How did LVMH turn a boring brand into a luxury one?

By He Zhexin

Edited by Qiao Qian

"How did LVMH turn a dull brand into a luxurious one?"

This is a question about Birkenstock on the social media platform Reddit. Someone in the comment section questioned the accuracy of the term "luxury", so the poster modified "luxury" to "trendy".

Over the past three years, Birkenstock has undoubtedly been trendy. Last year, Birkenstock achieved double-digit growth in "all channels, regions, and product categories", with revenue exceeding 1 billion euros, and nearly half of the sales coming from young people. It even managed to slightly increase its prices and launched foot care products. In China, "Birkenstock" has even become a category of shoe styles, and products ranging from tens to hundreds of yuan can be seen everywhere on e-commerce platforms, which have little to do with the brand itself except for their similar appearance.

But Birkenstock can also be largely considered luxurious. Its nearly 60% gross margin is almost on par with that of Dior and Louis Vuitton. The brand has very little exposure, but there are many high-priced and limited-edition collaborative styles. Most products are priced between 1,000 and 2,000 yuan, and they never go on sale. The more expensive series 1744 is even directly sold for more than 5,000 yuan.

The private equity fund L Catterton, which fully acquired the equity of Birkenstock, belongs to LVMH. Thus, some people sigh that Mr. Bernard Arnault's vision is as sharp as ever. After the founding family withdrew, another century-old family business successfully transformed, and LVMH seems to be giving everyone a business lesson with the topic, "How to build a luxury brand from scratch".

Comfortable and Ugly

The history of luxury brands is always somewhat similar, but Birkenstock indeed has all the necessary characteristics. It has a long history, is handmade, and comes from Europe.

The history of Birkenstock can be traced back to 1774, founded by the German shoemaker Johann Adam Birkenstock in Langen-Bergheim. It initially targeted the wealthy people who came to the German spa for vacation. The inspiration for the signature soft oak sole is said to come from footprints on the beach. There are nine different shoe models for each shoe size, allowing for comfortable walking on different terrains.

The Birkenstock family never sold Birkenstock as a "fashion item". It is more like a tool for arch support. Although the global distribution pace is slow, Birkenstock has not been cheap since the 1990s. A price of 100 US dollars per pair is not common even in the richest and most consumerist areas in the United States. Therefore, the association of "Birkenstock is for the rich, at least for the middle class" has a history of at least half a century.

A Birkenstock shoe factory in Germany. Photography: Juergen Teller

But to be honest, a large part of Birkenstock's renewed popularity is due to the rise of the comfortable style during the pandemic. Chief Executive Officer Oliver Reichert said, "Everyone is at home. People don't care about the desk, the office chair, or the jogging pants, but they care about what they wear on their feet. Birkenstock has become part of self-transformation, and the pandemic has made work attire more casual, which is also reflected in fashion."

Oliver Reichert knows nothing about shoemaking. He previously worked at the German sports channel in Munich and later became the chairman of a broadcasting company. "He is a real businessman". In 2012, the neihong-weary Birkenstock family finally agreed to hand over the leadership. Oliver Reichert, who was only an advisor at the time, believed that this shoe could become a global hit (at that time, the number of shoes sold in a year was only one-third of what it is now). Perhaps it was this optimism that is not typical of Germans that got him the job.

What happened later was more like a coincidence.

In 2012, designer Phoebe Philo placed a pair of Birkenstock with a plush mink fur base on the runway of the CELINE show, causing a global sensation. "Suddenly everyone wants a pair of Arizona". Before that, the certified footwear in the fashion circle should be pointed high heels like Jimmy Choo, remember? "To be beautiful, you can't be comfortable".

In the 1960s, American women on the other side of the ocean wore "brutalist" leather sandals as a rebellion against mainstream values. Now their granddaughters have noticed Birkenstock again. They never thought that "wearing comfortably in public" itself is rebellious enough.

High-end fashion design is also becoming more and more "ugly". Balenciaga's rubber giant shoes, Schiaparelli's human lung dress, and Comme des Garcons' models stomping and throwing tantrums in the center of the runway with huge bows on their heads. Designer Rei Kawakubo said, "This collection is about my current state of mind. I am angry at everything in the world, especially myself."

Ugliness and comfort, once the opposite of high-end fashion, are now the avant-garde symbols.

