Birkenstock IPO: Is it worth $10B?
And 4 other questions about the 249-year cult German footwear brand.
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Today, we are talking about the upcoming IPO for Birkenstock (which could value it at ~$10B).
Also this week:
The $2.3B Las Vegas sphere
What is the best bread in the world?
And them fire memes (including David Beckham)
Birkenstock plans to go public on the New York Stock Exchange (NYSE) next week with a valuation of ~$10B.
Nothing you are about to read is investment advice. This is purely a vibes analysis of the cult German footwear brand based on its Form F-1 (the SEC registration document for foreign companies to list in America).
What was the main vibe I picked up? This public listing is a story about “the Lindy Effect”, which is the idea that you can estimate how long something will last into the future based on how long it has already existed.
The idea is from Nicholas Nassim Taleb’s book “Anti-Fragile”:
“If a book has been in print for forty years, I can expect it to be in print for another forty years. But, and that is the main difference, if it survives another decade, then it will be expected to be in print another fifty years. This, simply, as a rule, tells you why things that have been around for a long time are not ‘aging’ like persons, but ‘aging’ in reverse. Every year that passes without extinction doubles the additional life expectancy. This is an indicator of some robustness. The robustness of an item is proportional to its life!”
Example: Charles Dickens wrote “A Tale of Two Cities” in 1859 and children still read it in high school today (it has been around for at least another 164 years and one can expect it to remain relevant for another 164 years). In comparison, my recently self-published Kindle book “Hot Yoga at Home: A History” is two days old and I will likely shut it down tomorrow for (a surprising) lack of interest.
You know what else is really Lindy? Walking in leather sandals, which the Bible directly references as footwear worn by Jesus (Mark 1:7 “After me comes the one more powerful than I, the straps of whose sandals I am not worthy to stoop down and untie.”)
There is no mention of Jesus in the Birkenstock F-1. However, the classic Birkenstock sandal is often referred to as the “Jesus sandal”. The brand — which dates back to 1774 — claims that its “footbed represents the best alternative to walking barefoot” (the act of walking is very very very very very very Lindy).
In a letter directed to prospective shareholders, CEO Oliver Reichert proudly states, "we see ourselves as the oldest start-up on Earth." To really emphasize the point, the F-1 document references "centuries," "centuries old," or "centuries-long" on 17x occasions.
While Birkenstock is 249-years old, the brand has really gone parabolic in the past decade: sales went from ~$250m in 2012 to $1.3B in 2022.
Here is a quick timeline:
1774: German archives list a cobbler by the name of Johann Adam Birkenstock.
1902: Johann’s trade is handed down through multiple generations and his great-great grandson Konrad develops its first contoured arch support.
1925: Birkenstock manufactures its first blue footbed.
1932: Konrad's son Carl creates the 'Carl Birkenstock system’, a training course for foot health approved by physicians.
1963: Birkenstock releases its first sandal with a cork footbed and leather straps (“Madrid”).
In 1966: An American tourist named Margot Fraser went to Germany and discovers Birkenstock sandals. The brand agrees to let her sell them in the US, although initially no shoe store will take the "ugly" sandal and it is first sold in health stores.
1970s: Birkenstock creates the iconic “Arizona” and “Boston Clog” sandals (gains a hippie and granola following).
1980s: The Green Movement adopts the sandal.
1990s: The sandals enter high-fashion with models like Kate Moss rocking it (the brand becomes a hit among teens and 20s).
2002: CEO and owner Carl Birkenstock hands the company down to his three sons.
2012: The three sons can’t agree on a path forward and bring in professional CEOs, including Oliver Reichert (who takes sole ownership of the job in 2013).
In 2021, the private equity firm L Catterton — which is backed by LVMH and the family office of LVMH owner Bernard Arnault — acquired the business from the Birkenstock family for ~$5B (the prospective IPO valuation would 2x this investment).
With that background, let’s dig into the following questions:
Is Birkenstock the world’s oldest startup?
Are Birkenstocks the best “alternative to walking barefoot”?
Why does Bernard Arnault like it?
Who is the big winner from Birkenstock?
Is Birkenstock worth $10B?
Is Birkenstock the world’s oldest startup?
