On the heels of meteoric growth and expansion, David Kahan, CEO of Birkenstock Americas, delves into why the brand has only just left the launch pad.
Talk about your late growth spurts…Birkenstock has been on a seven-year tear, fueled by double-digit gains that have enabled the 247-year-old brand to double in size in the past three years alone. Numerous product introductions have transformed the company, once perceived as a “sandal” brand, into a year-round entity. (Some of its best-selling styles have been introduced in the past year.) Eye-popping collaborations with trendy boutiques and leading designers have generated gossip page–worthy buzz. The brand is no longer strictly the domain of granola types and older people with foot issues; a broad demographic of fashionistas and hipsters now embrace Birkenstock’s comfort-is-cool-for-everyone ethos. Two new flagships that opened this past year—in New York and Venice Beach, CA—now serve as showrooms for the entire collection and offer an immersive brand experience. A soon-to-be-launched skincare line will highlight Birkenstock’s transformation into a global lifestyle and wellness brand. Perhaps most impressive is the fact that the growth and expansion come in the face of tremendous industry headwinds. What’s more, in an effort to elevate its brand equity, Birkenstock dropped its top two volume brick-and-mortar dealers at the start of this run and discontinued selling Amazon in 2017. The latter decision generated David-takes-on-Goliath headlines in the media mainstream.
You might think Birkenstock could set it on cruise control for a bit and let everyone get accustomed to its roomier, snazzier ride. But you’d be dead wrong. David Kahan, CEO of Birkenstock Americas, says the brand is just getting started. There’s no plan to let up in sight and plenty of room to grow and expand. It’s just how he and Birkenstock co-CEOs Markus Bensberg and Oliver Reichart are wired. A recent analogy Kahan used with a major department store buyer went like this: It’s halftime at the Super Bowl and the New England Patriots are up by three touchdowns. Instead of taking it easy in the second half, Tom Brady and company sprint onto the field and score a touchdown in the first five minutes of the third quarter. “That’s how Birkenstock is operating,” he says. “We obliterate mediocrity. We abhor cruise control.”
The full throttle approach, Kahan says, is only logical. It stems from a labor of love. “We bring a passion to the brand that we hope raises the energy of all we partner with by bringing products into the world that people love,” he says, citing its mission statement to sell products that bring people happiness and satisfaction. “Is there a limit to how much happiness and satisfaction you can bring?” Kahan believes the answer is no. There is no limit or, at least in the near term, Birkenstock will shoot for the moon.
In honor of this summer’s 50th anniversary of the lunar landing, Kahan has declared Birkenstock’s own “Moon Shot” initiative: to become a “global lifestyle and wellness brand.” He believes the talent is in place in the Americas, and the global leadership shares the vision to attain such lofty goals over the next few years. “I feel even more potential than I did three years ago,” he says, noting that 2020 will mark the eighth straight year of growth. “We have strong global leaders, a big vision and interaction across key functions, especially merchandising and product creation, where our Americas team is deeply integrated in the global process.” It’s all driven by an outside-the-box approach. “Nothing we do is business by the books; it’s not marketing 101,” Kahan says. “Many times we’ve gone against the norms, but in ways that have been right for us and, in turn, right for our partners.”
Take distribution, for example. It’s a luxury brand model where brand equity is paramount and, if necessary, at the expense of volume. In the case of pulling the cork on Amazon, enormous volume potential. Yet Kahan says the decision was a no-brainer. “As steward of a brand with a 247-year history of quality, you have no choice but to ensure that brand equity is never compromised,” he says, noting the rule applies to any retailer. “Amazon just happens to be the most visible and, quite frankly, most blatant in their total disregard for brand equity.” For Kahan, there is no gray area, nor regrets. “What we did has been great for our brand,” he says. “We’ve been able to ensure the lion’s share of our business is done in places other than the Amazon market, where the experience is far inferior to our better-quality points of distribution, which only raises our brand equity even higher.”
The proof is in the numbers. Birkenstock’s growth continues despite eschewing the world’s largest retailer. And it’s not beholden to Amazon like many other brands that, Kahan estimates, are doing as much as 25 percent of their total volume through its platforms. “That’s dangerous. It makes a brand highly transactional, and we’re not a transactional brand,” he says. “We’re an emotional brand.” It means that wherever a consumer interacts with Birkenstock—online, in stores or through its DTC channel—the brand story must be consistent, clear and uncompromised. It requires supreme diligence. “Distribution is becoming murky with global challenges, and the more desirable a brand gets, the more it encourages bad behavior,” Kahan says. He likens brand management today to requiring martial arts skills in order to fight through all the distractions and temptations. But it’s a fight Kahan is eager to lead. “I’ll be the Bruce Lee of the industry in how we manage and protect our brand,” he says.
