Daybreak - How Birkenstock became the Bata for India's elite

Episode Date: July 15, 2024

Not so long ago, Birkenstocks were considered the antithesis of high fashion. For the longest time, the 250-year-old German brand’s characteristic chunky sandal was seen as nothing more than an orthopedic shoe meant for hippies and old people. And then, everything changed. In the last decade or so, Birkenstock had a major glow up. It all started with the brand deciding not to settle for being just another comfortable but cringey sandal anymore. So to make Birks cool the brand began collaborating with high-end fashion designers like Rick Owens, Valentino and Dior.  Very quickly celebrities and influencers caught on. They were suddenly being spotted walking out of the gym, or a cafe with a pair of birks on. And just like that, a trend was born. The orthopedic sandal, built more for comfort than for style, was the new it-shoe. Now, the Birk craze has found its way to India. Tune in. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Not so long ago, Birkenstocks were considered the antithesis of high fashion. You see, for the longest time, the 250-year-old German brand's characteristic chunky sandal was seen as nothing more than an orthopedic shoe, meant for hippies and old people.

And then everything changed. In the last decade or so, Birkenstock has had a major glow-up. It all started with Birkenstock deciding not to settle for being just another comfortable but kind of cringy sandal anymore. So to make Burke's cool, the brand began by collaborating with high-end fashion designers, like Rick Owens, Valentino and Dior. And very quickly, celebrities and influencers caught on. They were suddenly being spotted walking out of the gym or a cafe with a pair of burks on.

And just like that, a trend was born. The orthopedic sandal built more for comfort than for style became the new it shoe. Now, the burq race has also managed to find its way to India. You see, since it was launched in 2019, Birkenstock has now become one of the country's fastest, growing footwear brands. You only have to walk into an upscale cafe in pretty much any metro city to confirm that statistic.

You're likely to spot at least half a dozen pairs of Birkenstocks today. And Birkenstock also recognises that India's very quickly becoming a major market for the company. Sure, even today, 90% of its sales comes from American and European markets, but the company is now targeting the Asia-Pacific region for growth, with India as a major focus. In fact, it went public just last. year and in its IPO documents showed plans to expand in Africa, the Middle East and Central Asia. The plan is for sales from these regions to eventually become 50% of the company's revenue.

Both in India and in countries like China, the brand strategy is to tap into a booming aspirational consumer market. So it's basically positioning itself as the new barter for the bourgeoisie. So how did it get here? Welcome to Daybreak, a business podcast from the Kempark. I'm your host Rahil Filippos and I'll be joining Snigda every week to bring you one business story that is worth understanding and worth your time. Today is Tuesday, the 16th of July. Burkinstock has been around for more than 200 years. So, why is it having its moment only now?

Well, to fully get a sense of that, we need to really understand the brand and what it represents. You see, when Birkenstock was founded two centuries ago in Germany, it didn't actually sell shoes. It sold insoles. And I mean those cork flexible insoles which are now the footbeds of the burks we wear today. These footbeds are made in a way that evenly distributes your weight and then reduces pressure points and friction.

And that's the reason behind the incomparable comfort of a Birkenstock sandal. Now, the one thing the brand has been clear on throughout is that they will always be about function. They've always prioritized foot health over aesthetics. And as a result of that, for the longest time, they were written off as ugly sandals for old people and for hippies. Now, the story behind how it became the hippie shoe is actually pretty interesting. Back in the 60s, a German-American designer named Margot Frasier discovered them when she was on a spa trip in Germany.

She thought they were incredibly comfortable and decided she wanted to bring them back to the US. And that's exactly what she did. She got distribution rights and launched the business in the US. Now, the funny thing is that most shoe stores refuse to sell them. So she resorted to selling them at certain health food stores, where a lot of hippies used to shop. And just like that, the brand got its hippie-dippy reputation. But from time to time,

Berks would still suddenly pop up on high fashion runways. Like in 2012, when the luxury fashion brand Celine had models where fur-lined Birkenstocks during a fashion show. So every summer, Burks would suddenly pop up. up in the occasional fashion magazine, but their real moment of reckoning came about a decade ago. This was largely thanks to a massive fashion movement called Norm Cor. You can think of it almost as anti-fashion. Suddenly, conventional aesthetics just weren't cool anymore. So shoes with chunky silhouettes like crocs or what a lot of people call the classic dad shoe was suddenly all the rage.

