Investors and analysts say sandal company Birkenstock needs to sell more clogs and boots and boost sales from its own website and boutiques before listing on the New York Stock Exchange next week to attract new customers amid a cost-of-living crisis. Birkenstock is the latest major stock market entry to draw investor attention to the initial public offering (IPO) market, which is gradually reopening after two relatively quiet years and a September surge in activity.
However, several companies, including Arm, Instacart and Kellogg's spinoff Kellan, which have recently gone public, have seen their share prices fall.
And the cost-of-living crisis, which has caused consumers to cut back on spending on discreet items such as shoes and clothing in favor of basic necessities, could pose a challenge for the premium footwear company.
According to market research firm Euromonitor International, global footwear sales are only expected to grow 2.9% through 2022 as a result of recent price increases. "The question is, how do you create the demand 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 causes the company's sales to fluctuate throughout the year, Valechha added.
Still, the Birkenstock brand has many other advantages - including its ability to maintain popularity in the decades since it first became known as a somewhat frumpy but comfortable sandal that completes the laid-back hippie look.
Founded in 1774 by Johann Adam Birkenstock and based in Neustadt, Germany, Birkenstock exported its "Birkenstocks" around the world and were first sold exclusively in health stores in the United States.
In recent years, the trend for more casual dress, spurred by the COVID-19 pandemic, has made them popular. Like its footwear counterpart Crocs, Birkenstocks have managed to keep up with style trends and re-establish themselves as a fashion item worn by models and celebrities. Barbie, played by Margot Robbie, wore pink Birkenstocks in the final scene of the film of the same name, which was released in cinemas 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.
Still, people continue to buy Birkenstocks and the brand is modernizing and gaining momentum, she said.
"They [Birkenstocks] connect very well to a lot of the strong structural changes in shopping habits: health, convenience and sustainability," said Siobhan Gehin, senior partner at Roland Berger in London.
Birkenstock has disclosed plans to sell at least 32 million shares at prices between $44 and $49 apiece, which at the high end of estimates would raise about $1.58 billion. In its IPO documents, it said it would use the proceeds to repay a loan. However, Thomas Hayes, chairman of hedge fund Great Hill Capital, said Birkenstock is likely to use some of the capital raised through the IPO for further expansion and that its strong position in the US allows it to pass on the cost increases to customers.
At a time when footfall at major retailers is falling, Birkenstock is seeing steady store traffic, but analysts say it must continue to expand its direct-to-consumer sales to attract more customers.
Retailers such as Foot Locker and Dick's Sporting Goods have begun cutting back on their shoe orders, although neither of them sells Birkenstock.
While Birkenstock had 6,000 wholesale partners in fiscal 2022, as of June 30 it operated only a small network of about 45 of its own boutiques. New products on Birkenstock's U.S. website include $34.95 slippers, $250 "Cannes" leather sandals and $240 leather boots. According to Similarweb, the number of unique visits to its website this year through August 2023 is up about 26.4% from the same period last year. Monthly jumps in traffic to its site ranged from 11.5% to 72.1%, the data shows.
In contrast, some of its competitors, including sneaker brand Golden Goose, Dr. Martens and Allbirds, have seen a decline in traffic to their own websites in recent months compared to a year ago, Similarweb data shows. For the most part, footwear sales in the U.S. were dismal during the preschool season.
SUPPORT FROM KEY INVESTORS
Birkenstock is the latest in a string of footwear makers to go public in recent years - most of them with lackluster results so far. AllBirds, Dr. Martens and On Running have all seen their market values fall since their IPOs in 2021. Still, Birkenstock has the backing of some luxury sector heavyweights: Alexandre Arnault, son of billionaire LVMH chairman Bernard Arnault, will sit on its board, and LVMH-backed private equity firm L Catterton - which now owns 100% of the company - will still own around 83% of Birkenstock after the flotation.
Funds managed by Durable Capital Partners LP and Norges Bank Investment Management have also separately expressed an interest in buying a total of USD 300 million worth of shares.
"The expression of interest from major cornerstone investors is remarkable," said Matt Oguz, CEO of Silicon Valley-based Iris Family Office, who said he plans to buy shares of Birkenstock. But that support is no guarantee of stock-market success. Take Oddity, a consumer technology company that owns cosmetics brands Il Makiage and SpoiledChild.
Backed by L Catterton, Oddity went public in July at $35 a share, well above its original range of $27-30, before opening at $49.10 on its first day of trading. However, its shares are now down nearly 45% from their initial price.
"When you look at the trend of other footwear companies that have gone public, it doesn't give Birkenstock a very good outlook," Valechha said.