Have you ever asked someone how much money they make and they say “six figures”, only to find out that the person is making $100,015? Firstly, that is nothing to scoff at. Secondly, that is probably not the “six figures” you were expecting (the person is just barely over the threshold).
That is similar to Birkenstock's claim that it is “centuries” old.
Yes, it is true that Johann Adam Birkenstock was listed as a cobbler in German archives in 1774. However, the Birkenstock we know today does not truly exist until the invention of the arch support in 1902, or the first mass-manufactured insole in 1925.
This distinction is important because there are many still-relevant, privately-held footwear brands that pre-date 1926: Clarks (1825), Etonic (1876), Tretorn (1891), Bata (1894), New Balance (1906), and Wilson (1913).
And don't even get me started on companies outside of the shoe industry. The country of Japan — which greatly values heritage, centuries-old craftsmanship, and continuity — has ~33,000 companies that are at least 100 years old, including a teahouse that has been in continuous operation since 1160. There are so many of these companies that the Japanese have a word for institutions that last longer than a century: "shinise," which means "old shop."
I know what you are thinking: “Trung, that teahouse isn't really a startup.'"
Sure, but I bet a few of those 33,000 shinises have an interesting enough business to lay claim to “oldest startup on Earth” even if we were to grant Birkenstock its 1774 start date. Somewhat ironically, Japan’s culture of “shinise” — which values older firms over new businesses — is seen as an impediment to startup formation in the country.
Strictly as a footwear company, I would slot Birkenstock at least behind New Balance as the “oldest startup”. Why? Because the privately-held New Balance ($5.3B in 2022) does 4x the revenue of Birkenstock ($1.3B) and has held the “Best Dad Shoes for a Summer BBQ while telling awful jokes” title for 117 consecutive years.
We get it, Birkenstock. You are an old company with a long tradition in foot health. No need to exaggerate.
Is Birkenstock the “best alternative to walking barefoot”?
I am not a podiatrist (obviously) but I do find Birkenstock’s pitch about foot health pretty convincing.
The company’s German tagline is “Naturgewolltes Gehen”, which translates to “walk as nature intended”. Since the foot “employs 26 bones, 33 muscles and over 100 tendons and ligaments” while walking, it is very important to have the right footwear.
In the style of a startup pitch deck, here is Birkenstock explaining the problem and its solution:
What nature prepared us for: When you walk barefoot in nature (sand, soil, grass), the surface is uneven and your entire foot presses into the ground and the pressure is evenly distributed. Sounds very Lindy.
Modern-day life: We walk around in a built world with flat hard surfaces (pavement, roads, industrial floors). The pressure points on these surfaces are more targeted and the mid-foot is “not supported, causing it to sink”.
Solution = Birkenstock footbed: The “anatomically-shaped” footbed “supports the foot’s natural arches” and distributes pressure. Also, after multiple wearings, the footbed takes the shape of your foot for even more comfort.
Another image in the Form F-1 helps to break down the “functional concept” of each part in the Birkenstock Footbed.
So, is Birkenstock the best alternative to walking barefoot?
Criticisms I found online — which should always be taken with 100% trust — are that the footbed actually does a disservice to some of your foot and leg muscles because it provides too much support. When you are not wearing Birkenstocks and don’t have the support, your foot and legs are weaker than they otherwise would be.
My own anecdotal experience is that Birkenstocks are comfortable AF. Once you break in the footbed, it has an incredible memory (like my wife after I told her I would “clean the grill” last summer but didn’t and she reminds me of it once a week).
Birkenstock is definitely on the shortlist of best barefoot alternatives because sandals are the easiest outdoor footwear to put on — sorry, house slippers — and Birkenstock does actually have proprietary technology for its footbed.
Why does Bernard Arnault like Birkenstock?
Bernard Arnault ($163B) is currently the second-richest person after Elon ($228B).
His fortune comes from the LVMH luxury empire, which includes the world's top brands for spirits (Moët & Chandon, Hennessy, Dom Pérignon, Veuve Clicquot), fashion (Dior, Louis Vuitton, Loewe), cosmetics (Sephora), jewelry (Tiffany), watches (Hublot, TAG Heuer) and other really expensive stuff I don't own.
