St. Katharinen is an industrial area in Westerwald, a low mountain range looking down on the River Rhine.
And it was once the scene of a dramatic battle at the heart of the famed cult shoe company, Birkenstock.
The events that unfolded there in the 1990s shocked and horrified the footwear company’s employees, as well as many fans of the brand.
Karl Birkenstock, together with his sons, Alex, Christian, and Stephan, embarked on an all-out battle against the recently-elected works council, the body that represents the employees.
In what were at the time the main production plants, workers had dared to ask for things like sunscreens for the factory windows and equal pay for women.
After Mr. Birkenstock called the labor representatives at the firm “idiots” he was hit by a court order to pay a fine of 15,000 deutsche marks. In his anger, the patriarch of the family-owned business summarily closed down operations.
Mr. Reichert encouraged the squabbling brothers to pull together one more time and put the operation of the company into somebody else’s hands - namely his.
Until its closure, he had named the company DeP, which in the company was then widely pronounced “Depp,” the German word for moron – or worse. The unheated plant, which now lay idle, became known as the “Deppenhalle” or fools’ hall. The campaign of annihilation lasted four years. Finally the company’s remaining 87 employees left. The mud fight had cost Birkenstock 1.8 million deutsche marks in settlements and compensations, as well as incalculable damage to its reputation.
That was 20 years ago – the dark side of a family business with an iconic brand.
But for the last three years, it has been executives who are not members of the family that have been at the helm of Birkenstock – and they are once again moving the business forward. They plan to sell 25 million pairs of shoes and sandals next year, more than twice as many as in 2013.
There is also a works council again in St. Katharinen, led by Michaela Falk-Wagner. “Birkenstock has changed significantly,” she says. The path from the “Deppenhalle” to today’s successes was long and the steps along the way offer important lessons for many a family business.
After the father and sons had joined forces for the battle against the works council, they then turned on each other. The father relied on internal competition and passed on to his successors a hodgepodge of individual companies, each with its own group of shareholders, its own management, its own personnel, its own IT. Mr. Birkenstock senior even had his own company which supplied the main company with sandal buckles. The half dozen sub-brands such as Birkis and Alpro arose from the family power struggles and served to damage the main brand.
The personalities of the three young men were somewhat explosive, while their ability to agree on strategic issues was practically zero. Their business experience was largely limited to what they had learned at their father’s company. They had entered the company as teenagers or in their early 20s – Stephan after a couple of semesters of computer science, Alex as an industrial business management assistant, and Christian as a self-taught engineer. Alex admitted that they just “grew up in this world of sandals.”
But that world was now demanding a broader horizon and a clear strategy. While management structures remained provincial, the so-called Jesus sandals became fast sellers and a cult product. Karl Birkenstock had originally developed them as “orthopedic shoe inserts without the shoes,” where the foot doesn’t slip to the side but is deeply supported.
Now fashion icons were no longer sending their models out on the runways in high heels but in Birkenstocks, driving up the demand for the clogs to ever new heights. Supermodel Heidi Klum contributed her own collection. In 2014 Hamburg’s Museum of Ethnology included Birkenstock sandals in an exhibit of typical everyday German articles.
And while the company didn’t exactly have crisis years, there were decision bottlenecks, stagnation and a climate of fear. Instead of economically leveraging the brand’s potential, the Birkenstock brothers blocked each other. Finally, in 2013, with no solution in sight and the in-fighting crippling further development, they looked for and found a way out.
Stephan Birkenstock, who had consistently represented his father’s point of view and wanted to protect Birkenstock from too many changes, sold his shares to his two brothers for an undisclosed amount, presumably in the three-digit million range. Alex and Christian Birkenstock withdrew from management and each agreed to delegate a trusted managing director. Alex Birkenstock named as his representative Markus Bensberg, a veteran of Birkenstock who had been working with the company for 25 years. Christian Birkenstock chose Oliver Reichert, a Munich TV executive who had just recently become unemployed.
It marked the rebirth of the company. In 2015, according to the family business’ own statements, it saw €600 million to €700 million worth of sales, twice as much as in 2013. In the last business year, which ended on September 30, 20.5 million pairs of shoes left the productions lines compared to 12 million in 2013. And in a few years, that figure is expected to reach 50 million.
