And as a professor of luxury marketing with a focus on heritage brands, I’m paying close attention to how things turn out.
In my position, I regularly delve into the specifics of companies like Birkenstock to understand and explain their staying power.
Such companies typically possess a handful of common denominators.
They often originate in Europe (Birkenstock is German); and have a long history under similar management (Birkenstock was family-owned from 1774 until 2021 when the private equity firm L Catterton acquired a majority stake in the brand); never moved from their original place of manufacturing (Birkenstock has long called the tiny village of Hammersbach, near Frankfurt, home); possess a proprietary production method that links heritage to innovation (Birkenstocks have always been made with the same cork, leather and jute combo that incorporate both timeless appeal and necessary innovation); and are distributed, like Birkenstock, within a certain limited capacity.
While I’ll spare you the lecture, it’s safe to say that Birkenstock — despite its “crunchy” reputation – firmly exists within this “luxury business model.”
It’s a hard-to-pinpoint distinction that explains the baffling reversal of a fundamental law of economics, namely the law of supply and demand.
While heightened demand should prompt companies to increase supply, the formula is reversed in the luxury sector.
Here, heritage brands either purposely maintain their products’ scarcity or create a perceived scarcity that only increases consumer desire.
And such has become the case with Birkenstock.
Desire is what luxury sells.
And no one understands both consumer desire and how to respond to it quite like Bernard Arnault — the world’s richest person, head of luxury conglomerate LVMH, and owner of L Catterton, which invests in fancy consumer brands.
Birkenstock understood the advantage of selling a stake to L Catterton because it knows how to make popular and desirable companies even more popular and desirable.
They’re two adjectives that work best in the luxury arena even if many buyers don’t necessarily view Birkenstocks as a luxury product.
But luxury isn’t solely about price – but also about dreams and aspirations.
And Birkenstock has proven highly aspirational over the past few seasons.
First, they wisely partnered with high-fashion brands such as Dior and Proenza Schouler.
Then, last year, hip creatives began clamoring for Birkenstocks’ comfy Boston model — which saw its price surge nearly threefold on the resale market.
They’re the type of organic marketing wins that companies like L Catterton want to see before they take a company like Birkenstock public.
L Catterton paid a hefty $4.9 billion for their majority share in Birkenstock.
But the price made sense because it included centuries of proven confidence in both the brand’s backstory and the product itself.
Less than three years later, L Catterton has spoken of an $8 billion valuation for Birkenstock when it goes public this fall — a tidy profit and a smart bet on the enduring value of heritage and quality that other privately held firms can learn from.
But here’s the catch: Investors in newly listed companies often demand such high returns that brands are moving away from the formula that made them so desirable in the first place — authenticity and exclusivity.
Managers adopt cost-cutting strategies that lead to sloppy production, market oversaturation, and brand dilution.
Such was the case with Coach, which saw its value tumble after it went public in 2000.
Same with Tiffany, another luxury jewel eventually rescued by LVMH after a few difficult decades as a publicly traded company.
If this becomes the fate of Birkenstock after its IPO, then the share price will tank and its sandals become tasteless — whether worn with or without white socks.
Thomai Serdari is a professor of marketing and director of the Fashion and Luxury MBA Program at the Leonard N. Stern School of Business at New York University