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Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Aaron Alpeter (00:00)
despite this company being 250 years old, we you really haven't heard about them until the last 15 years or so.
Hey everybody, welcome back to E-Commerce On Tap. I'm your host, Aaron Alpeter. For those who are new to the podcast, each session we focus on a different industry. We do deep dives in at least six different brands whose history, supply chain, or exit potential teach us something about this industry and where it's headed. this season we're focusing on a category that we're all very familiar with. It's footwear, but we're doing something a little bit different. in addition to doing some of the deep dives on on some of the most influential companies in the category, we're also bringing on rotating co-hosts for each episode.
And I am happy to have my friend Niket Shah on. you could say that Niket and I swap places. So he's a Canadian living in America, while I'm an American living in Canada. he's also one of the co-founders of Acceler8 Labs. And so when he's not podcasting with me, he's busy helping brands grow and scale their marketing ability.
So Niket, thank you so much for being on. And why don't you just introduce yourself and Acceler8 to our listeners?
Niket (01:03)
Yeah, thanks, Aaron, so great to be here. Appreciate obviously the opportunity.
yeah, it's kind of crazy how I ended up in New York. So I've obviously been born and raised in Toronto. It's been, where we started the company, where I've had my career, and we got to a place at Acceler8 where we were really trying to, crack the US market a little bit more, work with some of more of our partners. And I've always personally been curious about living there. So it was one of those things that, the opportunity presented itself. my wife and I took the plunge and kind of moved ourselves down to New York and it's
It's been a really cool experience. And, for myself and my wife, we're both really big into to sports, music, entertainment. So, you know, there's no better place than New York City to live for a couple of years and try it out.
Aaron Alpeter (01:38)
Awesome. Well good. Well, we have a a tradition on e-commerce and tap before we get into talking about footwear and the particular brand today, ⁓ we always like to start with a tidbit. And so do you have anything you want to share
Niket (01:43)
Yeah.
Yeah.
one of the things that I've really noticed in in just over the last, you know, several months is like this AI revolution of creative. And I think it's one of the things that even at Acceler8 we're really diving into is using tools like MCPs that help us connect, you know, our creative resources, our creative strategy, even competitor analysis into things like Claude or ⁓ other tools to really pull out the insight at a really, really fast rate. So just the iterations of doing that in the last like two.
weeks I think I've learned so much and just how to do it and it's been a really cool interesting pathway for us to go on. What about yourself? Yeah. Yeah?
Aaron Alpeter (02:24)
Yeah, it well the tons. I just on the on the Claude stuff too. I mean we
we spend an embarrassing amount of money on Claude. ⁓ really it's like one person spending too much money, but we l we love it. I mean we use it for everything. So ⁓ yeah, it it is a revolution, that's the way to look at it.
Niket (02:32)
I can imagine. Yeah.
Yeah.
A hundred percent. It's growing so so fast and I think like it's only gonna get better. So it's kinda important to keep pace with it for sure.
Aaron Alpeter (02:46)
Yeah.
For me, I saw a report recently from Dow Jones that claimed that the US lost a hundred and seven billion dollars in tariff evasion in twenty twenty five. And again, keep in mind that there was only like a hundred and twenty billion dollars that was brought in through Section 301. So we're saying that almost that amount of money was lost through tariff evasion. And so just some statistics they were able to pull out in
In the first six months of twenty twenty five, C B P issued fourteen hundred enforcement actions, meaning that like they they busted fourteen hundred ⁓ importers. And they had recovered about a hundred and ninety-two million dollars by June thirtieth, which was higher than the whole hundred and seventeen million dollars they had gotten back in fiscal twenty four. And so there's a hundred and sixty percent year over year surge in ⁓ complaints between just March and May of twenty twenty five. So kind of
peak liberation day stuff that was going on.
And it's just remarkable because, you know, all these things happened when tariffs were kind of in the back mirror for all of us. I mean C B P has hired five thousand people as part of the big beautiful bill. what is interesting is that they're starting to take this framework that was
Niket (03:46)
Right.
Aaron Alpeter (03:53)
Built to find deliberate invaders, and they're now going after negligent importers or people who may or may not have known better. And so there's all these sorts of things that they're doing around machine learning, AI, massive amount of funding for CBP. And then there's actually these whistleblower awards. Have you have you heard about these? So if someone makes a claim to CBP that someone is
Niket (04:11)
No, I haven't.
Aaron Alpeter (04:19)
misclassifying their HTS codes, undervaluing their goods, claiming it comes from a you know the wrong country of origin. If CBP gets that money back, that whistleblower gets 30%. And so it's like it's just this this crazy thing that's happening. And I don't know, we we kind of are thinking right now that okay tariffs that was last year, it's all behind us. Are they legal? Are they not legal? But the reality is that the infrastructure for compliance is so much stronger.
Niket (04:42)
Yeah.
Aaron Alpeter (04:46)
And I think that, you know, they can go back five years and find things even when you weren't trying to to get around it. So just an interesting thing I caught my mind.
Niket (04:54)
That's crazy to think. Like, and what do you think that means for like importers that are doing things the right way and getting caught up in some of the stuff sometimes? Like do you think there's just gonna be, a backlog or some, false positives that come from this?
