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Rising ’Stocks

Thanks to a revolutionary change in corporate direction, David Kahan, CEO of Birkenstock USA, is leading the charge stateside to fulfill the legendary comfort brand’s enormous potential.

Ask any consumer what Birkenstock is and it’s a sure bet the most immediate response is shoes. Others might narrow it down and say sandals or comfort shoes. Others might go so far as to say it’s what granola types and Dead Heads wear. Or, as former President George W. Bush’s once derisively generalized, it’s the footwear of choice of liberal “Marin County hot-tubbers.” All true. Of late, however, an increasing number of people might say Birkenstock is the footwear choice of trendy celebrities (Julianne Moore, Kate Hudson, Heidi Klum, Usher and Ashton Kutcher, to name a few), supermodels (who prefer comfortable flats to killer stilettos when not strutting the catwalks) and Williamsburg hipsters, many of who are taking it up an anti-fashion notch by sporting their ’Stocks with socks.

You see, Birkenstock is hot—again. The German comfort brand, whose origins date back to 1774 (That deserves repeating: 1774!), has been coming on strong for about the past year. David Kahan, CEO of Birkenstock USA, attributes the revival to several factors, starting with the recent benign state of footwear fashion. “Footwear overall is doing well and outpacing ready-to-wear, but there hasn’t been a singular trend driving the market for the last year or two,” he offers. That opens the door for the next big thing—or anything to help fill the vacuum. The fact that Birkenstock is an established name, appeals to a broad audience and is comfortable and casual are all attractive brand attributes to retailers rather than gambling on an unknown entity. Kahan goes a step further, placing the power of the Birkenstock name at the top of the footwear pyramid. “This is one of the most iconic brands—if not the most iconic—in the history of the footwear industry,” claims Kahan, who came on board in June following his most recent stint as executive director of the ENKWSA Show. (Prior to that he spent decades in the retail and wholesale sides of the business, including management positions at Macy’s, Reebok and Rockport.) “It’s nearly 230 years old, its best-selling styles have been in the line for more than 40 years and it’s one of the few brown shoe brands, if not the only one, to have any emotional connection the minute you hear it mentioned.” Kahan adds, “It all represents just latent potential in the U.S. market.”

Beyond that, Kahan believes ready-to-wear designers are seeking ways to make clothing more directional. Enter Birkenstock.

“Birkenstocks are almost like a blank canvas to draw attention to the clothing,” he says. Kahan also believes that in a post-recession landscape consumers are seeking sensibility for all aspects of their harried, unpredictable lives. Products that work, are dependable and versatile are in increasingly high demand. Again, enter Birkenstock. “It’s a brand that says something about somebody’s general sensibility. It’s classic yet modern and it works well, even as a juxtaposition against high fashion,” he offers. “Right now you see somebody wearing Rag & Bone jeans, carrying a Céline bag and wearing Birkenstocks, and the shoes complete the look without overpowering it.”

Indeed, the planets appear to be aligning for a genuine Birkenstock revival. But, Kahan avows, this is no “fashion moment” that will fade once the hipsters and celebs move on. In fact, he says Birkenstock is seizing on its current momentum and, for the first time in its 40-year history in the U.S., doing everything in its collective power (read between the lines: management worldwide is finally all on the same page) to fulfill its destiny as that of a major lifestyle brand.

It’s all there for the taking, which Kahan says starts with having feet on the ground to understand the specific wants and needs of U.S. consumers. “If you want to be a broader player you need to understand the nuances of this market,” he offers. “You need to have expertise on who these consumers are, how to target them, how they shop and how your brand fits within the matrix of other brands that a retailer carries.” It marks a far cry from past practices when product and policy decisions were dictated from Germany. That coupled with a revolving door of U.S. subsidiary leaders contributed greatly to the brand’s eroding sales over the past decade. “There was nothing wrong with the brand,” Kahan maintains. “You just cannot run a brand effectively with leadership changes every 12 months.” He adds that Birkenstock also failed to connect with U.S. retailers. “Birkenstock had basically been a distributor of shoes rather than a true partner in the marketplace,” he says.