The success is largely attributable to Mr. Reichert. At first glance, the 45-year-old doesn’t really fit with the image of the somewhat conservative sandals. Early on, he was already seen in managerial circles as “that wild guy with long hair and Birkenstocks on his feet,” as he himself says. Until 2009, the amateur soccer player without a secondary school diploma was in charge of the Deutsche Sport-Fernsehen (DSF), the German sports TV channel belonging to the Constantin Media Group. Then, after 10 years he was suddenly fired despite “a record year of 2008 with €20 million in profits,” he says. He then tried to purchase DSF from its parent company, Constantin Media, but to no avail.
In 2010, the suddenly-jobless TV executive met Christian Birkenstock while on holiday in Kitzbühel, Austria, and soon afterwards took a job with his company. As Mr. Reichert increasingly took on the role of mediator between the family fronts, it became clear to him that “the regency of the three brothers and the father’s supremacy” had no future. There were, says one of those involved, “irreconcilable views about the future of the company.” In 2013, with the help of a team of legal consultants, Mr. Reichert encouraged the squabbling brothers to pull together one more time and put the operation of the company into somebody else’s hands – namely his. And it worked.
Since then, the details have been regulated by a shareholder and partnership agreement. Mr. Reichert and Mr. Bensberg are jointly in charge of Birkenstock. They can only make decisions in tandem – and only when they can also convince both of the owning partners. The two directors, who use the formal German “you” with each other, are also not on first-name terms with the two shareholders, Alex and Christian Birkenstock. Mr. Reichert even stresses he is nothing like “a friend of Christian Birkenstock, but his employee.”
On paper, fellow executive Mr. Bensberg is just as important as the powerful TV man. But during a two-hour discussion, the Rhinelander only spoke for two minutes. Mr. Reichert, on the other hand, explained, laughed and talked without a break and clearly is the one in the duo who sets the pace.
In South Korea alone, Birkenstock sold 1 million pairs of sandals in 2015.
“We are something like the classic director generals,” says Mr. Reichert, in describing his and Mr. Bensberg’s positions in relation to the owners. Director generals? Gentlemen with vests, pocket watches and breast pocket handkerchiefs? Not really. In jeans and a white shirt, Mr. Bensberg looks like a savings and loan manager after work. Mr. Reichert, with his six-foot-two stature and the reddish blond mop of hair and beard is reminiscent of the Viking Leif Eriksson, who landed in America 500 years before Columbus. That’s particularly true when Mr. Reichert stands in front of the 26-foot wide luminous photo wall, stretching to the ceiling behind his desk, which transposes him into a room-filling birch forest panorama.
Conquering new shores with, and on, Birkenstock clogs, that is now Mr. Reichert’s mission. “Internationally, the brand has fantastic recognition. We are a global player,” he says. But in Germany, “we were long seen as a mom-and-pop store and still are by some.” The manager doesn’t deny difficulties in getting things going. “We turned everything inside out and back again.” Many expected “something to go wrong.”
Out of the loose, fragmented group of 38 individual companies, Mr. Reichert and Mr. Bensberg made a company group with nine businesses in five operative areas. “The group must be able to be explained on a beer mat,” says Mr. Reichert. The restructuring was successful, at the same time sales grew by 20 to 30 percent per year.
Brands like Alpro, Betula, Birkis, and Footprints were discontinued in favor of an umbrella brand strategy. The managers cleared the backlog of investments left behind by the incapability of the triumvirate of brothers to make decisions. Since 2014, around €80 million has been flowing into addition production and logistic capacities, in more modern machinery and in the development of new products.
The brand image was freshened up and the company expanded its chain of shops. At the moment, there are 15 outlets, and then there are the new markets. In South Korea alone, Birkenstock sold 1 million pairs of sandals in 2015, its first business year. Global marketing structures were created, with, for example, a sales force for the German-language parts of Europe as well as sales offices in Spain, Brazil, and Hong Kong. And the online shop that was created in 2015 is already available in 20 countries.
There was a lot of skepticism at first. “There was paranoia at Birkenstock,” Mr. Reichert says. He encountered many who looked doubtful about “whether those guys up there can be trusted.”
But success has convinced them. The number of Birkenstock Group workers increased from 2,000 in 2013 to today’s 3,800. Another 300 to 400 additional workers would be hired immediately if the labor market permitted, say the managers.