Of course, disciplined distribution amounts to only so much if the shoes are lackluster. Kahan cites Birkenstock’s continuous product innovation as the key to driving the sustained demand. “Six years ago, we never allowed our business to become a one-item phenomenon,” he says. “Instead, we managed our brand across many silhouettes and created a brand phenomenon versus a style trend.” The Holy Grail, he notes, has been introducing the feel of a Birkenstock sandal into closed-toe styles. “Our closed-toe styles have been gaining traction and are now some of our best sellers,” he reports, adding, “Once consumers experience the incredible benefits of what Birkenstock brings to their lives, it’s relatively easy to transition into platforms, wedges, closed-toe shoes and, soon, natural skin care.” The attributes of cork, Kahan notes, go well beyond benefitting feet. “The skin care launch is very exciting,” he says. “The global beauty market is far bigger than footwear, and everyone who has tried it is raving about it. So imagine when our brand fans have access to this product.”
In short, Birkenstock’s transformation has been out of this world. It’s a meteoric ride and reaffirmation that, despite all that may be going wrong around you, focusing on doing what’s right for yourself can be the best strategy. The brand has embraced a youthful, can-do spirit and is living proof that age is merely a number. At nearly a quarter millennia young, Birkenstock is behaving like a wunderkind. “We have a mantra: We’re not in the footwear business; we’re in the show business,” Kahan says. “The stars of the show happen to be shoes, but make no mistake, consumers demand entertainment. That is what is driving how we think about our business in whatever we bring to market.”
So Birkenstock is just getting started?
Yes. We’re just now creating the foundation for what will be a global lifestyle and wellness brand. It’s only been in the past 12 months that we’ve launched two owned stores in the U.S. that create a brand immersive experience. We took pains to ensure each store captures the dynamics of the respective area. In our New York Soho location, where luxury retail is close by, we made sure the taste level is on a par. In Venice Beach, a true So-Cal lifestyle destination, the store is more laid back with an open-air area and a cork surfboard as décor. Our creative team did a great job capturing the DNA of our brand and melding it with the DNA of the areas.
How are the new stores doing?
Both are already exceeding our best targets. We wanted to prove brick-and-mortal retail isn’t dead. What is dead is bad retail. The world didn’t need another shoe store, and that’s not what we created. The brand is brought to life in two of the most dynamic and eclectic retail environments, and it’s incredible to see people’s reaction. In both locations, non-sandals are almost 50 percent of the business. As I said, great retail is what people need. Unlike many comfort stores that have a large number of cookie cutter mall locations where their most visible communications piece is a 30 percent-off sign, our stores are very different. It’s a brand experience. Doesn’t that also say something about how we can develop the brand with our retail partners as well?
Amid the retail chaos and consolidation, are survivors upping their game?
I like to think so. However, some who play to survive may or may not, while those who play to thrive will. It’s about better consumer engagement. How are you communicating with your customer base via social media and in-store experiences? I believe traditional, full-service independent retail can thrive. But we advise many to shift their focus to experience and conversion. Carry brands that create consumer demand, service the heck out of your clients and be involved in the local community. Become the first choice for local shoppers.
What might the typical shoe store look like in five years?
I don’t think there is a typical shoe store. I believe there’s a place for full-service independents; family self-service chains that carry great brands and are easy to shop; specialty athletic dealers; trend/fashion boutiques; great department stores where the consumer can accessorize footwear with ready-to-wear; and DTC and flagship stores. Whichever of those formats, the key is to make your brick-and-mortar stores mirror the emotional experience on your digital site. Easier said than done, but that’s the objective. Our digital business is barely 24 months into its newest iteration, and we’re just now beginning to create great content and engage our brand fans.
How might Birkenstock be better positioned in this new retail order going forward?
Ultimately, I believe great brands will find the balance between DTC interaction and the best partners in those aforementioned channels. It requires long-term vision, innovation with regards to product and true discipline. It also comes from challenging yourself to be ahead of the curve and mandating that you choose partners who share your vision and do everything in your power to make it work. For example, while it’s not the sexy part of the business, I know our retail partners are happy that our logistic capabilities have come a long way, and we now better service their needs. We now import 20 times the units we did seven years ago. Our global supply chain, sales and production planning have been a major focus so we can better capture the demand we create.
How’s business this year?
It’s been strong. No surprises, but I’m encouraged by the success of new sandal silhouettes, like the Yao, which has been fantastic at retail, as well as our new shoes, clogs and wedges. The Buckley, a mock toe clog, sold out almost immediately after being introduced this summer. However, the industry overall isn’t doing great, and I’m not super-positive about the U.S. economy. I believe people are becoming more fearful and retail in general is suffering. The traiff war, the country’s political divide, mass shootings…none of it helps. While we’re far outpacing the industry, it would be better if retail traffic and overall spending increased. We need our retailers to be healthy, and this environment isn’t helping.
