Before it listings on the New York Stock Exchange next week, investors and analysts say that sandal firm Birkenstock needs to offer more clogs and boots and increase sales through its own website and shops to attract new customers despite a cost of living issue.

The initial public offering (IPO) market is gradually reopening after two relatively quiet years and a surge of activity in September. The most recent high-profile listing, Birkenstock, has investors’ attention.

However, a number of recent IPOs, including as Arm, Instacart, and Kellogg spinoff Kellanova, have suffered a decline in share prices.

Additionally, the luxury footwear company may face difficulties as a result of the cost of living problem, which has caused consumers to cut back on spending on discretionary products like shoes and clothing in favour of necessities.

Euromonitor International, a market research company, predicts that global footwear sales will increase by just 2.9% over 2022 as a result of recent price increases.

“The question is, how do you create desirability for people to buy another pair of Birkenstocks?” said Mamta Valechha, consumer discretionary analyst at asset manager Quilter Cheviot in London. Sandals are a seasonal product, which makes the company’s sales volatile over the year, Valechha added.

However, Birkenstock has many other advantages, such as the capacity to endure in popularity for decades after initially becoming well-known as rather dowdy but cosy sandals that complete a laid-back, hippie style.

Johann Adam Birkenstock established the Neustadt, Germany-based company in 1774. “Birkenstocks” were initially only offered at health stores in the United States.

Since the COVID-19 epidemic, a movement towards more casual attire has been fueling their popularity.

Similar to its footwear rival Crocs, Birkenstock has managed to adapt to changing fashion tastes and reinvent itself as a stylish item favoured by models and celebrities. In the climactic sequence of the summer film bearing the same name, Barbie, as portrayed by Margot Robbie, wore a pink pair of Birkenstocks.

“The parallel with Crocs is that both aren’t necessarily known for being beautiful, right?” said Jessica Ramirez, senior analyst at Jane Hali & Associates.

Nevertheless, she noted, people have kept buying Birkenstocks, and the company has modernised and gained popularity.

“They [Birkenstocks] tap very nicely into many strong structural changes in buying habits: health, comfort and sustainability,” said Siobhan Gehin, senior partner at Roland Berger in London.

In order to raise at least $1.58 billion, Birkenstock has declared plans to sell at least 32 million shares for between $44 and $49 each.

It stated in its IPO filings that the money will be used to reduce debt.

The head of the hedge fund Great Hill Capital, Thomas Hayes, however, asserted that Birkenstock would probably utilise some of the money acquired through the IPO to fund further growth and that its dominant market position in the U.S. enables it to pass on price hikes to customers.

Birkenstock has experienced constant shop visitation at a time when foot traffic to large retail stores has been declining, but experts believe it has to keep growing its direct-to-consumer sales to attract additional customers.

Retailers like Dick’s Sporting Goods and Foot Locker have started to reduce their shoe orders, although neither store carries Birkenstock.

Although Birkenstock ran a limited network of roughly 45 of its own boutiques as of June 30, it had 6,000 wholesale partners in fiscal 2022.

New items on Birkenstock’s American website include $240 leather boots, $250 “Cannes” leather sandals, and $34.95 slides. According to data from Similarweb, the number of unique visitors to its website this year through August 2023 increased by about 26.4% compared to the same time last year. The data shows that the monthly increases in visitors to its website ranged from 11.5% to 72.1%.

The data from Similarweb reveals that some of its competitors, such as the designer shoe company Golden Goose, Dr. Martens, and Allbirds, have seen a fall in recent months when compared to a year earlier in the number of visitors to their own websites. For the most part, back-to-school footwear sales in the US have been dismal.

Birkenstock is the most recent in a string of shoe companies to go public in recent years, most of which have had underwhelming results thus far. Since their IPOs in 2021, AllBirds, Dr. Martens, and On Running have all suffered a decline in market value.

The son of LVMH Chairman Bernard Arnault, billionaire Alexandre Arnault, will serve on Birkenstock’s board, and L Catterton, a private equity firm backed by LVMH that currently owns 100% of the company, will continue to own about 83% of Birkenstock following the offering.

Separately, funds run by Durable Capital Partners LP and Norges Bank Investment Management have expressed interest in purchasing shares with a $300 million market value.

“The expression of interest from prominent cornerstone investors is remarkable,” said Matt Oguz, CEO of Iris Family Office in Silicon Valley, who said he planned to buy Birkenstock shares.

However, having that backing does not ensure stock market success. Consider the consumer technology company Oddity, which owns the cosmetics labels Il Makiage and SpoiledChild.

It was backed by L Catterton and priced at $35 a share when it went public in July, significantly more than the initial range of $27 to $30, before opening at $49.10 on the first trading day. But from their opening price, the company’s shares are now down over 45%.

“When you look at the trend of other shoe companies that have IPO-ed, it doesn’t give a great outlook for Birkenstock,” Valechha said.

(Adapted from Crast.net)