Allbirds simplifies growth drivers to three trends

Discussion
Source: Allbirds
Sep 02, 2021

In the prospectus for its initial public offering, Allbirds said its underlying growth will be driven by three trends influencing how consumers make their purchase decisions in apparel and footwear: purpose-driven positioning, casualization and omnichannel retail.

  1. Brands that are responsible and purpose-driven. The eco-friendly footwear brand cites a number of surveys showing consumers, particularly younger generations, becoming increasingly focused on product origins and buying from companies that share their values. Many incumbent footwear and apparel brands are held back by their reliance on synthetic materials, mostly plastic, as well as “compressed margins” due to wholesale distribution. Allbirds wrote, “We are able to take a fresh approach by building naturally beautiful products from the molecular level up, directly sourcing and innovating through our materials, and offering customers ‘more shoe for their buck’ through our vertical distribution strategy. Our brand’s natural performance products uniquely address both (1) health and wellness and (2) sustainability, enabling consumers to perform their best while also treading lighter on the planet.”
  1. Great products that adapt to the “new normal”: Allbirds believes the shift toward casualization has been accelerated by the pandemic with the lines “blurred between work, home, gym, and play.” Increasing versatility in wardrobes is required for a variety of use occasions. Allbirds said, “As workplaces continue to move towards a more casual and/or remote environment, we believe consumers will place more value on versatility and comfort.”
  1. A seamless, cross-channel buying experience that delivers value and convenience: The digital-first retailer said consumers are increasingly looking for the ability to interact with brands both digitally and physically. In 2020, online accounted for 89 percent of sales, but Allbirds now has 30 stores after opening its first in 2017 and believes it’s in the “early phase of a ramp towards hundreds of potential locations.”

The San Francisco-based upstart concluded, “Allbirds was founded with and has grown with these consumer trends in mind, and we believe we stand perfectly at their intersection. These trends have moved faster than any of us could have expected, and we believe this positions us to be successful for years to come.”

DISCUSSION QUESTIONS: Which of the three trends cited in the article — purpose-driven positioning, casualization or omnichannel retail — will be most important in driving Allbirds’ growth in the years ahead? Are you as confident as Allbirds that these trends will guide purchase decisions in apparel and footwear?

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Braintrust
"Purpose-driven positioning is the core differentiator for Allbirds. It will drive material innovation and force competitors to do the same."

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14 Comments on "Allbirds simplifies growth drivers to three trends"


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Mark Ryski
BrainTrust

All three factors together are part of the alchemy of Allbirds’ success. However none of these are completely unique or competitively defensible in the long run. Allbirds has clearly done well to start, but whether they become another Lululemon in their following and success is yet to be determined. Allbirds has not yet proven that they can generate profit and that will be critical to their long term success.

Neil Saunders
BrainTrust

Being ethically and socially responsible is vital, mainly because it is at the heart of Allbirds’ brand ethos. However while surveys do show people are concerned about this, it is not enough to secure loyalty – to do that products also need to be right. On that front Allbirds has done a great job, which is demonstrated by its customer retention and repeat purchasing rates. Expanding more aggressively outside of footwear is sensible and should expand share of wallet. As for stores, these are helpful for customer recruitment but Allbirds should aim to make them profit centers as well as marketing opportunities. As the IPO filing demonstrates, the company is loss-making and a clearer path to profitability is needed if Allbirds is to thrive over the longer-term.

Jeff Sward
BrainTrust

These three metrics offer a great template for just about every brand to evaluate and navigate the market as we look forward in a post-pandemic world. My vote in rank order is 2, 3, 1. Products that best fit with consumers’ evolving lifestyles will quickly emerge as winners. And those products simply have to be made available in a seamless, cross-channel manner. Period. Planet and people friendly? A quick differentiator and bonus.

Liza Amlani
BrainTrust

Purpose-driven positioning is the core differentiator for Allbirds. It will drive material innovation and force competitors to do the same. It’s a win-win for sustainability.

Michael La Kier
BrainTrust

I love the brand, but speaking of “sustainability” from a business perspective it’s hard to say they are a success — net revenue for the six months ended June 30 rose 27 percent year-over-year to $118 million. In the same period, its net loss widened to $21 million from $9.5 million. Great products and great buying experiences are table stakes — people won’t be attracted to a crappy, purpose-driven product offering.

