot traffic to major retail stores has been falling, Birkenstock has seen steady store traffic but analysts say it must continue to expand its direct-to-consumer sales to pull in more customers.

Retailers like Foot Locker and Dick’s Sporting Goods have started to cut back on their shoe orders, though neither carries Birkenstock.

While Birkenstock had 6,000 wholesale partners in fiscal 2022 it operated only a small network of about 45 of its own boutiques as of June 30.

New products on Birkenstock’s U.S. website include $34.95 slides, $250 “Cannes” leather sandals and $240 leather boots. Unique visits to its website this year through August 2023 are up by roughly 26.4% over the same period last year, according to data from Similarweb. The monthly jumps in traffic to its site ranged from 11.5% to 72.1%, the data shows.

In contrast, some of its rivals, including designer sneaker brand Golden Goose, Dr Martens, and Allbirds saw visits to their own websites decline in recent months compared to a year ago, the Similarweb data shows. For the most part, U.S. sales of footwear for the back-to-school season have been bleak.

SUPPORT FROM KEY INVESTORS

Birkenstock is the latest in a series of footwear makers to go public in recent years – most with a lacklustre showing so far. AllBirds, Dr Martens, and On Running have all seen their market value fall since their IPOs in 2021.

Still, Birkenstock has the backing of some luxury sector heavyweights: Alexandre Arnault, the son of billionaire LVMH Chairman Bernard Arnault, will sit on its board and LVMH-backed private equity firm L Catterton – which owns 100% of the company now – will still own about 83% of Birkenstock after the offering.

Funds managed by Durable Capital Partners LP and Norges Bank Investment Management have also separately indicated an interest in buying shares of a combined value of $300 million.

“The expression of interest from prominent cornerstone investors is remarkable,” said Matt Oguz, CEO of Iris Family Office in Silicon Valley, who said he planned to buy Birkenstock shares.

But that support is not a guarantee of success on the stock market. Take consumer-tech company Oddity, owner of beauty brands Il Makiage and SpoiledChild.

Backed by L Catterton, it went public in July priced at $35 per share, significantly above the initial range of $27-$30 before opening at $49.10 on its first day of trading. But its shares are now down nearly 45% from their opening price.

“When you look at the trend of other shoe companies that have IPO-ed, it doesn’t give a great outlook for Birkenstock,” Valechha said. – Reuters