Birkenstock

Everyone's talking about Birkenstock these days - late last year it IPOed and the stock price is on the rise since (surpassing most expectations). Step into a cafe, even in India these days, and one in five people are wearing Birks. Why, even my very unfashionable husband Arjun, is insisting that I wear Birks. I tried them at the mall, found them a notch expensive and not too comfortable, so got a pair of Batas at 1/4th the price instead.

But still, here's a really old company that's become super hot, and it got me curious. So, here's sharing some fun facts.

1. A 250 year old company with a rebirth

Birkenstock was founded in 1774 by a Germany cobbler. In 1966, a Californian named Margot Fraser discovered that Birkenstocks helped her tired and hurting feet, and she convinced Karl Birkenstock to try selling the company's sandals in California. In the 1990s, the brand had a rebirth, when a very young Kate Moss wore it for a cover story, and it became a hot brand, especially on college campuses. Today, Birkenstock gets more than 50% of its revenues in the United States, with multiple celebrities among its customers.

2. Emerging Fashion Trend: Embracing the "ugly"

Function over fashion is the brand association. Fortunately, its commitment to quality coincided with a trend of rejection of traditional beauty norms. It also helped that the COVID-19 helped nudge style preferences over to the comfort end of the spectrum. And wearing comfortable clothing, a form of self-care, has remained en vogue.

3. Great Operating Margin in the Affordable Luxury

Birkenstock shows strong operating margins, over the last decade it hovered around 20%, in sharp contrast to about 7% for global shoe industry, but in line with leaders such as lululemon (~22%), LVMH/ Louis Vuitton (~26%) and Prada (~21%). Its products are not very exorbitantly priced - catering to a diverse customer base, with 20% of sales coming from customers earning <$50,000/year, and in terms of age, ~40% from Gen X and Gen Z.

4. Strong Growth in India

Its sales in India have been doubling annually, with a nearly 64% CAGR from 2020 to 2023, outpacing Crocs, per data from Tofler. In India, Birkenstock stepped into direct-to-consumer (D2C) sales in December 2019 with its website. By June 2023, there were 25 stores. And by June 2024, the count hit 37, including its first company-owned flagship in Mumbai.

5. Valuing the Intangibles: ~70% of the Company's value

In order to understand what makes the company special, I looked at Aswath Damodaran's valuation. The bulk of its valuation about $4.5bn of $8.3bn is due to its strong brand name and management team. Then there are other values attached such as the Barbie Buzz (in last year's movie, Barbie wore pink Birkenstock that helped propel sales) and Celebrity Customer Base Effects, especially with collabs with Dior and the like.

Aswath Damodaran's valuation of BIRK