Why are family-owned shoe companies so popular with investors?

There are a lot of family-owned shoe companies and there are a lot of investors wanting to buy them. Why are they so popular?

Birkenstock, the legendary German footwear company, famous for its hippie- and celebrity-worn sandals, is also a sixth-generation family business – and it recently attracted the interest of a couple of heavyweight private equity funds. Reports suggest the Neustadt, Rhineland-Palatinate-based business could fetch €4 billion in a private equity deal. 

The high valuations for shoe companies – or for the ones in demand – is probably due to shoe retailing representing a viable blend of old economy retailing with new economy e-commerce

The high valuation is likely to be influenced by the £3 billion pre-IPO valuations of another iconic shoe company, Dr Martens. OK, Dr Martens isn’t family-owned, but it was originally until the founding Giggs family got an offer they couldn’t refuse – £300 million from private equity group Premira in 2014. The family-ownership ethos/history remains important to its brand. 

Clarks, like Dr Martens, is another UK shoe company attracting investor interest. Last November, Clarks, owned by the same family for more than 195 years, sold a majority stake to a Hong Kong-based private equity group. Yes, the deal was a distressed one – Clarks has been struggling for some time – but the shoe company still attracted investor interest. Investor LionRock Capital believe the brand still has cache and can turn its fortunes around.  

There’s also speculation an outside investor might buy a sizable share of the listed, but majority family-owned Salvatore Ferragamo. The Italian high-end shoe and apparel company’s popular former manager Michele Norsa is rumoured to be stepping down for a second time later this year. He oversaw Ferragamo as CEO for ten years until 2016 until being brought back last May to help revamp the brand in the face declining sales made worse by the Covid-19 pandemic.

Last October, there was some speculation an outside investor might be interested in taking a significant stake. The family owners denied it, but Norsa’s departure could make them think again. 

Private equity would love to get their hands on one of the world’s most iconic shoemakers. The plan would probably be to delist it, marginalize family control, and do a Dr Martens-like turnaround. 

Also, family-owned investment groups like shoe companies, or at least shoe online e-commerce platforms – and they don’t need to be family-owned. Last week, Groupe Artémis, François Pinault’s Paris-based family investment vehicle, bought a stake in Goat Group, a US-based marketplace for sneakers. 

The expected price for the Dr Martens IPO is a big reason why investors like shoe companies. If the £3 billion price tag is achieved, Premira will get a ten times return on its investment in seven years. That represents a good payday for Premira and its limited partners. 

The high valuations for shoe companies – or for the ones in demand – is probably due to shoe retailing representing a viable blend of old economy retailing with new economy e-commerce. 

Consumers, particularly older ones, are more likely to want to try on a pair of shoes in-store than most other forms of clothing. That means shoe stores, or at least those selling the more popular brands, have a future, arguably more so than most clothing stores. 

Interestingly, some shoe companies haven’t even created an e-commerce platform because of their belief in continuing strong in-store demand – or, at least, when the Covid-19 pandemic ends. UK upmarket family-owned shoemaker, Crockett & Jones is a good example of this strategy. 

Yet the demographics of buyers of Dr Martens – mostly younger consumers – means that its e-commerce business is very strong as well. Younger consumers are more likely to buy shoes online. But even younger consumers like trying on in-store. So shoe companies with legacy businesses, i.e. stores, aren’t marked down by investors as much as clothing legacy businesses. 

The family business part is also popular with investors because many family-owned shoe companies have created popular brands lasting a long period of time. They have proven their brands’ robustness – sometimes over many generations. 

Shoemakers – along with opticians for the same reasons above (but that’s for another day) – might just be one of the last bastions of non-food/pharmaceutical old-economy retailing to have a future. And that is why investors are pouring in.