Aaron Alpeter (05:05)
Well, it's interesting because I think like if I was C B P and I had all this funding and tooling stuff like I'd first focus on what was coming in and making sure that I catch any errors or identify people who are cheating either willingly or unwillingly right now. Like that that's the first thing I'd focus on. But then once you're caught up, those same AI tools and those same people, if they've got capacity, are gonna go backwards and they can go backwards five years. And so there's just there's gonna be things that pop up and
I think, it's not unreasonable to think that there will be companies that get enforcement actions or or basically bills from CBP saying, Hey, you know, this this shipment in twenty twenty three, ⁓ you you owe us thirty thousand dollars for like, what? And you think about the legal fees, the broker fees, all sorts stuff. So I think that we're not quite out of the woods here yet.
Niket (05:48)
Yeah.
Yeah, totally interesting. And it'll be interesting to see how it plays out over the next little bit. And you kind of even mentioned and alluded to AI there as well. So interesting to see how the CBP is going to utilize that and and kind of their enforcement activities here too. Awesome. Well, before we jump into it, actually, I know Aaron that this is a really interesting topic. And when you kind of asked to ask me to jump into this and and discuss, it was something that really caught my eye.
Aaron Alpeter (06:04)
For sure.
Niket (06:15)
when we think about shoes, we think about, the style, the identity, like, is it connected to an athlete? how does it make me look or feel or what does it match the clothes I'm wearing? And not really kind of the biomechanics that really go into it. But I think most people wear shoes and find shoes because they stand on them all day and and they're walking around the cities and and I think it really impacts how it it works with you on a day to day basis.
Aaron Alpeter (06:36)
Yeah, this is a great segue because this episode we're gonna talk about Birkenstock. And what makes them so interesting is because unlike pretty much any other footwear company that we've looked at or profiled, they didn't start with aesthetics and then layer on the comfort. They started with the foot itself and and trying to like think about it from a biomechanical perspective from a really, really early stage.
Niket (06:58)
Yeah, so are we talking more about like a footwear company here or something closer to like a medical product? And I think that's exactly the kind of question that we're gonna try to explore today and answer that. ⁓ and what makes this story really work? in this case how medical products turn into a brand that has a cultural phenomenon as well.
Aaron Alpeter (07:15)
Yeah, so let's let's kind of ⁓ start and just set the table a little bit for for how we get into Birkenstock. And so I think we we need to have a a crash course in feet first. feet are structurally actually very complex, and like mechanically they can be pretty demanding. So your foot has 26 bones and over 30 joints, and there's this whole network of ligaments and tendons and muscles that collectively help you manage your your load, your balance, your propulsion.
as you go about doing your your daily chores. ⁓ if you simplify into the key parts of the foot that matter for foot where you have your heel, ⁓ which absorbs your initial impact for most people when you're walking. You have your arch, which is what distributes the weight and helps you store elastic energy. And then you have the the forefoot or or the toe of the foot. And that helps you push off and and you helps with your balance. And when these systems are functioning well, ⁓ walking is efficient. It's it's
pain-free. When they don't, you have like very specific pain points in very specific areas. So you can have like plantar fasciitis, which is an inflammation of the active tissue on your arch, or flat feet or collapse arches, or bunions, which are joint misalignment. And so just general foot pain comes from poor alignment with this the system that you're dependent on.
Niket (08:19)
Yeah.
Yeah, and I think from a consumer perspective, most people don't think about it in like
terms. They feel symptoms, things like heel pain, arch fatigue, you know, instability, or even just kind of discomfort from a long day, even walking around the park and things like that. And I think footwear therefore has kind of become more of a proxy for problems that people face on a regular basis, and and most people don't really understand it
Biomechanically. even historically, you know, foot ailments were pretty widespread and often pretty severe. And I think if we go back to pre-modern societies when people were spent long days walking, you know, over very uneven terrain in very labor-intensive roles, ⁓ even wearing very poorly constructed footwear, I think these were very prominent, right? And if you go back to even the ancient medieval periods, there's little to no formal understanding of any of how does biomechanics work and the solutions.
back then were pretty crude, right? People relied mostly on protective footwear, things like sandals, leather straps. You think back to like the Roman warriors, they're not wearing much on on their feet. It's just more so to protect their feet from from some of those scratches and and deformities like you know bunions or collapsed arches that were, you know, very common but largely untreated that could really lead to some long-term disabilities. And even in extreme cases we've seen prosthetics being used, such as like peg legs to replace lost limbs and
warriors and soldiers and even, the pirates and and we kind of see just they provide very little apart from basic mobility. And I think back then, the dominant paradigm was just endurance. Just kinda allow your feet to go as much as they possibly can and adapt to the pain rather than systematically try to correct it.
Aaron Alpeter (10:08)
Yeah, I think that endurance piece really speaks with me. I'm I'm I'm having flashbacks of when I was in middle school and high school and I was running track and cross country and and ⁓ my dad always say, just run through the pain. That's what you're supposed to do. And so it's like it's like the you know, it's remarkable that the prescribed treatment for thousands of years was just deal with it. ⁓ when did people start to actively try to fix things?
Niket (10:19)
Yeah.
