Friday, June 2, 2023

From skinheads to the stock market: how Dr Martens became mainstream

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Dr Martens, a brand adopted by punks and skinheads as a symbol of youth rebellion, doesn’t seem like the most natural fit for the mainstream stock market.

But six decades after the sale of its chunky lace-up boots, the British company is gearing up to take to the London Stock Exchange early this year. Its valuation could reach £ 3-4 billion, according to three people briefed on the process.

That would be around 20 times the company’s profits and mark a tenfold return for its private backers, Permira, who paid £ 300million for Dr Martens seven years ago. It would also seal a takeover of the company which two decades ago was on the verge of bankruptcy, with the family-owned manufacturer racking up annual losses of tens of millions.

“Previously, the company was not run as an iconic brand,” said Kenny Wilson, general manager for three years.

Mr. Wilson is adamant that the recent issues do not concern the brand. He attributed the previous losses to the “manufacturing mindset” of the Griggs family, who founded Dr Martens in 1901. (Bill Griggs launched the famous boot in 1960).

“I don’t mean to sound arrogant in any way, but it’s easier to run a large-scale global business when you’ve already done it,” said Wilson, who previously worked at Levi’s and Cath Kidston.

A machinist prepares the upper and sole of a Dr Martens boot © Dr Martens

He argued that Dr Martens turned a corner when the Griggs family sold their majority stake in Permira in 2014.

Dr Martens increased sales during the pandemic – revenue in the nine months to December 2020 was up 14% from a year earlier, as online sales helped soften the blow from store closings. From the year through March 2020, the company made a pre-tax profit of £ 101million and increased revenue by 48%, to £ 672million.

This is a compelling recovery from the early years of private equity ownership, when strong sales growth came to an abrupt end as the company severed ties with vendors it said “didn’t. did not fully support ”the strategy, updating, for example.

“Lots of decisions [at that time] were taking money from the business and adding costs to it, ”said a person close to the business.

Dr Martens' performance under Permira

David Suddens, who ended his 12-year tenure as chief executive of Dr Martens shortly after the Permira buyout, said the Griggs family trusted the private equity firm to nurture the brand and expand its network of stores. “The results speak for themselves,” he added.

One of Permira’s goals was to bring Dr Martens back to his roots by refocusing on its “originals” line, made up of ten classic styles of leather boots. Almost two-thirds of sales now come from this collection, compared to just one-third when Permira invested.

“When Permira acquired the company [it] had become a business of fisherman’s sandals and sturdy boots, ”Wilson said, explaining that he learned at Levi’s how dangerous it could be for a brand focused on a celebrity product to stray too far from his origins.

A Northern Soul dancer wearing Dr Martens at the Wigan Casino in the mid-1970s © PYMCA / Johnston Press

Although Dr. Martens returned to profitability under Permira ownership, the period was not without its problems. In recent years, the brand has suffered complaints that the quality of its shoes is not what it used to be.

Mr Wilson dismissed “rumors” about the quality of Dr Martens boots, saying the company had used the same leather supplier for 20 years. But he has no plans to reintroduce his range of lifetime warranties, which he scrapped three years ago citing weak demand for the more expensive shoe.

Mr Wilson said the idea that private equity groups increase company profits by reducing costs did not apply in this case. “All that private equity stuff that doesn’t invest in companies, that’s not the case with Dr Martens.”

Permira used relatively little debt to purchase Dr Martens, who had £ 65million in net debt at the end of March. It took the company £ 60million in 2019 and a further £ 35million in 2020 to pay itself dividends.

It plans to list between 25 and 40% of the company and sell existing shares without raising additional funds by issuing new ones.

The deal would add £ 545million to a cash reserve for bonus payments, known as “carried interest”, to a group of Permira executives if the group sold its entire stake at a valuation of $ 4 billion. books, according to an analysis by Peter Morris, a research associate at the Said Business School at the University of Oxford.

Flotation will coincide with a time when subversive attitudes and big boots are back in fashion.

The brand is looking to increase its sales in the United States and China © Dr Martens

The company plans to take the opportunity to expand its sales in the United States and China. Last year it sold 12 pairs of boots per 1,000 people in the United States and one pair per 1,000 in China, compared to 31 per 1,000 in the United Kingdom.

But Neil Saunders, managing director of retail at consultancy GlobalData, who has followed Dr Martens since the late 1990s, warned that his rebirth should not be taken for granted.

“One of the problems with iconic brands is that they will go through times when they are very popular and then a little less cool,” Saunders said. “It’s part of the natural fashion cycle,” he added.


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