When Birkenstock goes public — with a baller ticker symbol of $BIRK — Arnault will have a direct 65% stake in the company through his ownership in the private equity firm L Catterton (which bought Birkenstock from its founding family for ~$5B in 2021).
According to leading German news site Der Spiegel, Arnault is “said to be so pleased with his German sandal purchase that he may sell fewer shares in the upcoming IPO than previously thought.”
Birkenstock has many qualities that Arnault values:
Lindy-ness: If we accept that the Birkenstock "brand" has been around for 249 years, then that heritage is right in Arnault's wheelhouse. Arnault believes that the passage of time is one of the greatest filters of quality. LVMH has a number of shinises — or "old shops" over 100 years old — including Le Clos des Lambrays (1365), Chateau d'Yquem (1593), Hennesy (1765), Guerlain (1828), Loewe (1846), Louis Vuitton (1854), Tag Heuer (1860), Berluti (1895) and Bulgari (1884).
Craftsmanship: LVMH is all about quality and specialized work put into every product. The word "craftsmanship" appears 21x in Birkenstock's Form F-1 and is defined as having access to the highest-quality inputs (cork, latex, leather) and "centuries-old" crafting techniques. Nearly every Birkenstock shoe requires "over 50 hands to complete" and "most of [its] machines and automation are custom-made and cannot be found anywhere else in the world."
Vertical integration: Upon taking over LVMH in 1989, one of Arnault’s first major steps was to vertically integrate (controlling manufacturing, distribution and retail). Arnault said of the approach, “if you control your factories, you control your quality; if you control your distribution, you control your image." Birkenstock’s 4,000+ employees manufacture 95% of the footwear and 100% of the footbeds in the company’s five German factories.
The sandal’s simple and recognizable designs — or “silhouettes” — are great for customizations and collaborations (I previously wrote about the psychology of an LVMH collaboration involving Nike x Tiffany).
Unsurpriginsly, Birkenstock has repeatedly found itself in the fashion spotlight across different time periods: Kate Moss in the 1990s, the Celine fashion show in 2012 (featuring Fur-lined Birkenstocks, aka "Furkenstocks"), Frances McDormand at the 2019 Oscars (wearing a custom Valentino Birkenstock).
Birkenstock’s ability to always be in the zeitgeist reminds me of another Arnault quote: “[LVMH brands] have two aspects, which may be contradictory. They are timeless and the utmost level of modernity”.
If Birkenstock is such an LVMH-calibre brand, then why doesn’t Arnault just add it to LVMH along with the other 75 house brands?
“[The LVMH recipe] reaches its limits with sandals,” a luxury expert explained in the aforementioned Der Spiegel article. “You can't sell perfume with sandals."
Birkenstock is the peak of the sandal game, though. When LVMH’s Dior wanted to do a sandal collaboration, who do you think it went to?
“Our strategy is to have some stars and there are not many in the luxury business,” Arnault told the New York Times in 2001. “What is a star? It's a name that is the very best. It's a name that is very profitable. But the number of true stars is less than I can count on both of my hands”
Birkenstock is the star in the leather sandal game.
Who is the big winner from Birkenstock?
It has to be Birkenstock CEO Oliver Reichert.
Prior to his involvement with the iconic footwear company, Reichert had been a crisis news reporter and an executive at a German TV sports station. He had zero experience in the fashion or footwear worlds.
In 2009, Reichert was introduced to the Birkenstock family through an art dealer friend and soon became an external consultant. The brand was struggling as the three male Birkenstock heirs were beefing over control and strategy.
Reichert described his early involvement with the business in a 2018 story for The Cut:
“I don’t give a shit about fashion. Fashion is, pfffttt, what is fashion? Inditex [owner of Zara] is doing fashion 12 times a year. What is this nonsense? But I know people are hungry for pure things. And there’s a huge crowd of people heavily believing in and loving this brand. And it’s not because of the nice people working there, because there are no nice people. And it’s not because of the marketing, because there’s no marketing. There’s nothing. It must be the product. Because they do everything wrong — everything! I’ve met so many people who said, ‘Yeah, I tried to call your company in 1983, 1989, and nobody was answering.’”
Reichert knew the Birkenstock brand was a sleeping giant and unlocked its potential.