It's actually a lot more recent than I even thought coming into this conversation, just thinking about footwear and how it's we've got to where we are today. I think it's by the 18th and 19th centuries, especially as like urbanization, industrialization had increased, I think foot problems became a lot more visible and more economically relevant to, everyone in society as well. workers were standing for a very long period on really hard surfaces. soldiers were marching very long.
Distances, and some of this ill-fitting, mass-produced kind of footwear that we've seen started to really replace some of that custom shoemaking that we were thinking about. this led to a rise in probably some identifiable products, repeatable foot conditions as well, chronic pain deformities. this started to attract a little bit of attention from both the craftsmen and some of the early medical practitioners in the space as well. So I think we've seen, and when I was
researching
this shoemakers started experimenting with different things like insoles that were a little bit more supportive or reinforced arches that helped for a long distance and just kind of better shaping. And then the medical professional started studying things like posture and gait a little bit more systematically. And I think orthopedic really thinking started to emerge around this period as well. So introducing the idea that you know the foot structure could actually could be corrected and could help if someone's
posture and the way they they walk and and you know have a productive day. ⁓ but I think a lot of the solutions at this time, around this time were still really reactive and and individualized for individual people. Things like custom orthotics or modified shoes. ⁓ and those were really developed after somebody had a problem or something that already existed. When we go a little bit further into kind of like the late 19th century, 20th centuries, the groundwork was kind of in place for a shift from correction
to more prevention. So thinking about how do we prevent some of these long-term ailments from even happening in the first place. And the category had kind of started, but it hadn't really been evolved at this point. So there was more of a growing recognition that foot health overall
impacted posture, impacted things like mobility, your overall long-term well-being. ⁓ but yet most of those interventions still really occurred after the discomfort had happened and you know damage had appeared. So this is kind of the backdrop that leads us to Birkenstock and and how this company has started. So Aaron, were you able to learn a little bit about kind of who the founders were and how we got to this point?
Aaron Alpeter (12:57)
Yeah, well, even just identifying who the founders are is is an interesting question, ⁓ because we're really talking about a family business. And the Birkenstock story started in 1774. Yeah, 1774. ⁓ when Johann Adam Birkenstock is recorded in church archives as a shoemaker in the German village of Langenbergheim. And at that point the family was operating a traditional craftsman, you know, with highly localized economy. they made durable functional footwear for nearby communities.
Niket (13:08)
Wow.
Aaron Alpeter (13:27)
And I think it's interesting, like shoemaking at this time was not about brand or scale. It was about fit. It was about repairability. It was about utility. And for decades the Birkenstocks followed this model. They passed down their technical knowledge through generations as part of a a broader European guild tradition. their early identity was really not differentiated. They were one of many shoemaking families serving practical needs kind of in this industrial world.
Niket (13:50)
there's something powerful about having a craft that the entire family is ingrained in and revolves around. just recently I was just outside Vienna in Austria, and some of the winemakers that we got to visit, like they were ninth generation. And like this is the entire thing that their entire family did. ⁓ and it's really interesting. And and obviously Birkenstock kids, you at a very young age would have would have also been helping out or at least hearing conversations.
conversations and discussions around what today we call podiatry or biomechanics.
Aaron Alpeter (14:18)
Yeah, it's a really good point. I think like it's hard to understate the impact of just being surrounded by all of these conversations. I mean, they literally it was probably like, How was your day? Well, I made these shoes here, you know, these pe these feet, here put things. And they weren't the only shoemakers in Europe. And so at some point they started shifting from being a group of tradespeople to a core philosophy and eventually a product. ⁓ who was responsible for that transition?
Niket (14:43)
Aaron, actually when I was researching this, when I look back at it, it was actually Conrad Birkenstocken, and he's a descendant of the patriarch, and he actually comes out and emerges as a really pivotal figure in this entire situation. So rather than trying to outcompete some of the factories, Conrad really began focusing on something factories couldn't easily replicate at the time. And that was more of an understanding of the foot itself.
And by the 1890s, ⁓ Conrad had started experimenting with cork insoles, specifically designed to support the natural contours of the fit, so they molded a little bit better to how the foot was actually set up. And this wasn't a small tweak to existing products, it actually represented like an overall shift in how he thought about footwear altogether. And instead of treating the shoe as a protective layer, he began to view it as an interface between the body and the ground. So his insoles were designed to distribute weight a little bit more evenly to reduce.
reduce the strain, particularly for people who walked or stood on their feet for a long period of time. And at this stage, innovation was still really embedded within the existing business model. He was selling insoles alongside shoes, but the underlying philosophy had changed.
Aaron Alpeter (15:52)
Yeah, and you know, this is where Cork and Birkenstock kind of come together. I mean, that's that's what you always think about even today. ⁓ so yeah, eighteen nineties, that's that's amazing. I think what's really interesting about this moment is that it started to attract a different kind of customer. So people weren't just coming to the Birkenstocks for durable shoes. They could get those anywhere. But what they started coming to was relief for this chronic foot pain that they had. And so whether you're a worker, a tradesperson, or just someone else who has, you know, sore feet.
Niket (15:55)
Right.
Really.
Aaron Alpeter (16:20)
You begin to seek out these insoles and your reputation in this word starts to spread, beyond just the immediate village. And so neighboring towns, cities became aware of this, German shoemaker who seemed to understand foot discomfort in a more systemic way. And so that was like the first sign that they had transitioned from this local craftsmanship framework.
