The members of the Birkenstock family are moving further in their strategy of splitting up the administration and distribution of their various brands, including Tatami, Footprints, Betula, Papillo and Birki’s. The process, which began in 1998 in Germany, is partly intended to maximize their respective sales in the long term, reducing their reciprocal cannibalization to a minimum.
From Oct. 1 on, the distribution of the Birkenstock line in the U.S. market will be handled by a new company, Birkenstock Distribution USA, run by Rich McGinnis, a specialist in brand-building who has been working for the long-standing distributor of the group’s brands, Birkenstock Footprint Sandals (BFS), for many years.
The new company is a fully owned subsidiary of BFS and is located in the same premises in Novato, California. It has a 5-year contract with Birkenstock in Germany that will be renewed if certain sales goals are met. The goals are said to be realistic. A series of logistic and other problems led the Birkenstock brand to suffer a sales decline of about 10 percent in the USA last year, in spite of rising demand for its retro and lifestyle products, but while the results for this year are not quite clear, growth of at least 20 percent is now budgeted for 2006. If that goal is reached, the USA would probably become again the biggest market for Birkenstock, ahead of Germany.
A key growth driver will be the use for the first time of direct delivery of the pre-packaged merchandise to specialty stores on the East Coast directly from Germany, where Birkenstock is setting up a modern new warehouse, working through UPS. The move should lower inventory costs and result in faster deliveries than from BFS’s distribution center on the West Coast.
Birkenstock had proposed this solution to BFS already last year, but the company refused to do so for fear of giving away its customers’ list and to get its distribution contract with Birkenstock cancelled afterwards. Betula took its independence from BFS back in 2000, setting up its own US subsidiary in Cincinnati, Ohio, and Tatami followed last March. The new Tatami USA was set up in New York with a team of 10 sales reps run by David Bergum, who left BFS already three years ago. Papillo and Footprints may be next. The USA is the biggest market for Betula as well as Tatami, and that has been the case for the Birkestock brand in certain years lately.
The separation of the various family brands is partly dictated by ownership structure within the group. Alex, Christian and Stephan Birkenstock, the three brothers who inherited most of the group’s assets, own different portions of the family empire. Each owns one-third of the Birkenstock brand. Christian has majority stakes in Betula, Papillo and Birki’s, and Alex controls Tatami and Footprints, while Stephan controls a family brand of work boots, Alpro, and the group’s logistics operation.
Christian Birkenstock proposed earlier this year to acquire BFS, which has been owned since 2002 by its employees. The latter approved the proposal in principle, but it became impossible to implement because of a special retirement scheme which in fact froze the shares held by some of the employees.
BFS was previously owned by Margot Fraser, who started up the business some 40 years ago. She retired in the Fall of 2001, but she agreed to come back to run it in December 2004 to help solve BFS’ problems. A new board of director was set up last July, headed up by this lady who is now more than 75 years old, but Gene Kunde was promoted as president, replacing in effect Matt Endriss who has been reassigned to new functions after more than 20 years with the company. Kunde, former chief operating officer of Epson America, was previously COO of BSF, which he joined five years ago
The change of management has apparently resulted in a major improvement in deliveries for US customers. Further progress is expected through actions aimed at raising the levels of product availability and choice from the vast Birkenstock collection, although the pricing will remain relatively high. Additional benefits should stem from the launch of the first joint marketing program between the German headquarters and its US distributor, which previously did its own thing. Marketing and merchandising guidelines will be closer to those being followed in Europe, in order to achieve gradually a more global brand image.
There are more than 500 Birkenstock stores around the world and more than 200 in the USA, but the U.S. stores trade under different names and have different fixtures, with about one-half of their revenues coming from the Birkenstock line and the balance for the other family brands. Meanwhile, Birkenstock is trying out new formats in Europe and other parts of the world through its distribution partners, and expanding the store network.
In Germany, where it has only 50 franchised stores, Birkenstock is planning to set up about 8 new units, offering better discounts, fixtures and advertising support to its retail partners, but it is having a hard time in finding the right locations at the right price. Working through local partners, it opened the first Birkenstock stores in Beijing, Shanhai and Dubai earlier this year. The first Swiss store is set to open in Luzern in November, and it could be followed by a Swedish first sometime next year.
A recently opened Birkenstock store in Amsterdam has been yielding excellent sales results, similar to the levels attained by The Boot Tree in the UK. The UK has been one of Birkenstock’s fastest-growing markets lately, in spite of competition from fakes, parallel imports and products sold over the internet by certain retailers in Germany, where their retail prices can be 30-40 percent lower than in the UK because of the distributor’s mark-ups.
Spain and Italy have been developing well. A change of distribution in Denmark has been very positive. While refusing to give any sales figures or to comment on those published by us in the latest issue, Birkenstock officials indicate that total sales under the brand should grow this year by more than 5 percent in Germany and by about 19 percent in the rest of the world.
Counterfeits are the ransom of Birkenstock’s success, and the company is working hard to crack down on them. Last May 24, Birkenstock Orthopädie obtained a preliminary injunction in Cologne against eBay, which was found to be selling copies of its «Gizeh» sandals over the internet. Similar fakes have been identified recently in Coventry, Manchester, Israel and Yokohama, Japan. Investigations are going on to determine the sources of these products, and they seem to come all from Thailand.