He created a plan for two of the three brothers to exit the business, which helped to simplify the corporate structure. He then took over as the sole CEO in 2013 and it’s been a party ever since: sales have increased 5x from ~$250m in 2012 to $1.3B in 2022 due to a number of factors:
Lower-priced models: The most iconic Birkenstocks retail for ~$130. In 2015, the company released a water-proof EVA rubber sandal at half the price, $50-60. This sandal now accounts for ~15% of the 30m Birkenstock units sold (I rock these bad boys all day).
Direct-to-consumer: The website Birkenstock.com was launched in 2016 and the online channel has gone from 0% to 38% of sales in 7 years.
Pandemic popularity: People embraced the sandal as work-from-home footwear during the lockdown (and no one could judge you for rocking them all day).
Meanwhile, the brand keeps getting organic interest. It frequently going viral on TikTok and scored a massive cameo in this summer’s blockbuster film Barbie (apparently, the Birkenstock team had no idea this was going down).
All of this has happened with a very small marketing budget. The company states that 90% of customers discover the brand through word-of-mouth. And once you are in the Birkenstock world, you tend to stay there (in the US, a Birkenstock owner has given up on all social norms and owns an average of 3.6 pairs).
The most impressive part of Reichert’s turnaround is that he’s increased margins even as the workforce has tripled and revenue grown 5x under his leadership. Over the past 3 years, Birkenstock’s EBITDA margin has expanded from 27% to 35%.
Revenue growth coupled with margin expansion is a potent combination. This is also something that LVMH has achieved over the past decade: the fashion empire saw sales grow from ~€30B in 2012 to ~€80B in 2022 while operating margin went from 20% to 25%.
Do you know who else is a big winner in the Birkenstock story? Consultants.
I love to mock the entire consulting industry for charging companies $2000 an hour for the most generic business advice ("Hey Mr. CEO, have you thought about cutting costs?").
But this Reichert story is one of the better "outside consultant comes in to fix the business" tales I've ever read. Not only did he turn the business around, he also convinced the Birkenstock family to sell and initiated the L Catterton acquisition at a very opportune time.
“I called Bernard Arnault,” Reichert told a French Magazine (per Der Spiegel). “And he welcomed me to his Paris offices in the middle of the pandemic. The deal was in place six weeks later."
For his efforts, Reichert owns at least 5% of Birkenstock (based on the F-1). Not bad for someone who said “I don’t give a shit about fashion.”
Is Birkenstock worth $10B?
As we all know, fashion goes in…and…errr..out of fashion.
Birkenstock is clearly having a moment right now. But based on my few hours of reading the internet, the proposed valuation of $10B is very rich as compared to other publicly-listed shoe brands of similar size.
Here are some crude Price/Sales (P/S) multiples:
Birkenstock: $10B market cap / $1.3B sales in 2022 = 8.8x
Dr. Marten: £1.4B / £900m = 1.6x
Crocs: $5.3B / $3.6B = 1.5x
Steve Madden: $2.4 / $1.8B = 1.3x
Sketchers: $7.5B /$7.5B = 1x
Birkenstock is proposing a P/S ratio of 8.8x, while the other companies are between 1.0x and 1.6x. Like any other trendy footwear brand, there is also a significant counterfeit problem as it grows in popularity.
The Birkenstock counterpoint would be that it can manage fakes and can also play the "foot health" card. There are still growth opportunities in men’s (28% of sales), closed-toe footwear (100% no toes showing) and Asia (the sandal game is very strong in this region). Meanwhile, Reichert has demonstrated that he can grow volume without sacrificing margins. The brand also has shown pricing power with the customer as the average selling price has increased 16% from 2020 to 2022.
Let us say that Birkenstock has a better brand and operation than its comps. Fine, you can have a luxury multiple. LVMH has a P/S ratio of ~5x, which would make Birkenstock worth $6-7B company.
The whole thing actually reminds me of Lululemon, which had crazy multiples when it went public in 2007. Since its IPO, the athleisure giant has performed well and seen its market cap go from $2B to $50B. How? The company grew on top of functional health-first apparel, a cult brand, expansion into menswear (0% of sales in 2014 to ~25% in 2022) and China (soon to be its 2nd biggest market after US).
Again, none of this is investment advice. Just pure vibes.