To something that was a little bit more of a specialized offering. And the product was beginning to travel farther than any individual person could do. And so at the turn of the 20th century, Conrad started to formalize his ideas. He didn't just produce cork insoles, he began to teach. And he published educational materials on foot health and conducted training sessions for other shoemakers and really tried to explain how proper support could improve posture and reduce pain for people. And I think this was like a really critical step because
The business is moving from this tacit knowledge of, you know, father to son sort of of hand-me-down to really explicit documented knowledge. So this is something that makes it much more scalable. It's they're really kind of doing science at this point. And so Birkenstock starts to behave less like a workshop and more like an early platform for a new philosophy for footwear.
Niket (17:29)
Yeah, it really kinda shows you the value of of writing things down here at this point.
Aaron Alpeter (17:33)
Well, yeah, I mean that that was the innovation was they they took down all of this insight and they wrote it down. And I'm I'm sure there were probably other shoemakers in other parts of Europe who had come to similar conclusions and understanding about feet and footwear, ⁓ but they didn't write them down. So we don't talk about them. but at the same time the company begins to start standardizing other aspects of their production. And it was still a long way to go from like what we consider industrial scale today, but it was really a more of a shift toward repeatability.
Niket (17:35)
Yeah.
Right.
Aaron Alpeter (17:58)
instead of creating entirely new solutions for each customer, Birkenstock Insules started to incorporate consistent design principles that could be applied across a lot of different users. And so this is really where they start to to begin to think about scalability. And it maybe wasn't an intentional view towards scale, but it's it's like the nucleus for what becomes.
And so they said, Okay, look, if the underlying structure of the foot is broadly similar, then our support systems can be standardized to some degree. And that kind of underpinned everything that they sought to build afterward.
Niket (18:32)
Yeah, thinking back at it, it kinda really seems Conrad was motivated by, you know, what today we would call thought leadership and and really saw these classes as an overall service to the industry and trying to help the whole industry move forward. and there's no clear evidence that, he's
aggressively pursued patents in the early years and and that's telling in itself and and just as motivations. And rather than really protecting a single breakthrough in invention, you know, their advantage was really rooted in their system of thinking, like how the foot should be supported, how material should be behaving and how product should be constructed. And this made it harder to copy in a really meaningful way. Even if you know the individual elements could be replicated, their IP in a sense was really embedded in the process and their philosophy rather than just a single
protected design.
Aaron Alpeter (19:18)
Yeah, th that's right. And think the next major leap that comes in the Birkenstock story is when they begin integrating their insoles into footwear. And so, you know, aga again, keep in mind that we're selling shoes and they're selling insoles for a long time. And even if a customer bought both, they had to buy both. And this required a rethinking not just of the insole, but the entire construction of the shoe. And so, you know, how the upper connects to the footbed, how materials
interact over time and and how that product ages with use.
this also marked a shift towards a more productized offering. So rather than selling components or custom modifications, they were now selling this complete pain relief system. And as this production expanded, they began to attract a wider network of distributors and retailers, particularly those involved in health and wellness.
Niket (20:06)
It that's really interesting. Around what year was this?
Aaron Alpeter (20:08)
it was between nineteen hundred and called World War One. So Birkenstock's business was really centered on the insoles and the footbeds, not the full footwear. ⁓ and so, you know, by the 1910s and 1920s, ⁓ they started to formalize their production and infrastructure. So they create a centralized manufacturing capability in in Friedberg and Germany, and ⁓ this allowed them to kind of move from small batch craft production to more repeatable systemized output.
And it it's really kind of in the nineteen tens, nineteen twenties, where they introduced what was referred to as the Blaus Fußbett or the Blue Footbed, which was a standardized version of their cork contour insole that they they could produce at higher volumes. And it was really important because it represented that that full transition from custom or semi-custom into something that's more of a scalable SKU And they were no longer just
beginning to experiment with their philosophy, they were actually productizing. And starting in 1925, they opened a training school for orthopedic shoemaking. this is where other shoemakers or practitioners could come and learn about foot anatomy, right? which is, think about you've been make making shoes for a long time and you're like, well, what what goes into a foot? And what what does proper support look like? ⁓ and more importantly, how can you integrate Birkenstock's products into your work with your customers?
This was really, them taking a step forward in creating an ecosystem. And they weren't trying to outcompete every shoemaker. They were trying to influence how shoemaking was done. by the 1930s and into World War Two, they continued to operate as like this niche health focused manufacturer ⁓ rather than a mainstream footwear company. and and their products were used by professionals, consumers, and and other people who really just prioritize foot support, but hadn't yet broken into broader cultural or fashion markets.
Niket (21:54)
Yeah, and when researching this, like thinking back to to what I learned about just obviously the history of Germany between the wars, you can you can really understand some of the constraints that were placed on them at the time. Things like the economic instability, the rise of the in industrial competitors, and eventually the war, really kind of limited their ability to scale internationally.
But the underlying system they had built was now kind of firmly in place. They'd, really standardized footbed, a growing manufacturer base, and a network of trained practitioners who understood and advocated for their overall approach. And by the end of World War II, Birkenstock was still relatively small and regionally centralized, but it had evolved from a local craft business into a structured philosophy-driven company, and with early components of scale already established.