Today, 70% of Birkenstock's consumers are women. In the prospectus, Birkenstock regards "the breakthrough of modern feminism" as one of the business drivers. In the "Barbie" movie, Kate McKinnon holding a high heel in one hand and a Birkenstock in the other is the best advertisement: Do you want to fight against the "male gaze" society represented by high heels? Choose this ugly pair!

In the past three months, 90% of Birkenstock's growth has come from existing stores. The chief financial officer said in a conference call that buyers have transitioned from "sports and quality-of-life enthusiasts" to a wider range of young consumers and some consumers with investment intentions. They call Birkenstock a "wardrobe completer".

Learning from Luxury Brands

Birkenstock was initially only sold in health food stores in California, USA. The reason is simple: it is too ugly. Fashionable ladies who go to department stores to buy high heels wouldn't give it a second glance. At that time, the German businesswoman who introduced Birkenstock to the United States changed the "basic Birkenstock sandals" to the simple, easy-to-remember and European-style Madrid, which attracted the first wave of female customers.

Today, the United States is still Birkenstock's largest market.

Other than that, the Birkenstock family hasn't made many efforts. They are not interested in opening stores (the first direct store in France was only opened this year!) and have a simple but direct connection with distributors. Until 2013, when distributors were out of stock, they would make a call to the German headquarters, and the shoes would be delivered - it's that easy.

A shoe-making machine is spraying glue on the sole. Photography: Juergen Teller

You can't do this if you want to become a global company. In this regard, the boss of LV must have taught many secrets.

Birkenstock usually does not ship products according to the distributor's request. According to an Evercore research report, they usually only meet 75% of the quantity of products that distributors want to order. They also distribute products according to the distributor's geographical location and population structure. Oliver Reichert describes it as "strategic distribution".

Due to scarcity and accuracy, Birkenstock rarely offers discounts on the distribution shelves. 90% of the products are sold at full price, and in the United States, this number is 95%.

David Kahan, President of the Americas, said in a conference call in September that the scarcity model prompts consumers to "rush to buy". He said: "No one compares prices when buying a product and asks if I can get a cheaper product elsewhere?"

So far, it seems that Birkenstock's distribution strategy is successful. "We have achieved basically the same EPITDA profit in all channels". Currently, Birkenstock still mainly relies on distribution globally. The official website shows that there are only 66 directly operated independent stores worldwide, most of which are in Europe, with 38. The country with the largest number of stores in Asia is India, followed by Japan.

It is worth mentioning that although Birkenstock entered China through Tmall in 2017, its first store only opened in Taikoo Li, Chengdu in 2024. The brand told 36Kr that the expansion in the Chinese market in the future will aim to "find reliable partners".

Birkenstock's gross margin is close to 60%, which is already at the level of Dior and Louis Vuitton. This number dropped by 2.2% in the third quarter, which was considered to be caused by excessive expansion of distribution, resulting in fluctuations in the company's stock price. When Oliver Reichert comforted the impatient investors, he said that it doesn't matter how the distribution channels are executed, but it is important to make money on each pair of shoes. "So far, everything seems to be going well for us".

A pair of Arizona made of EVA material is the company's relatively low-priced shoe style. Photography: Juergen Teller

He is confident enough. Although the three classic open-toe slippers are still the best-selling products of the company, the growth rate of the closed-toe shoe category (referring to the half-covered slippers) has also reached 30%. 60% of the consumers of the new sports shoe Bend Low come from members, and the growth rate of high-priced shoes is twice that of low-priced shoes.

Birkenstock has also begun to gain a foothold in sports shoe distribution stores such as footlocker. They launched a detachable insole bao tou slipper during the Paris Olympics to help athletes soothe their muscles after exercise. In addition, they are also laying out products in some high-end golf specialty stores, such as Greengrass Golf Shop. Golf shoes are not conducive to standing and walking for a long time, and Birkenstock's shoes (or insoles) can make up for this defect.

In order to cope with the rapidly growing business, Birkenstock opened a new factory in Germany this year. Most of the new products are still mainly handmade - this was once the only criterion for measuring luxury.

European luxury goods groups once grew rapidly thanks to the Asian middle class, and they are also willing to start machine production lines in an Asian country. In the future, will Birkenstock be "Made in the USA" or "Made in China"? Oliver Reichert denies this possibility. His supply chain director, Sean Harris, who is a German-American, is more practical. He believes that as long as it is managed properly, nothing is impossible.