How Birkenstock Became an Improbable Luxury Empire

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How Birkenstock Became an Improbable Luxury Empire

By Tim Loh | Bloomberg Businessweek | June 4, 2024

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How the 250-year-old German orthopedic shoe company with Succession-level family drama transformed itself into a luxury behemoth.

In early October, when Birkenstock, seventh-generation scion of the German footwear dynasty, capped off a decade of explosive growth with an initial public offering, Christian and Alex the sixth generation offsprings became billionaires.  Oliver Reichert is the man most responsible for their windfall.

At the time of Reichert’s arrival, the one thing everyone at the company agreed on was that Birkenstock’s patented “footbed”—the bulky sole of the distinctive sandals—was the source of the magic. Beyond that, nobody agreed on what exactly to do. Plenty of company veterans, whom Reichert eventually referred to as “footbed fascists,” looked to change absolutely nothing. “It was almost like the Bible had been written, and we didn’t need a New Testament,” Reichert, who became the first outsider to run the business in its 250-year history, once told a German newspaper. “Then I came in like a mix of Martin Luther, Muhammad Ali and Napoleon.”

Reichert’s unsubtle confidence worked. Before long, Birkenstock sandals were landing everywhere from Parisian runways and high-end department stores to the feet of entire families from Brooklyn to Boise. Gone were the days when you could pull off Germany’s autobahn and snap up a pair of Arizona sandals for under $50 at a rest stop. Under Reichert’s watch, Birkenstock became an accessible luxury, the company’s sales more than tripling, to $830 million by 2020.

Then, the following year, Reichert unexpectedly sold a majority stake to L Catterton Management Ltd. in a deal that valued Birkenstock at about $4.9 billion. In the three years since, Birkenstock has continued raising prices, rolling out higher-end models and cutting out retail partners while building up its own direct-to-consumer sales. It’s also expanded its German manufacturing plants, with plans to double production in the next few years to enable a big push into China, India and other countries for the first time. And, of course, it went public.

When the company held its IPO in New York last fall, Reichert waxed philosophical. The world was no longer a primordial forest where humans walked barefoot all day on yielding, uneven ground, he said. We now have to contend with hard surfaces such as pavement and office floors, which don’t support the arches of your feet. So, Birkenstock’s footwear has become the next-best option. “The footbed promotes Naturgewolltes Gehen,” the native German explained in a registration statement with the US Securities and Exchange Commission, using a phrase that essentially translates as walking the way nature intended.

The IPO was a disaster. After raising about $1.5 billion, shares promptly fell about 13% on the first day, which made it the worst debut for a big US listing in more than two years. In January, after the company’s first quarterly earnings report awkwardly described Birkenstock as a “global zeitgeist and purpose brand,” investors were still confused, and the company’s shares plunged again.

A few days later, Reichert, clad in Boston clogs and a cozy sweater in his Munich office, bristled at investors’ lack of understanding. Birkenstock isn’t really a footwear brand at all, he mused. It can’t be lumped in with sneaker makers that are willing to contract out the manufacturing process to factories half a world away, nor is it a true creature of fashion. If anything, he concluded, it is more of a health-care company focused on feet. “We have a total addressable market of every human being,” says Reichert.

To some extent, Birkenstock’s staying power epitomized the steadfast “Made in Germany” businesses that helped fuel West Germany’s rapid economic growth during the Cold War. The companies, often called Mittelstand firms or “hidden champions,” are typically quiet, family-owned, thrifty affairs that focus on dominating market niches for the long term by producing high-quality products, often in Germany, that are hard to replicate. That ethos was evident in two of Karl’s guiding rules. First, sock away money in good years to bridge the gap in tough times. And second, keep each new shoe model in catalogs for at least five years to avoid falling prey to fickle fashion trends.

2 key takeaways from the article

1. How the 250-year-old German orthopedic shoe company with Succession-level family drama transformed itself into a luxury behemoth.  In early October, when Birkenstock, seventh-generation scion of the German footwear dynasty, capped off a decade of explosive growth with an initial public offering, Christian and Alex, the sixth generation offsprings, became billionaires.  
2. To some extent, Birkenstock’s staying power epitomized the steadfast “Made in Germany” businesses that helped fuel West Germany’s rapid economic growth during the Cold War. The companies, often called Mittelstand firms or “hidden champions,” are typically quiet, family-owned, thrifty affairs that focus on dominating market niches for the long term by producing high-quality products, often in Germany, that are hard to replicate. That ethos was evident in two of Karl’s (the 7th generation successor) guiding rules. First, sock away money in good years to bridge the gap in tough times. And second, keep each new shoe model in catalogs for at least five years to avoid falling prey to fickle fashion trends.

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Topics:  Strategy, Business Model, Germany, Birkenstock, Shoes, Marketing, Distribution, Branding, Luxury Brands