Aaron Alpeter (22:39)
Yeah, and I think it's important to go back and again, we weren't around during the post war period, but this was such a transformative period for the world. I mean, you look back at companies that were started, frameworks, Pax Americana, all this sort of stuff. this was such a an important piece for just the history of the world. And at the time there were also so many new materials that were coming to market and there was an earnest effort to to rebuild.
Niket (22:44)
Right.
Aaron Alpeter (23:01)
You talk about Germany going through this transition between the wars, and now we've got the post war period. ⁓ how did that reshape Birkenstock and and their approach?
Niket (23:11)
after the war, most shoemakers were still doing things roughly the same way they'd done it in generations past. But the real inflection begins around the 1950s and 1960s when Birkenstock takes some decisive steps. They're embedding the footbed directly into the full footwear. So this leads to the development of early sandal models that integrate kind of their orthopedic principles into a complete product that someone can essentially.
pick up off the shelf if if you think about it in relative terms. And this is the moment where Birkenstock transitions from a component supplier of just the insoles to a consumer-facing footwear brand. It also helps them simplify distribution. instead of relying on trained intermediaries to explain and fit insoles, Birkenstock can now sell a finished product that communicates its value more intuitively. and even so the brand remains largely European and still pretty niche.
Its products are seen more as functional, even unattractive, and are not yet positioned as lifestyle goods.
Aaron Alpeter (24:09)
they're just kind of here in Germany selling these things and and I think the company would continue as this niche thing, but then there was ⁓ a a big step forward, ⁓ pun intended, ⁓ with the United States in the late nineteen sixties. And there's a woman by the name of ⁓ Margot Fraser, who was a German-born entrepreneur who discovered Birkenstocks, the sandals while she was traveling in Europe and she decides she's gonna bring some of these back to the US in nineteen sixty-six.
And she really likes them. And some of the people that she talks to really like them as well. And she begins to import them and starts to sell them through health food stores and small special retailers as opposed to traditional shoe stores.
Niket (24:50)
Yeah, this is a crucial distribution insight. Like Birkenstock doesn't enter the US as a fashion brand. It rather enters through the natural living, wellness ecosystem, which is already primed to value comfort, durability, and health benefits. So it was a it was a perfect match. And this accidental channel gave them enough space and room to establish their brand and find their target consumers without really competing with the mainstream footwear brands that were starting to grow at this time as well.
Aaron Alpeter (25:17)
Yeah, and you're exactly right. I mean, that's what's really interesting about this is that the early US expansion of Birkenstock was not driven by the the German parent company at first. It was effectively outsourced to an entrepreneur who created the market from scratch. And Margot Frasier eventually creates a company that becomes Birkenstock Footprint Sandals. ⁓ and at this stage the German company is not building a US strategy at all. they're they see themselves as supplying a product, not building a market.
And Fraser is completely responsible for everything downstream: the education, the merchandising, the channel selection. And her key insight was that selling through health food stores and natural living retailers is what allows the product to gain its traction. And you know, you think about traditional shoe retailers, they rejected Birkenstock because the product didn't fit in with the fashion expectations. And so the brand kind of grows in parallel to this mainstream footwear industry rather than inside it. And through the 70s, you know, the US business really starts to grow.
But it does so in a ⁓ decentralized manner. Again, it's a distributor-led model. And Birkenstock Germany continues to manufacture and export. And they they like doing this. They start selling to Fraser and some other people. And unlike a lot of the other brands that we profile, there was no significant retail footprint owned by Birkenstock. In fact, there's very little direct operational presence from Germany. Instead, the brand kind of goes through these networks of independent retailers, co-ops, especially stores, small boutiques.
And this has the benefit of keeping the overheads really, really low. And it aligns with this brand's emergent identity. Again, nobody's crafting this identity. It's it's happening organically. ⁓ but it means that the company has limited control over its presentation, its pricing, and the customer experience. And so, you know, you're you're a marketer, and so I want to get your perspective. Are there advantages to this approach or was this more of a function of not paying much attention at the time?
Niket (27:04)
Yeah, it's a good question. I think I think it's a bit of both, right? I think as you're growing as a manufacturer, it allows you to really focus on what you know best, which is how to make a really great product and
Dive 100% into that. But one of the things you lose out on is exactly that marketing aspect, right? So when you kind of outsource all of your marketing to somebody else, you lose control of how it's being presented, how it's being sold, perhaps you know, some of the promises that are being made to consumers or potential consumers there. And the wider that gap grows or the bigger the disconnect, sometimes the product can start to feel short of what's being sold in market and you lose control of what your product ethos is and what it's really
Supposed to be. And I think we see this, throughout history and throughout many other products, ⁓ even today, right? hindsight's kind of 2020 when when this thing is happening. And, you know, even Apple was manufacturing phones in China for over a decade before they actually started selling into China. And initially they thought the price point just wouldn't would make it really unattractive and out of reason for most of the Chinese consumers. And, you know, they reluctantly opened a single store with low expectations. And the demand was far bigger than they thought.
And I think today China is the number one or number two market for Apple. the German parent company here is relatively comfortable with this model for a long time. And I think largely because it supports their a steady demand without requiring a significant investment for them, especially in in the US where they're they're not really present. But I think it creates inefficiencies for them over time. I think there's a lot of brand inconsistencies that come from it.