But those days are long gone. Kahan says the new management philosophy represents a “revolution, not an evolution.” It involves the implementation of best practices across the board, including improved terms, new POP and selling materials for 2014 (a first for the brand in about 10 years) and a shift in marketing focus from consumer direct to selling through retail partners. “We are rolling out a retail intensification program where our partners are going to be rewarded with much stronger investment on our part,” Kahan says, adding that growth is not meant to be solely at the expense of competitors. The ultimate goal is to generate new business for Birkenstock’s retailers. “This is not about just trading dollars from one brand to the next,” he confirms. “Any retailer that’s just doing that right now is still going to probably struggle.” Similar to the way Ugg represented new business, Kahan believes Birkenstock possesses the same potential. “We are a consumer brand that wasn’t treating ourselves as such,” he says. “We have been hidden behind a shoemaking operation. Now we are unleashing the power of being a consumer brand.”

This time around for Birkenstock it’s truly different, yes?
Without a doubt. The most significant aspect is it represents a global change in direction, not just in the U.S. It is shifting our entire organization from a, quote-unquote, old German shoe manufacturing and production driven business to a true global sales and marketing brand driven one. Birkenstock has been a sleeping giant and treated by a lot of retailers as an annuity: They carried 10 to 12 models, they filled in every week, it was a nice business and they were happy enough. But nobody really asked, “How do we unleash the power of a brand that really connects to consumers?” That’s what we are doing now. And every single person in a position of leadership is relatively new to the company. They are people who have phenomenal track records and believe in working together as a team. We are all on the same page. There’s such mutual respect now. Also, it’s not like I’m reinventing the wheel. A lot of the things that everybody knew were the right things to do just weren’t being done. Now I’m empowered to do so.

For example?
Our first global head of design and development is coming on board in January, which is something Birkenstock USA never had before. He will be a part of the German product team, but he’ll be feet on the ground in the U.S. to understand the specific needs and tastes of this consumer. It will mark the first time someone from Birkenstock will be able to really understand the differences between Cincinnati, San Francisco and New York.

So plenty of specific styles for the U.S. market?
Absolutely. For 2014, a significant portion of our line will consist of specifically developed products. And while we believe nobody understands the U.S. market better than we do, we are asking our retailers for input. It’s why we will be the most visible sales force going forward. We are asking a lot of questions and taking into consideration what our retailers feel the brand should be doing. At the same time, I tell our team that we’re brand stewards and we will always be careful and respectful of the brand.

It sounds like a page straight out of the old Clarks playbook.
Clarks circa the ’90s to the ’00s is my operating model. They took the European comfort model and created a U.S. comfort business. They did it because they had leadership based in the U.S. that understood this consumer and retailer, and they had the autonomy to do what they needed to do to reach critical mass.

What is your distribution strategy?
First and foremost, we are going to expand distribution within our current partners. There’s no doubt that we are going to grow dramatically with them. Over and above that, we are expanding with the right doors for Birkenstock, but who have not been with the brand consistently in the past. Most notably, Nordstrom will be a major Birkenstock retailer in 2014.

Why has Nordstrom expanded its commitment?
I think they see the value and equity in this brand. They see how we play a role that no other brand can and see this sweet spot we can fill. Our initial test with them this past spring was exceptional—to the point where next spring we’ll roll it out substantially in men’s, women’s and kids’. We are going to do some pretty unique marketing programs with them as well as some exciting product collaborations. Similarly, we have been featured in some runway shows and in the fashion press over the last year. And because we have no minimums and we own core inventory in our iconic styles, we will do some test programs in select fashion boutiques. We also did a special product introduction with J. Crew this year, which is a program the company would not have been able to execute prior to the change in direction. Moreover, partnering with the likes of J. Crew, Nordstrom and better boutiques creates a halo effect.

