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ResearchThe Weekly (10/20)

The Weekly (10/20)

Oct 20, 2023

In Greta Gerwig’s Barbie, a Birkenstock is much more than a shoe. 

Functioning as an antithesis to the Barbie stiletto, the film frames the sandal as an emblem of unpleasant, yet necessary, self-actualization. At the conclusion of the film, Barbie makes the decision to walk into her new life outside of Barbieland not wearing heels, but wearing Birks – representing the transformation from a doll to a woman.

Barbie isn’t the only one making the switch to Birkenstocks. So are millennials and Gen-Z’s. Once adopted by hippie culture and then hipster culture, Birkenstocks spent decades as part of the niche “granola” aesthetic. Fast forward to today and that core demo has dramatically changed.

Birkenstock’s revenues have nearly doubled over the last three years, to $1.4 billion and half of last year’s sales came courtesy of buyers in their 20s and 30s. Some can be attributed to product placement (thanks, Barbie) but a lot more has to do with a post-pandemic fashion for all things casual and comfortable. 

The hot trends with young adults have proved to be hot with investors too, as Birkenstock raised $1.5 billion in an initial public offering (IPO) last week. The transaction valued the company at ~$9 billion and represents an outlier amidst a slew of technology focused companies testing the public waters (Instacart, Klayvio, and Arm, for example). 

Taking a look under the hood of the company’s IPO, it’s an interesting lesson on business.

Birkenstock, what appears to be a mass market product, is taking a page out of the high end luxury goods market. L Catterton, a private equity firm backed by Bernard Arnault’s luxury goods giant, LVMH, owns a controlling interest in the business and has purposefully limited production of the cork slides. Per recent comments from Birkenstock, the company has no plans to increase capacity either. 

Artificially engineering supply and demand is a time tested strategy for improving business fundamentals and comes right out of the playbook of high end brands. What we can all agree on, though, is that Birkenstock isn’t Dior, so it’s even more interesting that a lower market product is using this approach.  

The virality created from Barbie certainly helps on the demand side of the equation as social-media mentions of Birkenstocks reached a record high in July around the time of the “Barbie” premiere. 

Barbiemania and casual post-Covid fashion choices have driven demand up dramatically. As supply remains constant, it’s a dynamic combination for success.

What remains to be seen is how long the demand boost can last. Will virality waiver? Will consumer choices (or work from home) change? Although the company has been able to push prices higher over the years, at what point does it become too expensive? 

Investors are asking these same questions, as the stock has traded down 8% since its public offering. 

What’s true, is that the luxury playbook is proven to be successful, and Birkenstock will be a thought provoking case study on whether lower end goods can employ the strategy to drive profits.

Have a great weekend,

- Your Titan Team

As of writing, LVMH is a holding in Titan's Offshore strategy.

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