I
think there's no unified national strategy. So, you know, what is this brand? What is the positioning of it? And I think that started to really depend on the retailer or the distributor rather than the parent company of Birkenstock. And at this point, it's still really perceived as niche, ⁓ really popular in certain subcultures or regions, but it's far from mainstream. And I think they're really struggling for how do we how do we make it mainstream? How do we figure out what that shift needs to be?
Aaron Alpeter (29:06)
Yeah, I don't know if this ever happened, but I can imagine my mind like someone from Birkenstock family going on a tour of the US and they see that hippies are all over and and like you know, they're up in Oregon and and doing crazy things like that, and they're like, ⁓ well this isn't this isn't this isn't our family, these aren't our values, like what's going on? And I again I don't know if that happened or not, but something starts to change in the late eighties and early nineties. And this is I
Niket (29:15)
Yeah.
Yeah.
Yeah.
Aaron Alpeter (29:31)
The German company kind of wakes up and realizes that the US is a really critical growth market for them. And the demand is no longer limited to just these fringe channels, but there's enough brand awareness ⁓ to justify a more coordinated approach. And so over time, Birkenstock begins to consolidate distribution, reducing the number of independent importers and bringing operations more directly under its influence. And this, you know, involved creating strong relationships with with key wholesale partners directly and beginning to standardize how the product is presented.
Niket (29:45)
Right.
Aaron Alpeter (30:00)
And so while they still relied heavily on wholesale, ⁓ they really started to think about, transitioning from being a passive exporter into a more active market participant. And it's really not until the 2000s and especially the 2010s that Birkenstock fully leans into the US as a strategic priority. And so, despite this company being 250 years old, we you really haven't heard about them until the last 15 years or so.
they did this by building this direct organizational presence. They started investing in their own retail stores and investing in e-commerce. And the brand had already had broad recognition. and that goal shifted from seeing the market to actually controlling it and scaling it and keeping more of those dollars. And in hindsight, like the earlier decades of this loose distributor led growth was not a sign of neglect, but a form of low risk market development.
we can't understate the impact that Frasier and some of these other early US distributors had when they were creating the man. I mean, Birkenstock Germany eventually stepped into a structure and amplified it once the opportunity became undeniable.
Niket (31:02)
it's really interesting when you zoom out of it and kinda look at now Birkenstock as a series of multiple acts in their history and you think about it almost like a play. And you think about like act one being the shoemaking family and what kind of made it who it was. And then act two is Conrad coming in and and focusing on the insoles and the biomechanics behind the shoe and the insole. And then you look at act three was this expansion into the US and then
Now we're kind of in Act Four, which is this current cultural renaissance that they've, you know, achieved in the last 15 years, especially here in the US.
Aaron Alpeter (31:34)
I I really like the framing there because it these definitely feel like distinct chapters in the history and and they're very, very different from one another. was there anything you can point to in the twenty tens that that was responsible for all this? Was there some sort of ownership change or or leadership change?
Niket (31:50)
Yeah, was interesting because I really going through it and kind of comparing it to some of the other brands that we see that have have achieved success here in in the US. their ownership story is actually a pretty clean example of a multi-century family business that's really only just recently professionalized into a capital structure that we're more familiar with in some of these larger companies. So and I think that timing matters for how a brand's really evolved. So, most of its history
over 200 years, Birkenstock's entirely family-owned and operated. And I think the control of the company has just been passed down through generations of the family. And the decision making's been relatively tightly aligned with the company's core philosophy around foot health and the manufacturing discipline. ⁓
Where they are. There was no external capital really pushing for rapid expansion or margin optimization. You know, the business was really run more like a craft-driven industrial company rather than a modern consumer brand. But that really started to change for them around the 2010s. So as the company started to scale more aggressively and the global opportunity became more clear for them, this is kind of the point where Birkenstock's no longer a niche brand. It's a
Becoming a meaningful global player with a growing demand across US, Europe, and even Asia. And at the same time, the ownership is still really concentrated within the family, primarily under Christian Birkenstock and Alex Birkenstock, who represent the later generations of leadership.
And this challenge becomes less about proving the product market fit now and more about how to scale distribution, retail, and brand positioning globally without trying to break the core identity that made Birkenstock what it is.
Aaron Alpeter (33:43)
Yeah, that that's that's remarkable. I mean two hundred and fifty years of family control and ownership. I mean, just think about that, like that's that's a long time. And one, to keep everybody engaged and bought into that, I'm sure there were people who went out into other things, but there was there was still enough people in each generation that wanted to continue it. And I think, you know, in in this fourth act, one of the major inflection points actually was just a couple of years ago in twenty twenty-one.
Niket (33:47)
Right. Right.
Absolutely.