And another sandal that fit the Normcore bill was the point. Birkenstock. That trend has actually lasted for a decade now. In fact, the brand hit peak pop culture just last year when Barbie swapped her glittery heels for sturdy burks in her eponymous movie. So what about India? How did the sandal get popular here? More on that in the next segment. When it comes to its entry in India, Birkenstock's timing was interesting. You see, it launched right in the thick of the pandemic. But that actually seemed to be exactly why the brand took off almost immediately. And it's pretty easy to guess why.

Because during the pandemic, when we were all at home, comfort and wellness brands did supremely well. So the time was ripe for Birkenstock's debut. But the only snag in its plan was pricing. You see, Birkenstock sandals don't come cheap. They cost anywhere between $4,000 to $12,000. They fall under the premium or afforded. luxury category, which means only a select few can afford it.

In fact, that's central to Birkenstock strategy. It keeps its allure alive by limiting supply and keeping the price point pretty high. So for context, the company runs a tight ship where it controls manufacturing with an iron fist and handpicks distributors in new regions. In fact, 100% of its proprietary footbed production takes place in Germany, with some extra manufacturing in Portugal. but nearly all of the assembly is also done in Germany. Now, the point of this sort of approach is to keep supply and check

and to ensure that the market isn't flooded with discount deals. But in a price-sensitive market like India, making a mark would not have otherwise being easy for the brand because it has to convince price and value-sensitive Indian consumers to splurge on a pricey pair of sandals. Now, ironically enough, Birkenstock's competitors have had a big role to play here. even before it officially entered the Indian market. More on that in the next segment.

You know that saying, imitation is the ultimate form of flattery? Well, in Birkenstock's case, it's way more than that. You see, even before it was launched in India, shoemakers here were already flooding the market with lookalikes. In fact, a former senior executive at a footwear brand told the Ken that the concept of Birx was introduced in India as early as a decade ago. So there were tons of affordable knock-offs

already available in India. They didn't call them burks, of course, but the concept was the same, a cork-based footbed with leather straps. They were also far more affordable, priced anywhere between $1,000 and $3,000. Now, what ended up happening was that all these replicas were almost like

pre-launch buzz for the brand. So it was able to build a loyal customer base even before it officially arrived in the country. But now that it has entered the Indian market, these copycat sandals could stifle Burkinstock's growth. You see, Burkinstock's strategy, which involves expanding through D2C and B2B channels and opening premium mono brand stores,

has been working well for it so far. But to keep its momentum, it needs to tackle the challenge of imitations. One way that Burkinstock is doing that is by going all out with marketing. In fiscal year 20203, it spent about 11% of its sales on advertising and promotion. In comparison, Metro Brands, which is a multi-brand footwear retail company that sells brands like Mochi and Crocs, spent only around 2.5% of its sales on advertising and promotions during

the same period. Now, the Ken spoke to Harman Fried Singh, the founder of Prath Ventures, a venture capital firm in the consumer space. He broke down the Birkenstock strategy in India for us. He said that the company is deploying its resources and focusing more on its D2C strategy, both online and offline, while using marketplaces primarily to build brand awareness. Things seem to be going well for Birkenstock, but it really has its work cut out for it. You see, as things stand today, even Crocs, which entered India a decade ago,

has not yet built a thousand-crawled brand. That title is still held by mass brands like Campus and Bata. So it'll take a while for Birkenstock to achieve the scale in footwear that say Japanese brand Uniclo or Swedish brand H&M has in apparel. But all is well, as long as cash flush people and upscale parties, continue flaunting their Birkenstocks as data symbols. Daybreak is produced from the Newsroom of the Ken India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippos, produced by me Snikda Sharma and edited by Rajiv Sien.