The New Era Of Fashion IPOs: DTC-Focused, Digitally-Connected And Customer-Centric

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This week, according to the Financial Times, Birkenstock is considering an initial public offering (IPO) sometime this year or next. L Catterton, the LVMH-backed private equity owners of Birkenstock, bought a majority stake in the company in 2021, intending to expand into China and India.

Once considered a chunky, inelegant eye-sore and praised more for its comfort than its style, the Birkenstock nowadays (which has been around since 1774 and available in the US since 1966) has evolved into a comfy-chic icon. Alongside its usual sales of sandals and slippers, the brand has also collaborated with luxury shoe designers, including Manolo Blahnik and Dior, and has also inspired a range of variations from Chanel, Celine, and Givenchy.

Birkenstock’s most recent accolade: being worn by Margot Robbie in the new Barbie movie, which this week hit US $1 billion at the box office. Not surprising then that the appearance caused a 500% surge in Google Searches for the famous shoe. Barbie aside, Birkenstock has experienced a boost in popularity in recent years, fuelled by changing consumer preferences towards more sustainable and practical footwear, with a decent price point (sandals start at around $34), and of good quality.

All the interest has translated into tangible financial success, and Birkenstock has been able to invest in its production sites across Germany in the last few years, as well as completing a US $127 million new factory in Pasewalk, an hour north of Berlin.

It’s speculated that Birkenstock’s upcoming IPO could potentially value the company at over US$8 billion, making it one of the largest valuations for a mid-market brand in recent years, with 2021 being the last time the US stock market saw a flood of fashion companies listed. In the busiest year since the dot-com bubble in 2000, 2021 saw Poshmark, ThredUp, Mytheresa, Dr. Martens, Allbirds, Rent the Runway, and Authentic Brands Group, among others, go public.

Although not all of them have been able to justify their initial valuations in the years since,  newcomers have substantially altered the industry’s outward image for what a listed fashion company looks like: a transformation magnified by the bankruptcies that ousted established players like J.C. Penney and Tailored Brands Inc.

But even with strong income statements in the buoyant market environment that was 2021, the success of any IPO is far from assured, and many of the companies mentioned had their stock prices nosedive due to difficulties in showcasing a definitive route to long-term profitability. In the 18 months following the boom, things slowed down: coinciding with a market shift that was unfavourable to startups because of escalating interest rates and inflation, casting a shadow over the future prospects.

Punctuating the IPO drought in July of this year was Oddity Tech, an Israeli company specialising in AI-driven cosmetics, who became the first major beauty IPO since October 2021. Oddity’s advantage is its sophisticated technology – along with the billions of data points it has collected from its 40 million users – as its makeup brand Il Makiage uses an advanced shade-matching algorithm to match customers with the best possible product. For even more accurate results for customers, Oddity acquired Voyage81, a computational imaging startup, to harness its hyperspectral imaging expertise that can ‘map and analyse skin and hair features, detect facial blood flows, and creating melanin and haemoglobin maps from a simple smartphone camera photo.’

It seems that a new era for the fashion IPO has begun: where brands understand their target consumer and their preferences well, can connect with them effectively through digital channels, and want to sell to them – at least primarily, until the wholesale model almost inevitably comes knocking – with no intermediary. In its prospectus, Oddity clearly states that conventional beauty enterprises that hinge on wholesale distribution frameworks are at a disadvantage, and that its product line is crafted to suit a DTC model. However, while enjoying hyper-personalisation, consumers are also ambivalent about access to their data – specifically the biometric kind – which can be a large component of a DTC offering. To make matters more complicated, DTC brands have been met with new challenges because of alterations in the regulations governing companies’ capacity to monitor user data, which have impeded their ability to effectively engage potential customers through social media platforms.

Even with these obstacles (and the fact that Oddity stands out from the slew of other 2021 fashion because it has grown while achieving a profit) brands are not deterred – Skims and Shein are rumoured to be next in the IPO queue. How things unfold will be worth watching, as conditions are not the same as they were in 2021: back then, the fashion industry benefited from the pandemic rally on Wall Street where investors celebrated robust consumer spending, government aid, and the economy’s ability to adapt after the initial lockdowns and panic subsided. There was also a rush for newness and excitement from consumers and heightened intrigue in the stock market among everyday individuals. But both Skims and Shein are planning to open their first physical stores in the US, something that could be the key to success in the current landscape. Because even though the IPO game has changed in the sense that a large capital investment for brick-and-mortar is not necessary, the optimal strategy now involves prioritising digital communication and streamlined systems from inception, and integrating them with a personalised and enjoyable in-store experience.

What lies ahead? As 2023 continues, it’s unclear how many more DTC companies will go public. It also remains uncertain how many of the recent entrants into the market are genuinely prepared for public status, and whether investors will maintain their substantial investments in the consumer sector as the effects of the pandemic subside further.

But Birkenstock’s IPO is more than a mere strategic business manoeuvre; it stands as a clear indicator of the course the fashion industry is charting. As the market has been awash with volatility, brands are now tentatively peering over the edge, contemplating public offerings – a glimmer of a pulse in the industry. But, we haven’t emerged completely unscathed from the challenges yet; the complete rebound is still just out of reach. Nonetheless, it’s an era of change, of reimagining. The fashion industry continues to show its resilience and capacity to adjust, underscoring that fashion isn’t solely about garments: it’s intricately intertwined with culture, the economy, and the zeitgeist.

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