Aaron Alpeter (34:08)
And that's when Birkenstock sold a majority stake to L Catterton which is a of course the private equity firm that's backed by LVMH. this was the first time in history that the company brought in any significant outside capital. And it wasn't really like a distressed asset. It wasn't really looking for a turnaround. They really did this from a strategic partnership perspective. And if you just break down the the logic, it's it's pretty self evident. I mean Birkenstock had already built the product, they had the brand, they had the credibility, but they needed
capital and expertise to expand into retail to tighten up their distribution and to elevate their positioning globally. L Catterton has the capital. They have access to luxury and premium brand playbooks. And that was really aligned with where they're headed to. And following that investment, ⁓ Birkenstock evolved their capital structure even more, culminating in an actual IPO in 2023. So you can go out and buy Birkenstock stock if you want to. And it it really finalized that transition from a purely family control business
To this mixed ownership model that includes institutional investors. And so family still owns and I believe controls a large portion of it, but it's now publicly traded. And in theory, there's liquidity for those folks and and any other institutional investors that come into. And so I think that it's it's just really interesting because a lot of times we, especially in the startup world, we talk about brands IPOing because they need the liquidity event or they need some sort of shot in the arm for capital or for an acquisition to get things going. But Birkenstock waited
way long, right? Right until they had this fully proven durable model before taking on capital.
Niket (35:38)
Right.
Yeah, and and even today, so Birkenstock no longer, a purely family owned company, but it's also not your typical
PE created brand. You know, it's still family built. It's a product first company that brought in capital late once the foundation and the the ethos of the company was already extremely strong. And I think that sequence, build first, scale later, is really a big part of why the brand's been able to maintain the integrity, even as the ownerships become a little bit more complex. And when you look at the revenue growth, it's likely the company was doing you know 10 to 20 million dollars in the 70s. You know, we can probably
estimate maybe a hundred million in the nineties, eight hundred million by like 2019 when we think about their US expansion and and just you know 1.6 billion in 2024. So that's phenomenal growth for a family built business. And you know I know we spend a lot of time walking through the history of the brand but you know let's talk a little bit about what makes a Birkenstock a Birkenstock. You know lots of other brands make sandals but why is this one so special?
Aaron Alpeter (36:44)
Yeah, it's it's really interesting. I think to understand Birkenstock you have to start with Cork. And ⁓ that that is, you know, what anybody who knows Birkenstock kind of associates them with a cork. And it's not necessarily, you know, cork as a material choice, but it's really the foundation of this entire product system that they built. And the unique thing about cork is it offers this rare combination of properties that
that really work well in foot support. So it's compressible and resilient, means that it can absorb the impact without permanently collapsing. ⁓ but also it gradually adapts and and changes its shape to mesh into the the wearer's foot. And this is from like the heat of your foot, the pressure,
and so you have this like subtle self-customization effect over time. And I you know they had no idea about you know all these properties when they started using it. They just kind of saw the outcome. And so Birkenstock was able to do something by using this cork that sat somewhere between mass production and custom orthotics. And you know, most footwear materials force some sort of trade-off. It's it's like it's either soft and unstable or rigid and uncomfortable. And cork avoids that compromise and it helps you have this like.
finishing process ⁓ once the the consumer is like wearing it long time. they don't have a monopoly on cork. You get cork from a couple different places. But what makes Birkenstock really distinctive is not just the cork itself, but how it's engineered into the layered footbed system. And they have this like cork latex core that provides the structural backbone. So you've got additional layers such as a jute for reinforcement and suede for comfort that
Niket (37:57)
Right.
Aaron Alpeter (38:19)
that create a product that kind of r evolves with wear rather than deteriorating. And so this idea of like the sandals maturing as you use them and and people like really liking broken in sandals that that they've worn for a long time, that's why they like with with Birkenstock, whenever you're wearing them for a long time, you tend to wear them even more. It's not as if they wear out and you have to get a new pair. ⁓ and and so this like the geometry of the footbed, everything I've done is really interesting because this they've got this deep heel cut customization. They've got
Niket (38:33)
Yeah.
Aaron Alpeter (38:47)
you know, the arch support that helps distribute the weight. They've got a tow bar that encourages a more natural gait. And so this this break in dynamic is just really interesting with what they've done.
Niket (38:51)
Yeah.
Don't other brands also use these materials? Like I mean cork's a pretty natural product. I know, you know, Birkenstock doesn't have a patent on it by any means.
Aaron Alpeter (39:04)
No, ⁓ you're right. And and you know, I think that's what's the the miracle of Birkenstock as a brand and and and really as a as a system, if you think about it that way. Cork itself is is a commodity, right? ⁓ lots of other people have tried to replicate this, but they haven't been able to do it in a meaningful way. And you know, a high quality supply of of cork is is concentrated geographically, so even though it's natural, ⁓ it primarily comes from Portugal.
Niket (39:14)
Right.
Aaron Alpeter (39:33)
And it requires specialized processing to achieve like the right balance of durability and flexibility. And their manufacturing process is a lot more complex and less forgiving than traditional foam-based footwear production. So this actually requires ⁓ precise molding and curing techniques. And probably the most important piece here is that Birkenstock has aligned its entire product philosophy around this cork footbed. And so for competitors to truly replicate it, they'd have to reorient their approach to design, manufacturing, inventory, et cetera.
⁓ which is, you know, really at odds with what the industry prioritizes around speed and cost optimization.
Niket (40:09)
Yeah, it makes sense. And I think that philosophy also explains why their supply chain is unusually concentrated and vertically integrated for a global brand the size of Birkenstock today, right? A significant portion of their production still takes place in Germany, where the company maintains tight control over both footbed manufacturing and assembly. And as you mentioned, Cork is you know sourced primarily from Portugal and processed within this control system rather than just being outsourced across a fragmented list of global suppliers from all over the world.