What are your main goals for the rest of this year?
The balance of this year will be focused on operational and logistics upgrades so we can support the sales growth across the Western Hemisphere. In addition to our Novato, CA, headquarters, which I call mission control, we now have a New York office with our commercial, digital and data analytics teams. We also have an office in Montreal to manage Canada and one in Brazil where we do our own retail as well as manage distribution across Latin America and Mexico. We’re growing up as a company and making sure the talent and structure exists to support our Moon Shot initiative.
What gives you the confidence to shoot for the moon despite the industry headwinds you’ve cited?
A lot of people ask how long this Birkenstock thing will last, which drives me crazy! People in the industry have been trained to think it must have a limit. The minute something gets hot it becomes, ‘How fast can we exploit this before it ends.’ We never use the words trend or hot. It’s just plain wrong. Brands end because of this type of thinking. It ends because, somewhere along the way, they compromised the end user. Why do TV shows ‘jump the shark’? Because they lose the creative spark. They dial it in and then lose viewers. The Sopranos was just the opposite. The series received higher ratings each year because the writers and actors never compromised. They got better and knew if they took their fans along for the ride, they would follow. The same rule applies to a great restaurant: the minute it starts serving smaller portions or cuts back on the Bolognese sauce…you don’t come back.
Birkenstock is giving the people what they want—and then some.
The message is simple: never compromise consumers. We never compromise our brand quality or integrity. We never compromise the respect we have for the people who wear our products and the amazing health benefits they receive by way of our footbeds. We embrace them and think about where we want to take them next. When you have loyal fans like we do, it’s inherent upon us to take them to places they may not even know they want to go. It’s like how The Beatles took their fans from three-minute pop songs to the psychedelic sounds on Sgt. Pepper. Great bands and brands take their consumers to new and exciting places.
How do collaborations fit into this formula?
We’ve taken collaborations to a higher level. Our Rick Owens collab was a huge success. We didn’t just do ‘brand x brand.’ Instead, we partnered with a designer who fully understood and appreciates the uniqueness of Birkenstock, rather than just slapping a logo on one of our styles. He brought his unique taste level and aesthetic to our designs. They sold out immediately. But instead of resting on that, this year we took the concept to a level never before seen. One of our long-time brand fans and Oscar winning actress, Frances McDormand, premiered our collab with Valentino by wearing it on stage at the Academy Awards to accessorize her Valentino gown. It generated headlines around the world and, 24 hours later, the shoes were sold out in Valentino boutiques and on our website. Not even the athletic brands, who created the launch/drop concept, have done something like that. It created a halo of brand buzz that carried from luxury sector to all our points of distribution. Plus, it’s just fun. The industry needs more fun.
Is the industry at least working toward a more stable landscape?
I’m not sure a stable landscape ever existed. The 20th century has been a time of constant turmoil, and this has escalated into the 21st century. Also, waiting for the landscape to stabilize before taking your big shot is counter to historical success. Some of the Fortune 500’s biggest companies of the 20th century launched during the Great Depression. And during the Great Recession, Apple, Facebook and Uber took off. One of my favorite quotes is from Warren Buffet. When asked in 2009 what he was going to do about the recession, he replied, “I choose not to participate.” We think the same way. We believe Birkenstock as a brand and a company can be in the industry but not of the industry. We don’t follow anyone. We think out of the box and big. So it’s less about waiting for the environment to stabilize and more about determining one’s own destiny by seizing opportunities that the disruption creates. I believe the currency for future success in business is cultural literacy. It’s about having an understanding of the macro factors—politically, socially, economically, environmentally—with regards also to art, fashion, music and lifestyles, and then determining what products may best serve a purpose and connect with people. We’re living in the age of Netflix. Twenty years ago, it was all about what TV show would get the largest audience at 8 p.m. on a Thursday night. Now it’s about how we slice and dice all the people who view content and make a connection where we, in turn, create a loyal fan base. It’s about finding your tribe versus being the biggest, broadest thing on the planet. This is so consistent with Birkenstock.
With brands ramping up DTC and retailers pursuing private label, will the sides need each other for much longer?
