Do you know what Steve Jobs, you, and your grandma have in common? No, it’s not the iPhone — it’s Birkenstocks.
If you are not like me and you wake up to “The 10-Point” by the Wall Street Journal’s Emma Tucker freshly served at 6 a.m., you probably noticed some rather odd news in-between the missiles and McCarty — Birkenstocks!
You know them. I know you know them because I did my homework and found that the probability you know Birkenstocks is as much as you know where Ytterboe the dog is buried — behind the library, wink wink.
The Birkenstock news was ambitious. The German shoemaker had decided to go public and priced its Initial Public Offering (IPO) at $46 per share for the roughly 32 million shares it was going to sell, commanding a market value of about $8.6 billion.
But wait, before I lose you to jargon, this simply means the company felt it was doing great and will continue to do great, so it flirts with investors to attract the big dollars, guaranteeing that it will absolutely do great. That’s how this game’s played, if you don’t look too closely.
When I read that news, I knew this move was going to end up looking ugly like the sandals the brand sells. So why did I think they’d flop despite the fact that they grossed over a billion dollars in revenues last year and your pet even owns a pair? There are two reasons: consumer market forecast and optimism. Let’s dissect.
Consumer market forecast. Household spending is strong meaning people have cash and they are spending. But high interest rates will result in a slow-down of that spending and naturally contract the consumer market. Simply put, in several years, there will be fewer people who’ll pick up a pair of Birkenstocks than there are today. This is such a general argument that can be used for just about any consumer product, but not when you look at Birkenstocks as another sandal company in that category of the footwear industry. People will not be picking Birkenstocks over socks.
Optimism. 46 dollars per share with an $8.6 billion valuation is ambitious for a sandal company. Had it been 25 dollars per share, it would command a market valuation of about $4.6 billion, which is reasonable for a sandal company that grossed $1 billion in sales last year, right?
It therefore came as no surprise to me that they closed at 40 dollars and 20 cents per share. Currently, the stock stands at 36 dollars and 38 cents per share, down 21 percent from its offering price of 46 dollars, a rare occurrence for a large well-known brand to sink on their first day of trading. I know you like your Birkenstocks but it’s not Nike.
I would not be writing this piece if I did not prophesy this fate. However, not all is doom for Birkenstock. Although 36 dollars and 38 cents per share falls far short of expectations, Birkenstocks will be around for a while. They’ve expanded into sneakers, boots and sandals in wool, shearling and waterproof material. As Corrie Driebusch with the Wall Street Journal puts it, “its proudly frumpy sandals meant to free women from the norms of fashion have become posh enough for celebrities, models and collaborations with Manolo Blahnik. The people who once turned up their noses at them now put their feet in them. And the company’s dominant market is the U.S.”
If you love a good trivia, email me a guess at how much it took to have Margot Robbie in “Barbie” wear Birkenstocks. And while you do that I shall get back to my assignments and return the Economist magazines before the Economics Department wonders where they’ve been disappearing to.