So this approach really limits their flexibility and can constrain rapid scaling, but it also reinforces their commitment to consistency and credibility. I think Birkenstock over time has built a really good closed loop system in which material choice, product design, manufacturing geography, and brand positioning all reinforce one another. And I think it's this integration and not an entire single specific feature that's really allowed the company to remain distinctive and resistant.
to imitation, even as broader footwear market has commoditized around it.
Aaron Alpeter (41:16)
Yeah, I think you summed it up well. I mean, this is not a typical story of like build a brand, find product market fit, sort of thing that we see all the times. It's it's almost the the inverse, right? ⁓ this is is really interesting piece, just the history, the context, how they did. I mean, I've seen Birkenstocks my whole life, and I'm like, okay, it looks like a nice, comfy, large sandal. ⁓ but as you've gone through and and become a little bit more of an expert in Birkenstock,
What are the most impactful takeaways that you have that you think founders listening should learn?
Niket (41:45)
Yeah, for sure. I think this is a really interesting story to go into. And I think one of the things that stood out to me most was starting with a system and not a SKU. I think Birkenstock didn't really win because of a sandal. It won because it built a system around the footbed.
And the sandal is just the delivery mechanism for that system. And I think most brands start with a product, right? Whether it's a shoe, a lotion, a snack, a canned beverage, whatever it might be, and then they iterate from there. I think Birkenstock started from a point of view about how something should function. What's the best way of doing it? And then build products around it. I think that's much more of a defensible position over time. I think there's you know the difference between selling items and owning a
specific category logic to it and I think it's you know more defensible it's it's harder to imitate and I think consumers overall will find a lot of passion towards that and really see the the infrastructure behind and the values behind what you're putting out there in in the ethos.
Aaron Alpeter (42:45)
Yeah, that that's interesting. I think like just to build on what you said, what what separates someone having a SKU versus a system? Because I think a a lot of people may say, yeah, we've got a whole philosophy, we've got marketing copy, you know, this is you know, here's our one, two, three step for skincare. ⁓ but how do you know if you actually have a system versus a SKU? Is it is it something that's immutable and doesn't change over time, or is it something that ⁓ you know, is is just there's more R and D or research behind it?
Niket (42:50)
Yeah.
Yeah, I think for me it's something that's rooted in the philosophy of the problem you're trying to solve or the need you're trying to assess for for whatever product that is, whether it's skincare, whether it's footwear, whether it's, a canned beverage.
If you build a system around the philosophy or a system around what it is you're trying to resolve or help, I think that is what really creates not a better product, right? You're not trying to find something and like you know, take a round peg and stick into a square hole. I think you're actually trying to build something that molds perfectly, just kind of how the Birkenstock cork molds perfectly to your feet. I think you're building a system that's much harder to compete with. And I think we see that across other products as well, right? We've we've talked a little bit about Apple here as well. And I think Apple's built a system.
system of their products that has really leaned into it. And it's it started as a tool and a solution to help creators. And I think they've built within that ethos as well. And I think it's really hard to compete with that. As there are other products, but there's something special about the Apple ecosystem that has made them really a defensible brand amongst so many competitors in the space.
Aaron Alpeter (44:16)
That's helpful. ⁓ yeah, I think for me as I think about lessons that I learned from this episode, ⁓ it it was really this focus on non-traditional channels. I mean, Birkenstock didn't break into the US through department stores, or other major chains. ⁓ they entered through health food stores and like these niche retailers, and they they went to where their value proposition naturally already made sense and it allowed them to kind of build in a blue ocean, right? They didn't go head to head with with large established brands, they did to to kind of build this distribution.
Niket (44:21)
Yeah.
Right.
Aaron Alpeter (44:45)
as I think about, the playbook they see in other industries, I mean so many people are like, I gotta be on TikTok, I gotta be, in Sephora, I gotta be on Meta. And yeah, that might be true, but I also think that there's something to be said from Birkenstock's perspective where it's like, go to wherever you think your people are. I mean, we just profiled Hoka ⁓ on the last episode and and you know, they start with ultra marathoners, but then they realize that like, hey, you know, people who have ⁓
Niket (45:01)
Yeah.
Aaron Alpeter (45:10)
difficulty walking and and you know, have pain. Like they like these shoes too. So let's go to where those things are. And so I think like the summary for is like the right channel is wherever your product is understood, not just where you think you need to be 'cause other people are.
Niket (45:16)
Yeah.
Yeah, absolutely. It makes total sense. That's really neat.
Aaron Alpeter (45:27)
Well Niket, thank you so much for ⁓ being my co-host today. ⁓ if people want to get in touch with you, what's the the right way to learn about you or Acceler8
Niket (45:35)
Yeah, appreciate it. ⁓ thanks for having me. best way to learn about us is you can ⁓ hop on our website anytime, acceler8labs.com, or shoot me an email at Niket@acceler8labs. Check every single one. So happy to to connect with you there.
Aaron Alpeter (45:48)
Awesome. And thank you so much all for tuning into this episode of e-commerce on tap. We hope you enjoyed it. We had a lot of making it. And we'll have you on next time.