Birkenstock walks with record sales as the luxury sector stumbles after 250 years in business

The luxury goods sector has struggled recently amid economic uncertainty and slowing trade in China, but one high-profile brand is defying the wider darkness.

Birkenstock has just posted its best quarterly result ever, with revenue rising 19 percent to €565 million (£471 million) in the three months to June.

The historic German shoemaker enjoyed tremendous demand for its closed-toe styles, including its famously clunky clogs, as well as double-digit percentage growth in all key regions, especially Europe and the Americas.

The time of the sandal seller marks exactly 250 years since the founding of the brand of the same name by the shoemaker Johannes Birkenstock.

Although Ed Meier is not the oldest shoe designer in the world – Munich-based Ed Meier began his career in 1596 – Birkenstock’s gradual rise to become a multi-billion fashion powerhouse, despite a reputation for “nasty” products, confirms the group’s iconic status.

But how did the group become the global fashion phenomenon it is today?

A brief history of Birkenstock

Birkenstock had to wait at least a century after its founding until its first eureka moment in 1897, when Johannes’ great-grandson, Konrad, developed the three-dimensional last, a foot-shaped mechanical device used by shoemakers for production and repair.

Five years later, a contoured insert made of cardboard, leather and cork appeared.

At a time when most insoles were flat, these two features were intended to more accurately reproduce the shape of the human foot and thus increase walking comfort.

About two decades later, Konrad registered the “insole” trademark for his flexible insoles and opened a factory in Friedberg, Germany, from where the products were exported throughout continental Europe.

World War II greatly boosted trade as many wounded former soldiers sought to alleviate chronic foot pain.

Konrad’s grandson, Karl, eventually expanded the company’s scope to include sandal production, releasing its first model in 1963.

The first Birkenstock sandal, later renamed the “Madrid”, had an insole with a heel counter and a toe loop.

They didn’t sell well right away, but their international popularity increased when Margot Fraser discovered them in 1966 while vacationing at a German spa town.

Impressed by how they relieved the pain in her feet, Fraser began selling Birkenstocks to American customers, gaining an audience in the 1970s through hippies and health food stores.

Birkenstocks later became popular among new subcultures, including surfers, skaters and grunge fans, and then entered the fashion world when supermodels such as Kate Moss and Heidi Klum became associated with the brand.

The Birkenstock family gave up control of the company in 2012. A year later, it was restructured from 38 companies into three units, creating the Birkenstock Group.

The shoemaker is currently majority-owned by L Catterton, a private equity firm backed by French luxury conglomerate LVMH, and has a market capitalization of about $9.1 billion.

Birkenstock’s greatest advantages

With a strong heritage and a name synonymous with comfortable sandals, Birkenstock is one of the most globally recognized fashion brands.

As of last year, women made up 72% of customers, with A-listers from Gwyneth Paltrow to Kendall Jenner and Sienna Miller helping to drive demand.

But Birkenstock is not just a sandal designer; consumers can buy ankle boots, ballet flats, sneakers and slippers in the company’s stores and on the website.

The broader product mix protects the company from a potential slowdown in sandal sales while also providing additional shelf space at key wholesale partners.

Sam North, market analyst at eToro, noted that the brand has “good relationships” with retailers such as Office Holdings and Foot Locker, which allows Birkenstock to reach “a wide range of shopping destinations.”

The main British brands offering Birkenstock shoes include Next, JD Sports and John Lewis & Partners.

North added that Birkenstock has benefited from collaborations with iconic fashion houses such as Dior, Valentino and Manolo Blahnik, some of which have sold out.

Such designs helped increase the brand’s popularity among high-end customers and slowly changed its reputation from unattractive functionality to affordable luxury.

Analysts are also reassured by Birkenstock’s management team, headed by Oliver Reichert, a former war correspondent who took over as CEO in 2013 as the first head of the group from outside the founding family.

Under his leadership, the company’s revenues grew at an average annual rate of 20 percent and total sales increased more than fivefold from €292 million in 2014 to approximately €1.5 billion in 2023.

Why are Birkenstock sales soaring while so many luxury brands are struggling?

Lockdown restrictions saw the company’s revenues plummet as the rise of people working from home encouraged consumers to prioritize comfort and freedom over style.

Covid restrictions may seem like a distant memory, but the appetite for comfortable fashion brands shows no sign of waning.

Fiona Cincotta, senior market analyst at City Index Group, says: “Young girls and women no longer see dainty stilettos and high heels as the ideal, and instead, chunky and comfortable shoes are in the forefront.”

Birkenstock sales rose 30 percent to £1.1 billion in the financial year ending September 2023. Over the following nine months, revenue increased by around 21 per cent year-on-year to over £1.3 billion.

Trading has seen incredible growth thanks to Barbie, the highest-grossing film of 2023 worldwide.

In a scene reminiscent of The Matrix, “Stereotypical Barbie” (played by Margot Robbie) is pressured by “Weird Barbie” (Kate McKinnon) to choose Birkenstocks over pink high heels so that she can “learn the truth about the universe.” ‘

The exposure the film provided helped Birkenstock shrug off a broader slowdown that has hit the global luxury sector, driven in part by cost of living pressures and weaker demand in the Americas and Asia, especially China.

Burberry has just dropped out of the FTSE 100 after its shares fell by more than half since the start of the year amid warnings of falling sales and profits.

The owner of Hugo Boss, Burberry and Gucci, Kering, also recently issued profit warnings, while LVMH – the world’s largest luxury goods retailer – reported a 14 percent decline in first-half operating profits.

Can Birkenstock continue its impressive growth?

Since its IPO on the New York Stock Exchange in October 2023, Birkenstock has continued to maintain strong sales growth.

However, in its first prospectus, the company warned against many risk factors that could derail its expansion.

These included the threat of counterfeiting or counterfeiting, where copycats design shoes similar to those produced by Birkenstock but sell them at a lower price.

Birkenstock was often reluctant to sell its products on third-party platforms such as Amazon and Instagram due to counterfeiting problems, causing the company to miss out on additional sales and damage its brand reputation.

She also expressed concern about the “intense competition” it faces, especially in the Asia-Pacific, Middle East and Africa regions, where Birkenstock is a relatively new entrant.

eToro’s North suggests that Crocs and Dr. Martens could increase the company’s market share given their reputations for comfortable footwear.

Both groups assemble most of their products in Asia, where lower labor costs give them more room to sell goods at lower prices.

Birkenstock, meanwhile, produces its shoes almost exclusively in Germany, which means higher production costs and other risks from supply chain disruptions.

Birkenstock is celebrating its 250th anniversary and has many reasons to celebrate.

A group’s ability to stop a sudden reversal in fashion trends may be limited, but it can help maintain momentum by weakening the competitive advantage of rivals.

Natasha Nair, an analyst at Third Bridge, recommends that the company produce its products “closer to key end markets” such as China and the United States.

However, Nair cautions: “The key will be maintaining the product quality and premium, handmade brand image as we scale up production.”