How Valentino Helped to Inspire a Turnaround at Dr. Martens

February 16, 2021

LONDON — They make for an unusual pair, but the Dr. Martens boot and the Valentino Rockstud heel are similar in many ways, at least from the perspective of Permira, the private equity house that extracted potential — and profits — from both heritage brands, recasting them for a new generation.

Late last month Permira took Dr. Martens public on the London Stock Exchange at a top-of-the-range price of 3.70 pounds a share. The offer was oversubscribed eight times before it landed on the London Stock Exchange, and the shares are trading at around 5 pounds. On Monday, Feb. 15, the shares closed up 3 percent at 5.15 pounds.

Permira bought Dr. Martens in 2014 for 300 million pounds, and more than tripled the revenues to 672.2 million pounds in fiscal 2019-20. It raised 1.3 billion pounds from the float, returned the money to the fund’s investors, and ensured that past and present management was richly rewarded.

The house has retained a 42.9 percent stake in Docs, convinced the British bootmaker still has a long runway of growth ahead.

“It’s unusual that you have this much growth in the rear view mirror, and that you can still see so much potential growth ahead. That makes you, as an investor, really comfortable underwriting a company,” said Tara Alhadeff, partner at Permira and part of the team that saw the Docs project through, from start to finish.

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She said Permira held on to such a substantial stake because “we could look forward and see an enormous amount of value creation to come.” She added that it was “a fun project to bring this great British brand to the public market, because there were not that many other similar stories” out there.

Kenny Wilson, CEO of Dr. Martens. Image Courtesy of Dr. Martens/Tom Stockill

In an exclusive interview, Alhadeff said the firm spent a relatively long time working with Dr. Martens (private equity normally looks to flip an investment within three to five years), and admitted the first period of restructuring was not easy.

“In the first years of the investment we did not see very much financial growth. The reason was that we had to make a lot of investments, cost investments and take a lot of revenue out of the business as it came out of the slightly less strategic channels,” said Alhadeff.

But the team had a clear vision for Dr. Martens, and had already traveled a similar — albeit rock-studded — road, having turned Valentino back into a hot fashion house, and sold it to Qatar’s Mayhoola for Investments for the punchy price of 700 million euros, or 20 times the brand’s earnings before interest, taxes, depreciation and amortization in 2012.

Permira — which had paid top dollar for the former fashion and licensing conglomerate Valentino Fashion Group — certainly had an eventful five years with the Italian brand.

It saw the founder Valentino Garavani retire; weathered the financial crisis of 2008; restructured billions of debt and empowered management and creative talent, including Maria Grazia Chiuri and Pierpaolo Piccioli, whose sizzling styles, including the Rockstud, catapulted the house of Valentino into hipper, younger — and more lucrative — territory.

“The Valentino that we know today is not the Valentino of 2007 when we did the deal,” said Alhadeff, adding that it was not a relevant brand back then. And it was the Valentino turnaround story, she said, that prompted the Permira team to appreciate the potential of other companies “that have an unparalleled brand equity, but which haven’t been professionalized or scaled.”

Dr. Martens 1460 Keith Haring.

Before the Dr. Martens journey began, Alhadeff said the team “had this idea that if we could find a heritage brand still in family ownership, a brand that hadn’t been professionalized, but had that rich, deep heritage, then magic could happen.”

She noted that while “there were a lot of similarities between Dr. Martens and Valentino, the situations were different. It was not a ‘copy [and] paste’ strategy.”

Instead, it was about “taking the thread and the DNA of a brand and finding what’s enduring and timeless about it and communicating that in a way that’s relevant to whatever day and age you find yourself in. With Docs, like with Valentino, the size of the brand was infinitely larger than the size of the business — and that is not true for all heritage brands.”

While Dr. Martens is a 60-year-old heritage brand with styles sitting in the Victoria and Albert Museum and MoMA, it has never been a luxury proposition.

The product is unisex, trans-seasonal and democratic, favored by customers ranging from punks to Pope John Paul II, who liked the cushion-soled boots so much that he ordered 100 pairs for Vatican staff and a pair of white brogues for himself.

While the brand nods to pop culture and the world of fashion — see the brand’s collaborations with the Keith Haring estate and Comme des Garçons — it’s not a fashion proposition.

The boots and shoes are sturdy and long-lasting, and the prices are accessible. The most famous style remains the 1460 boot, which was created 60 years ago with a trademark yellow welt stitch, grooved sole and black and yellow heel loop. A pair costs 149 pounds.

