L Catterton, a private equity firm backed by the luxury conglomerate LVMH, announced that it is acquiring Birkenstock. Once shunned by the fashion world, the iconic German sandal company will now be part of LVMH’s portfolio alongside brands such as Dior, Louis Vuitton, and Fendi. The deal values Birkenstock at over $4 billion.
L Catterton originated in 2016 through a partnership with LVMH. LVMH stands for Moet Hennessy Louis Vuitton. The Arnault family runs the company. L Catterton has over $20 billion assets under management. The private equity firm primarily invests in consumer brands. Financiere Agache, the Arnault’s family office, will invest in the deal alongside L Catterton. Christian and Alex Birkenstock, descendants of the shoemaker’s founder, will retain a minority stake in the company.
For weeks leading up to the announcement, Arnault’s LVMH was locked in fierce competition with CVC Capital Partners to acquire a stake in Birkenstock. CVC Capital Partners, a private equity firm, owns dozens of companies including luxury watchmaker Brietling and pet supply store Petco. With the help of Goldman Sachs, Birkenstock assessed opportunities with different private equity buyers.
The Evolution of the Birkenstock Brand
The German footwear brand has been around for over 250 years. Started in 1774 by bootmaker Johann Adam Birkenstock in Hammersbach, Germany, started the company in 1774. He designed the shoes to contour the shape of the foot. By 1925, Birkenstock enjoued sales across Europe. They made their way to the United States in 1966 by Margot Fraser. Fraser, a German dressmaker residing in California, at first struggled to find a distributor for Birkenstock shoes. After countless shoe stores turned her down, she ended up selling Birkenstocks in a health-food store near the granola section. In the 1970s, Birkenstocks became popular among hippies.
For most of its history, Birkenstock shoes were shut out from the world of high fashion. Perceptions gradually changed as celebrities started to embrace the sandals in the 1990s and 2000s. Birkenstock has evolved into a brand able to straddle both a high-end fashionista base and a less fashion-conscious customer base. Birkenstock recently had a collaboration with Valentino and models wore the iconic sandals on the runway at Paris Fashion Week.
Today, Birkenstock has approximately 4,300 employees and sells its products in over 100 countries. In addition to its classic sandals, Birkenstock has expanded its product lineup in recent years to include mattresses and natural cosmetics. In 2019, it sold 23.8 million pairs of shoes and reported $876 million in sales.
Birkenstock as a Pandemic Favorite Shoe
Birkenstocks have been a pandemic favorite. As people’s preferences have shifted toward comfortable, work-from-home friendly styles, demand has risen for Birkenstock’s practical footwear. Birkenstock co-CEO Oliver Reichert dubbed the brand the “official home-office shoe.”
“What have we seen as people stay home: they are buying exercising materials, like dumbbells and an electronic bike, because they want to stay fit. And on the other hand, they start buying quality-driven materials and quality-driven shoes. It has increased the number of Birkenstock fans globally,” says Reichert.
During the first two months of the pandemic, Birkenstock temporarily shut down its production facilities. It sources its materials from different parts of the world, including leather from Italy and corks from Portugal. Despite the temporary disruption to its supply-chain, Birkenstock’s total revenue still surpassed last year’s number. The company’s ability to exceed last year’s financial figures demonstrates its durability.
Other comfortable shoe and clothing brands have similarly seen a spike in popularity since the pandemic started. These brands include Crocs, Allbirds, Lululemon, and numerous others. Allbirds, the wool shoe brand popular with the tech crowd, closed a $100 million Series E round during the pandemic. Lululemon rode the athleisure boom, while more formal retail brands saw a dramatic fall in sales.
LVMH’s Growing Portfolio
LVMH CEO Bernard Arnault stated, “Birkenstock was founded nearly 250 years ago and has grown to become one of the few iconic brands in the footwear industry. We truly appreciate brands with this long heritage.”
LVMH similarly has a long heritage. The French conglomerate LVMH was formed in 1987 when Louis Vuitton merged with Moet Hennessy. However, the French fashion house Louis Vuitton dates all the way back to 1854. Today LVMH has around 75 brands in its portfolio representing a mix of fashion houses, cosmetic companies, alcohols, and an assortment of other brands making luxury products.
Only weeks before the Birkenstock acquisition news, LVMH announced that it had acquired a 50% stake in Jay-Z’s champagne brand, Armand de Brignac. Jay-Z’s champagne brand will join LVMH’s prestigious portfolio of spirits.
The Future Ahead
The Birkenstock brand, best known for its two-strap “Arizona” sandal, sees further opportunities in the luxury market. The deal with L Catterton has certainly opened the door to increased visibility alongside other luxury brands and potential collaboration opportunities. Under Birkenstock’s new owners, the footwear company will also expand internationally to pursue growth in China and India.