Lack of workers and other shortages, according to Mr. Reichert, result in Birkenstock not being able to produce as many shoes as the dealers around the world could sell – above all in Asia and the United States, where Birkenstock is currently generating two-fifths of its sales. “For four years in a row, we have been more or less sold out,” says Mr. Reichert. “The bottlenecks are still production and logistics.”
The result: Despite ramping up production capacities, Birkenstock was forced for the first time to impose a suspension of orders. The six months waiting time until delivery, says Mr. Reichert are because of “an enormous boost that we can’t ride.” They are also searching for an additional logistics site for a high-bay warehouse after the municipality of Vettelschoss near Koblenz deemed the planned 115-foot-tall construction too high to be built close to a residential area.
Birkenstock is increasingly turning to hiring workers that had been on temporary contracts in order to be able to produce more. In St. Katharinen, for example, a double-digit number will be hired at the start of December. This enlarged permanent workforce will be joining a company that, in contrast to the 1990s, now regards the works council as an integral part of the company, says works council boss, Ms. Falk-Wagner. It is perfectly natural for her to go to the shop floor later and chat with the plant manager about his upcoming appearance at the works council meeting at the end of November. When the works council was founded two years ago, she and her colleagues were still “worried about what will happen.” But the worries have disappeared, says the trained technical draftswoman, who worked on the sandal production until she took up her current position. Ms. Falk-Wagner, who is not a trade unionist, says she has also noted an improvement in wage equality. The management, she says, has eliminated the disadvantage that women workers suffered. There is “a clear development of wages in the right direction.”
The workers at the production sites in Rhineland-Palatinate and Hesse had long looked at the growing plant in Görlitz in the eastern German state of Saxony with mistrust. Engulfed by the fog of the stench of ammonia, workers there work in three shifts to produce insoles for other plants. Already around 60 percent of the 1,200 workers in the plant close to the Polish border come from Poland. But works council representative Ms. Falk-Wagner in St. Katharinen “is no longer worried they want to turn out the lights here, given the investments.” Around €45 million have been pumped into the western German locations since 2014 according to company statements, while €36 million has been spent on expanding the plant in Saxony.
The headquarters are also new. Mr. Reichert, who commutes from Munich, ordered a move from the Vettelschoss location in Westerwald to nearby Neustadt/Wied, in a bright building with a glass pyramid as the main entrance that radiates modernity.
This is also reflected in the production portfolio. Birkenstock today offers far more than just sensible clogs. For sometime there have been models with leopard prints or synthetic fur in princess pink. Closed shoes and leather boots are part of the new collections. Mr. Reichert himself wears his company’s own light-gray sneakers. All footwear have Birkenstock’s signature anatomically-formed insole in common, with the options of narrow or wide and in the sizes 24 to 50. There are around 50,000 product variations – most recently including plastic sandals and plastic clogs, as well as socks and leather handbags.
Mr. Reichert is convinced that the brand still has a lot more to offer. At the Cologne furniture trade fair in January, he will be presenting, for the first time, Birkenstock beds, including mattresses and slat frames. A line of natural cosmetics follows in mid-February at the natural cosmetics fair, Vivaness, in Nuremberg. The skincare creams – initially only for the U.S. and Asian markets – contain substances derived from the bark of the cork tree. Cork granulate from Portugal is, along with natural latex, the main component of Birkenstock insoles. They are also already thinking about Birkenstock office furniture in Westerwald. What has that to do with shoes? For Mr. Reichert, the main theme to be used in defining the expansion of the market is very clear: Ergonomics and health.
The Birkenstock brothers are apparently backing the daring expansion plans as company shareholders. It’s not just the company that has changed, but also its owners, Mr. Bensberg says. They avoid the limelight and devote themselves to other business transactions between their quarterly meetings with Mr. Reichert and Mr. Bensberg. Alex Birkenstock, for example, sold a penthouse in a luxury residential tower in Miami Beach for $25 million in 2012. He didn’t even pay $10 million for it.
Even if the Birkenstocks did their company a valuable service by leaving its management to others, sometimes they do have a nose for good business deals.
This article first appeared in the business weekly WirtschaftsWoche. To contact the author: email@example.com