And before the change in direction…
When Birkenstock had its moments in the past it hid in its comfort zone and acted almost like it didn’t want any new consumers to embrace the brand. The difference now is we do. Basically, we’re saying, “Hey, all of you fashion types who are now into Birkenstock, welcome to the club. You’re finding out what we’ve known all along: Our shoes feel great.” Rather than be afraid of it, we are embracing it but without changing our brand DNA. What we are doing differently is saying this is our place in the market and we want to own it. Anyone who has glommed business off of what Birkenstock established, we are now standing a lot stronger and saying we have the brand equity and this is how we expect to be presented at retail. The fact is the vast majority of brands in this space are interchangeable shoe suppliers and don’t trigger an emotional response like Birkenstock does. Our goal is to emerge as a true brand in the brown shoe world, where consumers traditionally haven’t been brand driven. In return for that, we are going to play the retail game a lot differently than we have in the past.

Ugg is about the only brand with similar reconition is this space.
I agree. And I use Ugg as a reference internally and with retailers with a lot of what we’re doing with Birkenstock. They are an example of a brand that evolved from an item into a $700 million business in the U.S. They have elevated themselves above every other footwear supplier in this space over the last 10 years. But the beauty with
Birkenstock unlike, say, Sperry and, perhaps to a lesser extent, Ugg, is we have an arsenal of silhouettes to work with. Everyone knows us for our Arizona sandal, but one of our hottest styles this season was our Giza thong. And our Boston clog, which has been almost out of the market, is receiving increasing interest. Similar to the way Nike can go back repeatedly to its Air Force 1 and Air Max silhouettes, we feel we have the same equity in some of our iconic shoes that we haven’t even begun to manifest. We just need to activate them and manage them the right way with the right partners. We have a great chassis and all we need to do is, basically, play Mr. Potato Head on top of it. We can update uppers all day long to keep proven silhouettes fun, relevant and innovative.

But it’s not just about updates on reissues, right?
Absolutely. Birkenstock has enough equity that the consumer will allow us to introduce new silhouettes, which we haven’t done much over the years. Fall ’14 is when you see the needle move further in that regard.

What kind of silhouettes, exactly?
We’re not talking heels, but it’s only a short jump to do some new silhouettes that will still speak to the same consumer as well as new ones. It’s the ideal time to do so now that the brand has momentum. Introducing new looks should be met with greater acceptance. We are also going to introduce some fun brand extensions. For example, if you search online there’s a trend brewing of socks with Birkenstocks. There are hundreds of pictures online of people sporting the look. So next fall we are launching “Socks and ’Stocks.” We’ve partnered with Wheat, a California company, to make Birkenstock socks that will be merchandised together with select sandal styles in our leading accounts. We’ll have a POP displays promoting the look. We are also introducing, similar to what Ugg has done, a shoe care kit that includes a cork life extender. It’s all in an effort to bring the brand to life at retail.

What type of growth are you projecting for 2014?
We are going to grow the U.S. business dramatically. Not just the top line, but the bottom line as well. This will be a very profitable business. And we are going to reinvest our profits to a larger degree than we ever have into our retail partners. I believe any marketing efforts we do need to help sell-through product. I don’t really need to beat the drum trying to inform consumers what Birkenstock is about. People already know that, but what they need to do now is go to a store and buy it. Because the last thing retailers need to hear me saying is, “Here’s how I want to grow my business.” If that only amounts to trading dollars between Birkenstock and some other brand, why should they care? I want to show them how they can grow their business on top of what they are already doing. I’m not opening any significant new distribution so that when the waters rise all ships should rise. And with Bloomingdale’s and Nordstrom carrying the brand, there’s no reason why an independent dealer shouldn’t be up 25 to 30 percent next year just based on our overall energy in the marketplace.