From Permira’s point of view, the Dr. Martens brand and the iconic boots were packed with potential and from the start the team took a counterintuitive, long-term view on the investment.

Alhadeff said that taking on a heritage brand such as Dr. Martens “requires a long-term mind-set, a willingness to build a brand strategically in a nonlinear way. It’s different to what a lot of private equity companies do.”

Indeed, many private equity companies across all sectors are known for pumping their acquisitions full of debt and extracting expensive fees before selling them off — for better, or worse — within a three- to five-year window. Unlike trade investors, private equity investors are generally not seen as solid brand partners in the long term.

The windows of the Dr. Martens’ store in Rome. Francesco Fioramonti/Courtesy of Dr. Martens.

Permira invested heavily in the restructuring, and even cut off revenue streams as it wound down certain sales channels. Only a few years after investing in Dr. Martens did Permira tap the top management team, including retail star and Levi’s veteran Kenny Wilson, who is chief executive officer, and Geert Peeters, who is chief operating officer.

“We always said the business has 60 years behind it, and it needed to be run as if for the next 60 years,” said Alhadeff. “As we always said to Kenny, ‘Run this business as if you are going to pass it on to your kids,’ which is how the best luxury brands are run.”

Specifically, the team dialed down wholesale (a widespread strategy among the big fashion and luxury brands that are looking to recapture control, and margins) and took charge of distribution.

Dr. Martens sells its footwear through more than 130 own retail stores, which act as “profitable and important consumer touch points,” according to the company. It also has concessions, wholesale customers, distributors and franchisees.

Last December Dr. Martens opened its first Italian flagship on Rome’s central shopping thoroughfare Via del Corso. The country’s local subsidiary is also opening offices and a showroom in Milan, part of the strategy to manage Italian operations in-house.

As part of that plan, the brand had earlier discontinued its 30-plus-year partnership with its Italian distributor.

Permira also negotiated more favorable deals with suppliers and factories, created an integrated global supply chain, shortened lead times, reduced costs and ramped up the e-commerce and direct-to-consumer businesses.

It has also kept some manufacturing in the U.K.: A few years ago, the company invested 2 million pounds in its factory in Wollaston, Northamptonshire, which opened in 1901, and has since doubled its annual production at the site to 165,000 pairs of shoes.

With a long-term vision in mind, the Permira team didn’t try to expand too quickly or make too many changes.

Inside the Dr. Martens’ store in Rome. Francesco Fioramonti/Courtesy of Dr. Martens.

“This company is very famous for a certain look, and we’ve got to design everything around that as opposed to trying to change it. You have to strike a balance between having that consistency, but not destroying it or making it ubiquitous or forcing it to lose its edge or excitement. The manager’s skill is how to keep the magic alive and keep the product fresh and relevant,” Alhadeff said.

Even after seven years under Permira’s ownership, and the IPO, the brand remains underpenetrated globally, and it isn’t reliant on any one market for growth.

“We have preferred to go relatively cautiously everywhere [rather] than aggressively in one or two markets. That creates a better brand, a better quality growth. And it’s nice not to have only one market that you are relying on,” said Alhadeff.

The company will continue to focus on the hero styles — which include the 1461 lace-up shoes — for the foreseeable future, while growth is expected to come from e-commerce, geographical expansion and penetration via an own-store network.

Shortly before its listing on the London Stock Exchange, Dr. Martens stressed that there was a big opportunity to expand in the 341 billion pound global footwear market, and added that it already has a strong customer base in the U.K., France, Italy, Germany, the U.S., Japan and China.

Alhadeff, who is also overseeing Permira’s investment in the luxury sneaker brand Golden Goose, said she and the team continue to scour the market for potential acquisitions.

“In my world of brands what’s very interesting about this moment in time is that some of the newer, younger and often digitally native or disruptive brands are really scaling and becoming relevant on a big scale for the first time,” she said.

She said the sustainable L.A. fashion brand Reformation, in which Permira took a majority stake in 2019, was a good example. “It is a mostly online business — and a much younger company.”

Alhadeff added: “We spend a lot more time now looking at ‘new kids on the block’ and at disruptive brands. We’re starting to learn collectively, as an industry, what’s here to stay versus a social media flash in the pan. A brand may scale very quickly through influencers and social media, but we need to make sure there is something authentic and differentiated behind it. We spend a lot of time trying to unravel and analyze brand heat.”

By contrast, heritage brands need to be examined through a different lens. “I still think there are fabulous brands out there that could be much bigger than they are today. [But] they need to be relevant to today. The intersection of heritage, and relevance, is what we’re looking for,” she said.

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