This week, a look at the recent activity among fashion brands toward going public, plus the pitfalls and reasons so many IPOs flop on day one. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.
After the quiet period during the pandemic years when few brands were going public, fashion seems to be developing IPO fever. Birkenstock IPO’d this week, and brands like Vuori, Skims, Shein and Golden Goose are all rumored to be going public sometime soon. Lanvin made the jump in December 2022, a year after the previous fashion company to go public, Zegna.
But as tempting as the capital raising of an IPO can be, there are drawbacks. Numerous IPOs in recent months have resulted in immediate stock drops and other problems that privately held brands don’t have to contend with.
Birkenstock is a perfect example. Despite having strong revenue, a long history, and confidence from analysts and investors, its share prices quickly fell after Birkenstock CEO Oliver Reichert rang the bell. By the end of the first day of trading, Birkenstock’s share price had fallen 12%. The company was valued at $8.6 billion at the beginning of the day and $7.5 billion by its end.
In a press statement, Reichert said the company is still focused on long-term growth.
“With our heritage dating back to 1774, we are a company focused on long-term sustainable growth, and this is reflected in our shareholder base,” he said. “At Birkenstock, we believe purpose never goes out of style, and our business will always be based on this philosophy.”
Birkenstock is not the only brand to suffer a drop on day one of trading. The same was true of Instacart and Deliveroo, which went public in September 2023 and April 2021, respectively. According to David Kaufman, partner and co-chair of the corporate and securities practice at law firm Thompson Coburn, there are a number of reasons for this phenomenon.
“Rising interest rates have made it more expensive for companies to borrow money, impacting their profitability, while also making stocks and IPOs a less attractive investment alternative than bonds with a higher yield,” Kaufman said. “Because of numerous shocks to the economic system — relatively high interest rates, high inflation, threats of [a government] shutdown, the war in Ukraine — the markets have had wild swings up and down. Markets hate uncertainty and turmoil, leading to poor performance.”
These factors aren’t just affecting the first days of a company’s IPO. The stock market, in general, has been more prone to wilder swings upward and downward over the last year as investors try to stay ahead of economic and geopolitical headwinds.
Another major factor Kaufman raised is valuation. Companies are frequently going into the public market with vastly overpriced shares, Kaufman said. A company’s valuation is based on analysis of its capital structure and potential for future earnings, meaning that companies want to show a higher valuation to instill confidence in investors. But inflated valuations can have the opposite effect if investors don’t place the same value on the company’s shares.
Day-one drops in share price set a tone of downward trajectory for public companies, and many of the publicly traded brands that experienced them have continued to struggle.
“In light of the current global economic uncertainty, the IPO market is showing signs of unpredictability, causing many to approach it cautiously,” said Joe Endoso, president at private equity investing firm Linqto.
Endoso pointed to Arm Holdings, Instacart and Klaviyo — three companies that all went public in September — as examples. Instacart and Arm Holdings are both trading below their initial prices. Among the four major consumer IPOs this year, including Oddity, Savers Value Village, Kenvue and Cava Group, all except Cava are trading below their offering prices, Endoso said.
Some brands have even gone out of their way to reduce their own valuation before they go public specifically to avoid this situation. Starting a company’s first days of public trading with an undervalued stock that increases in price sets a more positive tone than an overvalued stock that declines right away. And investors are susceptible to media narratives telling a story of positive growth rather than immediate decline.
Shein cut its own valuation from $100 billion to $64 billion in January. In October of 2022, Lanvin did the same, lowering its own valuation from $1.25 billion to $1 billion before its IPO in December.
At the time, several investors including Ba Minuzzi from VC firm Umana House of Funds and Ryan Nelson from Jobi praised Lanvin’s move as a way to keep expectations in line before going public. But it still wasn’t enough to prevent a day-one drop. In December, when Lanvin went public, its share prices dropped by 25% in the first day. Lanvin’s stock price has fluctuated since then but is currently trading even lower than it was after that first-day drop.
Beyond the first day, many of the fashion brands that have gone public in the last few years have struggled to maintain a positive growth trajectory. For example, The RealReal and Allbirds, both of which went public in 2021, are trading far below their initial valuation.
But despite the pressures and perils of going public, there are, of course, upsides. Some fashion brands, particularly those in the luxury space, like Zegna, have been able to go public and have their share price increase over time, for example. Mary Carmen Gasco-Buisson, CMO of the publicly traded jewelry company Pandora, has spent most of her career at big public companies like Procter & Gamble. Pandora brings in around $3.6 billion in annual revenue and went public in 2010. She said the main benefit of going public is simply the larger pool of capital that a brand can then work with.
“Every business has challenges,” Gasco-Buisson said. “But the resources you have access to as a public company are indispensable.”
The first day of trading also isn’t the only arbiter of a public company’s success, Endoso said. Birkenstock has plenty of opportunity to show that going public was the right move, which will only be fully clear in the coming quarters.
“If Birkenstock’s IPO proves successful, it could boost investor confidence in the consumer apparel market and in companies with a strong, organic audience poised for a public offering,” Endoso said. “Birkenstock’s IPO is the sole remaining major company listing scheduled for the 2023 IPO calendar. There still remains a small window of opportunity for other potential issuers to test the market, although the spike in market volatility in the last 30 days makes it increasingly difficult to price IPOs.”