Allbirds buffeted by headwinds
Allbirds charted a stratospheric ascent: a mere five years after its launch in 2016, it was valued at more than $2 billion – known as a ‘unicorn company’ in investor speak (a privately held start-up worth $1 billion or more).
This rapid growth seemed to catch even its founders off guard, admitting to a New Zealand publication they only sold one pair in the first year. But a smart combination of a direct-to-consumer strategy, plus strong and well-communicated core values, including a commitment to reducing environmental impact and to using novel materials, struck a chord with younger generations.
New Zealander Tim Brown, a former professional footballer and founder of the company alongside friend Joseph Zwillinger, aimed to create simple shoes that were comfortable and practical, finding a home for wool that the local sheep farmers were struggling to sell. Wool is an unusual choice in shoes but helped it to stand out from competitors. By March 2018, the company had sold its millionth pair and counted actor Leonardo DiCaprio among backers.
From there it began to branch out, never shy of testing new fabrics and components. It teamed up with Austrian fibre supplier Lenzing to add Tencel to a knitted shoe design, and worked with Brazil-based chemical company Braskem on an EVA resin derived from sugarcane for a component named SweetFoam, now in all of its soles.
Branching out
By 2020, the company made a foray into the athletic sector, producing its first running shoe, the Tree Dasher. This has a dual-density sugarcane SweetFoam midsole from the carbon-negative EVA and a one-piece upper made from eucalyptus fibre, with merino wool around the heel counter and a castor bean-containing insole.
Sales began to soar, and its strategy of selling mainly online seemed to give it the freedom to invest in greener materials and increase its sustainability-focused collaborations. At the start of 2021, it invested $2 million in start-up Natural Fiber Welding, which uses a process of welding short fibres into longer fibres to create high-performance yarns that can incorporate cotton and other plant-based waste fibres.
The success in the performance category gave it the confidence to launch a clothing collection in mid-2021. The range, named Allbirds Natural Run Apparel, consists of leggings, running shorts, bike shorts and running tops made from merino wool and yarn spun from eucalyptus pulp fibre. It chose chitosan from crab shells to add antimicrobial properties to t-shirts. Mr Zwillinger said later, “We intentionally launched into the footwear category first given its technical nature, building credibility and trust with consumers before moving into apparel. We believe our foundation in comfort and simple design, coupled with our success in manufacturing high-quality, sustainable footwear gives us a distinct advantage as we expand into adjacent categories.”
Stock market success
By 2021, the company was ready to raise money through an initial public offering (IPO), or listing, on US-based stock market Nasdaq. At the time, it had begun to invest in physical stores – going from three in 2018 to 22 in 2020, with an eye on “ramping towards hundreds of potential locations”. The digital channel represented 89% of sales at the time, with bricks-and-mortar only 11%, but shops were viewed as “an effective and profitable source of new customer acquisition, increasing awareness of the brand, and driving traffic to the digital platform”.
The IPO prospectus outlined its strategy and DNA to investors: “By focusing on sustainable materials, we have unlocked a broad set of opportunities that the rest of the industry has largely ignored, while creating products our customers love to wear as they tread lighter,” it said.
However, the US Securities and Exchange Commission (SEC) reportedly asked Allbirds to tone down some of the sustainability claims in the prospectus. The company did outline some of the risks: “We have incurred significant net losses since inception, and anticipate that we will continue to incur losses for the foreseeable future,” it admitted.
Allbirds’ net loss totalled $14.5 million in 2019 and grew to $25.9 million in 2020, according to documents filed with the SEC. “We operate in a highly competitive market; the size and resources of some of our competitors may allow them to compete more effectively, which could result in a loss of our market share and a decrease in our net revenue and profitability… and our focus on using sustainable materials and environmentally friendly manufacturing processes and supply chain practices may increase our cost of revenue and hinder our growth,” it added.
Nevertheless, there was high demand, and Allbirds’ shares sold for $15 each on its debut in November 2021, valuing it at $3.3 billion.
Carbon footprint
Things continued positively during 2022 as sustainability efforts continued, new products were launched and 23 stores opened. During the year, it cut the average product carbon footprint by 19%, taking it more than 60% of the way towards its 2025 science-based targets, and on track to reach near-zero product carbon emissions by 2030. It added the ‘carbon cost’ to its customer receipts in a bid to increase awareness surrounding carbon footprints, after becoming the first fashion brand to label all its products with their carbon footprint in 2020.
In terms of products, it launched the Regen Collection: two new shoes, plus a revival of a beanie and scarf, made with ZQRX Regenerative Wool, sourced from a holistic farming initiative set up in collaboration with New Zealand Merino Company, Icebreaker and Smartwool. Allbirds also changed its footwear packaging to reduce weight and lower its footprint; transitioned from virgin nylon to recycled nylon; and updated the sockliner in its lifestyle Tree styles to use more recycled materials.
Refocus and reignite
However, by the start of this year, headwinds connected to losses grew stronger. It reported a 7% rise in 2022 revenues to $297.8 million but a loss of $101.4 million. As well as confirming the departure of chief financial officer Mike Bufano during the investors’ call to discuss 2022’s results, Mr Zwillinger commented “some products and colours have had narrower appeal than expected” and “because we were spending significant time and resources on these new products that did not resonate well, we underinvested in our core consumers’ favourite products”. This was enough to spook the market and shares later fell to $1. Multiple law firms have filed a class action lawsuit for losses on behalf of investors. The case is ongoing.
Away from the turmoil, first quarter 2023 results were “better than expected”; revenue decreased 13.4% to $54.4 million due to a reduced average selling price, as well as a $1.2 million negative impact from foreign exchange rates. Despite this, revenues were nearly 10% higher than in 2021. “Our teams are executing well against our strategic transformation plan designed to reignite growth, improve capital efficiency and drive profitability,” said Mr Zwillinger. “The dedication and hard work of our flock [staff] resulted in a quarter that demonstrated good progress on our strategic initiatives while exceeding our expectations.”
The transformation plan, announced in March, is designed to reignite growth, as well as improve capital efficiency and drive profitability. Mr Zwillinger remains confident – outwardly at least – in the long-term prospects. “Our mission to create better things in a better way, guided by our Super Natural Comfort north star, remains at the forefront of everything we do at Allbirds as we advance our vision to build a 100-year brand.”
Allbirds’ first store in Charlotte, North Carolina, and 36th globally, with locations across North America, Asia and Europe.
CREDIT: Businesswire