Steve Dennis
BrainTrust

These are important, but don’t get at the heart of their (and many other DNVBs’) issues. While Allbirds has done many things well, they are (thus far) very much a niche product. One key will be expanding their addressable market without diluting the core of what got them to their $200 million current run rate. Not so easy. Which brings me to my second, they will definitely need much more physical distribution. But profitably expanding beyond a few dozen stores to a few hundred is far from certain. Lastly, their profit margins are way too low, driven mainly by below average gross margins and high marketing costs. They will need to make a lot of progress in the next couple of years to support (and maintain) unicorn status.

Bob Amster
BrainTrust

While being responsible and purpose driven is desirable, it may not be of the same import to all consumers. Great products may have the most universal appeal and a seamless cross-channel buying experience will fight it out for 1 and 2.

Gary Sankary
BrainTrust
I would give them a two out of three on the strength of the strategies. Strategy 1: Authenticity in the brand has become really important, as the article points out. Their target customers find them and stay with them because the brand aligns with their values. It is what defines their brand. Strategy 3: Delivering a seamless experience across channels; also critical for their brand an important to their customers. Consumers expect to be able to blur channels when they engage a retailer. Those who make it easy for them to do so are executing a great strategy. Which leaves Strategy 2. To me it feels like they’re confusing “trend” and “strategy.” At the moment, casual is hot. I will guarantee that in the future, I can’t say when, there will be a shift back to more formal attire. There will be a return to an office I suspect. It will be different than pre-pandemic, but things will change. A better strategy in my opinion would be to focus on understanding the changing needs of… Read more »
David Spear
BrainTrust

Allbirds has nailed it. All three of these trends are incredibly important and they are correct in saying, “we stand perfectly at their intersection.” Choosing one is tough but, if I had to pick, it would be #3 (a seamless, cross-channel experience that delivers value and convenience). Why? Because history is the greatest of teachers. Our very recent history (last 18 months) has revealed the significant benefits of companies that have enabled seamless, cross-channel experiences. There’s no greater proof than 10-Ks and investor reports that spotlight red-hot growth (+30-70 percent) in digital business and this is not going to change anytime soon. I’ll backstop my #3 vote by suggesting that #1 and 2 should be a part of #3. If value and convenience are passionately pursued – on behalf of the shopper – then finding the right portfolio of products/services will be purpose-driven and adapted to a variety of changing environments, regardless of if we think it’s a “new normal” or a “strange anomaly.”

Raj B. Shroff
BrainTrust

I think the use of natural materials and having the right product mix are key. Great design goes a long way too. If they seem overly functional and look ugly, no matter how Earth-minded they are, it won’t matter. I think the seamless, cross-channel thing is just parity now, we shouldn’t even still be talking about it, really. Unfortunately, we still are.

They will have to figure out how to scale without dumbing their product down for that scale. Some brands are great at that, like Nike and Starbucks (for now). But they have to be wary of losing that passionate connection with customers. Continuing to mine insights and translating that into action will, as always, be important.

Melissa Minkow
BrainTrust

All three are important, but a “seamless, cross-channel buying experience that delivers value and convenience” is the most relevant to driving growth. When competing in a space where all brands deliver on quality, the ease of the shopping and buying experience really matters and sets a retailer apart.

Mohamed Amer
BrainTrust

The three trends called out by Allbirds are pertinent to their future growth. A clear purpose differentiated the brand, adapting to the new normal increases usage opportunities, and emphasizing cross commerce is critical to their operational future. While all three are essential, expanding the current market ought to be Allbirds’ highest priority, and that will happen by front running the changing customer behavior in a new normal. Immediately following the market share play is developing a solid operational network to speed up profitability and sustain growth.

Rick Watson
BrainTrust

I would say this definitely seems to resonate more on the coasts than in other areas. Most people are just going to buy Nike because that’s what in the stores they visit and that’s what they know. Over time though, Allbirds has really tapped into something and the shoes are super-comfortable. If the product was bad, and it was purpose-driven, no one would care.

Ricardo Belmar
BrainTrust

All 3 trends are quickly becoming (if not already) foundational for any retailer, especially number 3, cross-channel buying experiences. Allbirds’ store growth strategy is directly addressing this need. It will be the first trend that differentiates their brand, however. This is what made Allbirds who they are in the minds of their loyal customers and it’s what draws attention to them for acquiring new customers. Focusing on their brand purpose will be the core to their success going forward.

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Braintrust
"Purpose-driven positioning is the core differentiator for Allbirds. It will drive material innovation and force competitors to do the same."

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