It entails growth from across the consumer spectrum?
Absolutely. For example, there are plenty of women who used to wear Birkenstock back in college and moved on to other styles as they moved through their careers, but are now rediscovering the brand. There’s also older consumers who, for podiatric reasons, need the brand for its features and benefits. In addition, this aging population is the first generation that has been involved in competitive sports as adults. So the whole idea of recovery footwear, well Birkenstock was the first recovery shoe without trying to be one. I will go so far as to say that if you run on a regular basis, I guarantee you will extend your running life by wearing Birkenstocks when you are not running. Last but not least, there are the fashion consumers. The difference is when they wear them they learn what Birkenstock is really all about. It’s not like my wife when she’s wearing Jimmy Choos. I don’t care how great they look, she is not going to walk from a taxi to a restaurant and say her feet feel great. That’s why when the fashion frenzy slows down it won’t matter, because people who wear Birkenstock believe it changes their lives.

Many become disciples.
This is one of the few brands that have rabid fans. Not a week goes by that we don’t receive letters from people who state that wearing Birkenstocks has changed their lives. Now we have basically two sets of consumers: Those whose buying decisions are driven by aching feet. And those whose buying decisions are influenced by runway shows and Vogue editorials. You can’t name another comfort brand that spans that broad of a demographic. That’s why we believe Birkenstock has the strength to be a destination brand as opposed to just one of a variety of sandal options.

In five years where do you see Birkenstock in the U.S.?
There’s no doubt we’ll look back on this period and say this wasn’t any fashion moment, rather it was the launching pad to Birkenstock becoming a legitimate lifestyle brand. I expect we will have a much more significant year-round business and, more than anything, to be the best-in-class supplier and partner to the retail community. I want to establish the most retail-centric organization in the industry.

If Rockport peaked at around $400 million in sales annually, what is Birkenstock’s overall potential?
Oh, Birkenstock should easily be a $500 million business. The brand doesn’t even distribute in half of the places around the world that it could. And then there are leather goods and bag markets that we have every right to play in. It just takes the right management team. Personally, I did not come here with the mindset of tacking on three percent growth per year in U.S. sales. I knew there was momentum behind the brand and if we could unleash its full power, sales will be up a multiple of what they were this year. We hope to almost double sales next year.

What are your plans for the subsidiary brands?
Birki’s and Papillio are going to continue on for the foreseeable future. Over the next year or two we’ll try to carve out a unique personality for them both so that they can live under the Birkenstock umbrella. Odds are it will be the same distribution channels but differentiated product. The easiest thing would have been to just focus on Birkenstock, but we are all new enough to the business and believe there’s some equity in those brands. We also will continue with our Betula brand in the moderate channel and are transitioning our Alpro work brand into Birkenstock Professional, beginning next fall. We have a tremendous following among chefs and healthcare workers. Just the fact that these brands are no longer competing with each other directly is first and foremost the most significant change. We had Papillio and Birkenstock reps going into the same accounts and selling against each other. Now our reps carry the entire collection and sell these brands as supporting roles.

Is this a dream job for you?
Yes. I’ve always been a brand guy and I think the ability to bring my background of retail, athletic and comfort with the unique experience of managing ENKWSA, there’s nobody else with the same experience. To be perfectly honest, I never would have moved my wife 3,000 miles to Novato, California, where we didn’t know a soul, unless I was empowered to do what I felt needed to be done for this brand to succeed. Once the owners gave that assurance and I saw this was the right team, I went into the job like the way Vikings would burn their ships upon arriving on a new shore: a case of win or die trying. During my first company meeting I introduced my wife to everyone and said I wouldn’t be commuting from Boston. My family and I made a commitment to live here. If I didn’t make that commitment I wouldn’t blame employees for thinking they’ve seen and heard this speech before. Thankfully, we have some really great people on our team who are incredibly passionate about this brand. But they were also some of the most frustrated people that I’d ever seen in my life. I think they just needed some leadership to say you are empowered now to do the right things for the brand.

What do you love most about your job?
Right now, it’s the people in our company. This is a group that has been incredibly dedicated but when the brand was losing market share it wasn’t much fun. Now it’s becoming a lot more fun knowing that we are heading in the right direction and sales are growing. I have never been more passionate about getting up and going to work in the morning.

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