How the Birkenstock sandal transforms from eco to financial fetish How the Birkenstock sandal transforms from eco to financial fetish

Beat Keizer has a feeling for strong brands, especially those in the shoe sector. For the equity specialist and fund manager of the Zurich bank Rothschild & Co. the 400-page Birkenstock prospectus was a must-read. The prospectus is aimed at circles that are considering buying shares in the almost 250-year-old company from the Palatinate on the occasion of its planned public opening on the New York Stock Exchange in October.

“I expect great interest,” says Keizer. He predicts that Birkenstock will have a market capitalization of up to ten billion euros immediately after the IPO. That would be two and a half times the valuation at which the descendants of the company’s founders sold the majority of their shares to the French-American investment company L Catterton two years ago.

Keizer is convinced: “The timing for the IPO is perfect.” The comfortable sandal, which anchors the foot in Portuguese cork oak, has long become socially acceptable among the global elite. Hollywood celebrities wear them, the fashion world loves them, top model Heidi Klum designs them and a worn pair from the late Apple founder Steve Jobs was worth more than $200,000 to an anonymous lover.

Profit margins of more than 30 percent

The boom is based on an immense wave of well-being, the crown of which Birkenstock and many others are surfing. Stock specialist Keizer speaks of the ‘casual hype’, the global trend towards a loose and always comfortable clothing style, the end of which is not yet in sight. He believes that Birkenstock would not have needed additional resources to finance the company’s further growth.

Currently, approximately 30 million sandals are sold over the counter every year. It could cost as much as 50 million euros for Birkenstock’s image to suffer, says Keizer. The strong brand allows prices that generate operating profit margins of more than 30 percent.

Such returns are not self-evident, even for French luxury king Bernard Arnault. Europe’s richest man has virtually taken control of Birkenstock. In addition to a smaller share that he was able to buy directly from the heirs in 2021, he is also indirectly heavily involved in his LVMH through its 40 percent share in L Catterton.

Larger store network

Birkenstock could easily finance growth without additional funds from the IPO, Keizer says. Nevertheless, the move to Wall Street is a done deal. This has a lot to do with the financial investor and majority shareholder L Catterton. “The faster such investors can resell their investments profitably, the higher their returns,” Keizer explains.

In the Birkenstock case, the portfolio manager expects that financial investors will be able to earn an interest of around 40 percent on their initial investments from 2021. The new owners certainly achieved this “huge return”: Birkenstock improved the quality of distribution in Europe, expanded its own store network, expanded its presence in the US and, through collaborations with other strong brands, increased the desire (in the slang for “Desirability” increased the popularity of brand after brand, Keizer praises.

But the 45-year-old financial market expert finds the frantic way in which the company is now trying to present itself in a ‘sexy’ way to the investing public ‘sad’. “The prospectus is full of buzzwords from the grim financial vocabulary of investment banking.”

High loyalty from regular customers

This is especially sad because Birkenstock didn’t need this bluff. “The brand is strong, the loyalty of regular customers is extremely high – Birkenstock could continue to write its long corporate history in peace.” Instead, you go to Wall Street. Of all the places, investors “are particularly fond of quarterly earnings and short-term news feeds.”

Keizer believes that the shadow of Wall Street has already fallen over Birkenstock. The expansion of the range to include closed shoes, shoe care products and even beds, initiated by CEO Oliver Reichert in 2017, could align with the stock market’s current desire for more growth. But this ultimately results in a dilution of the brand, with a self-reinforcing effect. Lower brand appeal puts pressure on prices and margins and forces the company to support profit levels with even greater production.

“Rothschild rarely invests in IPOs,” says Keizer (IPO stands for Initial Public Offer and means opening a company to the public through an IPO). Unfortunately, all too often these are fundraising campaigns for existing shareholders and some large investors. Birkenstock shares are likely to get off to a good start on the stock market. After that, there would be little room for improvement, Keizer predicts.