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Birkenstock Isn’t Having a Moment, It’s Building the Nike of the Comfort Market

It’s no secret: Right now, the comfort category is on fire.

And brands like Birkenstock, Crocs and Dr. Martens — that suit the “work, play and do everything outside vibe,” as Beth Goldstein, executive director and industry analyst for accessories and footwear at The NPD Group Inc., put it — are having “a moment.”

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However, it would be off base to think that the sustained momentum these labels are enjoying is a part of a fickle trend: Comfort categories have been on the upswing well before the coronavirus pandemic forced people indoors and into their cozy casual-wear and slippers.

And while hype and necessity are certainly responsible for some of the accelerated gains these brands are now experiencing, the revenues and investments they’re drawing are nothing to sneeze at — especially when stacked against their counterparts that are buckling under the weight of COVID-19 challenges.

Birkenstock, which took home the 2020 Footwear News Achievement Award for Brand of the Year, is perhaps the most fitting case study of what is possible for a brand when discipline and solid strategy meets on-trend.

Before the pandemic took hold, the label reportedly generated 721.5 million euros ($875 million) in revenues in the year through September 2019 and saw its profit advance 40%. And, according to fashion search platform Lyst, the Birkenstock Arizona was the most-searched shoe in the world during the second quarter of 2020, with a 225% increase in online queries and many retailers selling out of the two-strap slide.

Now, as the global health crisis rages on, Birkenstock is said to be in advanced talks to sell itself to CVC Capital Partners in deal that could value it at roughly $4.8 billion including debt.

In other words, should the sale materialize, the brand could fetch nearly five times its annual sales; for comparison, most experts see a fair asking price (or valuation) for a company as being two times its current annual revenues.

But does that mean Birkenstock’s potential suitors are overpaying? Hardly, accordingly to Camilo Lyon, managing director at financial services firm BTIG, who pointed out that dominant footwear brand Nike Inc. currently trades as five times its annual sales.

“Birkenstock is getting a Nike-esque type multiple from a sales perspective, which I think speaks to the opportunity of the brand to go global — I don’t think it has a lot of penetration in Asia,” Lyon said. “So if you think about the opportunity of Asia plus a larger direct business, then you can start to see where this can really become a much, much larger brand.”

Lyon added other major players such as Vans and Dr. Martens to the list, which includes Nike and Birkenstock, of brands that have “cemented themselves in a very unique position in the market [so much so that] they’re almost kind of operating in their own orbit with very little competitive pressures.”

“That affords a much stronger moat and a stronger staying power that allows the brand to grow,” he added.

Indeed, according to Goldstein, while comfort (and adjacent) categories were jumping for at least the past five years, there is good reason to believe certain brands have sticking power that will extend well beyond casual trends and pandemic times.

“In the last year, we’ve seen the top 20 brands represent more of the overall footwear industry sales because these are the [labels] consumers are gravitating to,” explained Goldstein. “In the case of Birkenstock, certainly they’ve got the comfort; they’ve got the heritage; they’ve got the messaging about craftsmanship and the quality and all of that.”

What’s more, noted both Goldstein and Lyon, the brand’s management — namely CEO of Birkenstock Americas David Kahan — has been steadfast in avoiding the trap of over distribution that has hurt many buzzy brands in the past.

The strategy that they’ve taken now for the past number of years with controlling the distribution and the pricing and the messaging and not flooding the market with product has [driven] their success,” said Goldstein.

When it comes to the sales chatter surrounding the brand, some insiders have signaled caution about the 200-year-old brand coming under private equity ownership, which has shouldered blame in the demise of several retail names including Payless ShoeSource, which filed for bankruptcy twice, as well as Neiman Marcus.

But Lyon said, given Birkenstock’s history of strategic growth and its proven ability to exercise restraint in both distribution and product expansion, he imagines the brand is checking off all the boxes as it courts new owners.

“There’s a lot of care being put into making sure that if there is a consummation of a sale to private equity, that that partner is a strong partner that will support the growth of the brand in a profitable way — as opposed to just a financial engineering type of partner,” Lyon said. “The key is finding someone that is interested in brand building and expansion in a healthy way … [if that happens], it seems like there’s ample opportunity for the brand to really expand and reach a broader segment of the population.”

FN has reached out to Birkenstock and CVC for comment. Both firms previously declined comment on a similar report this week.