On that note, let me finish this article with two stories related to Birkenstock and Steve Jobs.
The first one is hilarious: last November, someone paid $220,000 for a pair of Birkenstock sandals that the Apple co-founder had worn in the 1970s. The Guardian began the article about the story with an incredible pun ("Steve Jobs left an indelible footprint on the technology industry") and the auction listing description was gold ("The cork and jute footbed retains the imprint of Steve Jobs' feet, which had been shaped after years of use").
The second Jobs story is a conversation he had with Arnault. They were talking about the Apple Store and Arnault recalls this exchange:
“Steve Jobs once asked me for some advice about retail, but I said, ‘I am not sure at all we are in the same business.’ I don’t know if we will still use Apple products in 25 years, but I am sure we will still be drinking Dom Pérignon."
That sounds Lindy to me…kind of like leather sandals.
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Links and memes
How much does it cost to advertise on the $2.3B Las Vegas Sphere? By now, you’ve probably seen the giant Las Vegas Sphere. The 366-foot structure has 1.2 million LEDs illuminting its 580,000 square foot exterior. And the images that it projects keep going viral and could potentially be nightmare fuel (check out the giant pumpkin below).
A leaked pitch deck for the Sphere — which was created by James Dolan of MSG Entertainment (owner of New York Knicks and New York Rangers) — shows a daily ad rate of $450k and weekly ad rate of $650k.
The price includes development of a 90-second creative (that loops). Daily impressions are estimated at 300k for the physical sign and — crucially for the age of internet addiction — 4.4m impressions on social media.
I don’t care what anyone thinks, the Sphere is a cultural marvel and the peak of human creativity (and I’ll be writing about the U2 Sphere show in weeks to come).
Roti Canai is the best bread in the world. Some website called Taste Atlas ranked the 50 best breads in the world. The reality is you can’t really make this type of list definitive but it’s great for internet engagement and arguing. I don’t know half of the choices but assume they are all very high in carbs.
Here is the write-up for the top choice of Roti Canai:
“The mastery of roti canai lies in its preparation, as the dough is skillfully pan-fried to create a heavenly juxtaposition of a crispy, golden-brown exterior and a tender, melt-in-your-mouth interior. The pièce de résistance, however, lies in the perfect pairing of this delightful flatbread with aromatic curry or dhal, resulting in an explosion of flavors that dance harmoniously on the taste buds.”
Back in 2009, I spent around 96 hours in Malaysia (Kuala Lumpur and Penang). The street food in Penang was some of the best food I had ever had, period. I shoved dozens of Roti Canai directly down my face. I might start a petition to raise $450k for a one-day takeover of the Las Vegas Sphere, decorated to look like fluffy Roti.
***
Some other baller links:
The best LVMH breakdown: If you want to dig into Bernard Arnault and the luxury empire he built…def bookmark this glorious 3+ hour deep dive from the Acquired podcast team.
Is this the coolest job in Hollywood? John Lyke is a “blader operator”, which is someone who films fictional sports scenes while carrying a $100k camera and roller-blading. It’s a super niche job he secured based on an interesting venn diagram of skills (he went to film school and is a former pro roller-blader). Behind-the-scene clips of his work for the HBO basketball show “Winning Time” are insane.
Very good career advice: Moxie Marlinspike is the founder of the Signal app. In 2013, he wrote an essay on “career advice”. It’s one of the better essays I’ve read on the topic including this gem: “Be careful not to discover a career before you’ve discovered yourself.”
...here them fire tweets / X posts, including something that is very Lindy (Shakespeare):
You know how every neighbourhood has one person that takes Halloween to Level 1000…think this house is that one for this neighbourhood.
Finally, my wife has been watching the new 4-part Netflix documentary on David and Victoria Beckham. I wanted to watch it but my “one episode per night” cadence is too slow for her. Thankfully, I have Twitter/X and already saw the best 24 seconds of the series in this clip:
Given high(er) interest rates, discounted cash flow analyses yield (much?) lower values for companies, as many VCs hoping for liquidity are now learning. So, no, I doubt that Birkenstock is worth $10 billion in the public markets. I think a lot of people will need to read up on bond vigilantes. Lots of capital flowing towards fixed income and away from equity. Buckle up.