I believe retailers desperately need strong consumer brands. Not just ‘industry brands,’ but authentic consumer brands—ones that help validate them. While some private label can supplement the brands they carry, historically it’s never been a basis for success. Consider that the world’s largest athletic footwear chain, which knows its consumer inside and out and has a ton of name recognition, has never launched a private label brand. Why? Because the major brands in that space have such incredibly strong emotional connections with consumers that their focus is best on how to partner and bring those brands to life in its stores. On the brown shoe side, many retailers have put their toes in the private label water but make no mistake, it’s not a brand, it’s a label. That’s why the onus is on us to insure we continue to drive consumer demand. And while I’m 100 percent unapologetic in saying we have a right to engage our consumers in a commercial manner, we do so in a way that’s respectful to our retail partners, many who have been with us far before ecommerce was invented. It’s why we maintain strict MAP standards, we don’t discount on our DTC and we maintain strategic segmentation to ensure differentiation across channels—all of which helps retailers’ ROI. We treat our retail partners with the ultimate respect, and while we have a robust DTC business, it’s managed so as to build broader consumer demand and not compromise those partners. As an industry, we need to stop thinking of the business as a zero-sum game.
Some execs gripe the business has become much harder, with some longing for the days of making shoes, attending a trade show, selling to brick-and-mortar retailers and repeat in six months. Has it really become that much harder?
I don’t think so, at all. Honestly, I think a lot of execs are stuck in the past. Going to a show and selling shoes…Really? Is that how they want to run their business? How about creating products and brands that change people’s lives? How about bringing higher levels of happiness and satisfaction, not just to the footwear industry but to a broader society by the products you create? How about creating a company where employees can thrive and love going to work every day? Instead of a business as usual approach, our management team saw this brand as a diamond that needed to be shined. Does Nike just ‘sell sneakers,’ or do they bring products to market that share the highest energy of sport? Does Apple just ‘sell phones,’ or do they change the world by bringing technology to your fingertips? Steve Jobs didn’t ask people, ‘Do you want your entire record collection on a handheld device?’ He took them there. He didn’t ask if they wanted a camera or internet access. Apple thought differently. It’s why we’re thinking differently across all functions of our organization.
Seeing how Birkenstock pulled out of FN Platform last month, how are you thinking differently about trade shows?
Trade shows can provide good environments for buyers to see the market. For us, however, our cycle is ahead of the normal trade show window, so FFANY’s dates provide the most significant point of interaction with many of our key retailers. After that, our reps travel their territories. Also, shows must be cost effective and, as a consumer brand, we believe resources are best allocated towards the consumer versus the industry. In addition, as the industry shifts to a far higher percentage of sales done with fewer and larger strategic accounts as well as DTC, that leaves traditional trade fairs largely to the independents. We already have a lot of high touch with most of our significant dealers in that tier. So the large trade show format isn’t as necessary for us. That said, every vendor has to do what’s best for them, and we value any concepts that encourage greater interaction.
You have a reputation for being one of the hardest working people in this business. Is that just what it takes?
What can replace hard work? Nothing. Work smart and hard. Look at Bruce Springsteen. He said it wasn’t about some 10,000-hour rule to master the guitar. It required countless more hours and now we benefit from his hard work. As long as the hard work I do serves others, it goes beyond even calling it ‘work.’ But no one is bigger than this brand. Our focus is not on the next few weeks, months or even year. It’s about where we take Birkenstock over the next decade and how we’ll leave it for future generations. Will Nike, for example, have a good quarter? Who cares. What I can tell you is, in 25 years, Nike will likely still be the dominant sports brand on the face of the earth. Is Chanel or Hermès hot right now? Who cares. What I can tell you is, in 20 years, those brands will likely still represent the ultimate in taste and sophistication. The brand is sacrosanct. The definition of that word is clear: to be too important or valuable to be interfered with. This defines how we operate on all fronts: product development, service and distribution.
What fuels this relentless drive, because I’m guessing it goes beyond purely financial gain. Might having been a sneaker gopher for (a surly) Spike Lee back in your early Nike days have something to do with it?
Being Spike’s sneaker gopher was certainly humbling, but so was working part time in a Macy’s shoe department during college. Helping customers one at a time, climbing up and down stockroom ladders to get shoe boxes. I’m a firm believer in self-actualization. But as I’ve gotten older, I’ve come to believe that self-actualization isn’t enough. It’s about actualizing yourself so that you can serve and help others. Our mission is to sell products that bring people happiness and satisfaction, so it’s about doing my best to help bring that mission to fruition. If I develop the insight and skills to help manage this business to achieve our Moon Shot, surely that’ll benefit our end users who love our products, our retail partners who share in our success, and our entire team and their families who share in the success. Managing this brand is both an honor and an awesome responsibility that drives me every day. Whenever I’m in our Novato headquarters, I always walk into our customer service area and ask everyone the same question: “What’s the most important day?” And they all answer, “Today!” Every single customer, every single day.