Photo: Spencer Platt/Getty Images
October 25, 2021
The humble venture capitalist puts on her Allbirds one shoe at a time, just like everybody else (or at least everyone else in Palo Alto).
Since its founding in 2015, Allbirds has become an essential component of the tech bro uniform, alongside such staples as the embroidered Patagonia quarter-zip, Lululemon ABC pants, the Zuck-inspired black T-shirt and a Y Combinator-branded Hydro Flask.
But Allbirds wants to become an iconic global brand for shoes and everything else, associated not with out-of-touch tech billionaires but customers who "live an active and curious lifestyle, care about health and well-being, prioritize quality over price, frequently purchase products online, live in urban center settings, and appreciate socially conscious brands."
Allbirds took a big step toward realizing that ambition with its S-1 filing on Oct. 25, 2021. It applied to go public on Nasdaq under the "BIRD" symbol and expects to raise around $181.5 million from the share offering. Allbirds could see its valuation reach as much as $2.2 billion at the upper end of the price range. It has yet to set a date for its trading debut.
Allbirds recorded a net loss of $25.9 million in 2020 and is on track to lose nearly double that in 2021. A key question for potential investors is whether Allbirds — which prides itself on technical capabilities and sustainability — can navigate the turbulent tides of fashion trends as it looks to turn a profit.
What does Allbirds do?
Allbirds began as a Kickstarter campaign in 2014. It raised $120,000 within the campaign's first three days and became a company just over a year later. In 2016, Allbirds shipped its first Wool Runner shoe and gained B Corp status in pursuit of its sustainability ambitions.
Allbirds focused on shoes for most of its early history. It wasn't until 2019 that it first entered the apparel category with socks, and late in 2020 when it expanded further to shirts and sweaters.
Some operational highlights in the S-1 include:
- For 2020, online channels accounted for 89% of total sales.
- Allbirds opened its first store in 2017. As of June 2021 it operated 27 retail stores, with 12 located outside the U.S.
- Allbirds has sold to 4 million total customers since its founding. In 2020, repeat customers accounted for 53% of net sales, which was up from 41% in 2018.
- Allbirds customers spent $124 on an average order in 2020.
Also, a few fun facts from the S-1:
- Timothy Brown, the Allbirds co-founder and co-CEO, was vice captain of the 2010 New Zealand World Cup soccer team.
- The co-founders disclose that their "wives were college roommates, and saw something in the possibility of the two of us combining, and encouraged us to explore whether we could create something special together."
- Allbirds calls its employees "birds" and refers to them collectively as "our flock."
Allbirds has high margins on its products, but ballooning personnel and marketing costs have kept the company from recording a profit.
- Allbirds maintained a steady gross profit margin of around 52% since 2019. This suggests it has a strong brand: Customers are willing to spend significantly more for Allbirds products than they cost to produce.
- Allbirds has also managed to grow revenues at a steady clip. It generated $219.3 million in 2020, up 13.2% from the $193.7 million generated in 2019. It recorded $117.5 million for the first six months of 2021, up 26.7% from the first six months of 2020.
- But Allbirds has never recorded a profit, and it's moving in the wrong direction. It posted a net loss of $14.5 million in 2019 and $25.9 million in 2020.
- Allbirds is on track to nearly double net losses in 2021, as it recorded a $21.1 million net loss in the first six months of the year.
So what accounts for the net loss despite the high gross margins? SG&A expenses have generally grown faster than revenue and represented nearly half (44.7%) of total revenue in the first six months of 2021. Allbirds said the SG&A increase between 2019 and 2020 was driven by personal and related expenses.
- Marketing expenses also increased at a faster rate than revenue between 2019 and 2020 (24.6% versus 13.2%). Allbirds said this was primarily driven by "increased digital advertising expenses as a result of the more competitive, higher-media cost environment and the consumer migration to eCommerce due to physical retail restrictions."
What could go wrong?
Three risks stand out from Allbirds' S-1: inability to keep up with fashion trends, knock-offs and the associated loss of brand value, and the potential costs of ESG commitments.
The Allbirds brand is very tied to its particular aesthetic. The company could therefore struggle to keep up with changing fashion trends.
- Allbirds' signature product is the Wool Runner shoe. The company says in its overview that its shoes have "a unique design language that has become synonymous with our brand."
- It also says that its other products maintain this aesthetic, since it "strip[s] away unnecessary details, sparing our customer from becoming a walking billboard, leaving a touch of Allbirds verve to signify the association with our brand."
- This strong style association draws contrast to a company like Nike, which has looser stylistic associations even though it maintains a strong brand. That gives Nike greater leeway to jump in and out of fashion cycles. Allbirds has yet to show that it can transition from one fashion cycle to the next.
Crocs is a good example of a company that has strong stylistic associations and can therefore suffer at the whims of fashion cycles. This has tremendously benefited Crocs in recent months (if you didn't hear, Crocs are back … this time "ironically") but the company went through a slump beginning in 2008 that lasted well over a decade.
- Allbirds writes in its risk section: "Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of styles and our future success depends in part on our ability to anticipate and respond to these changes."
Since lack of brand iconography is a core part of the Allbirds aesthetic, there is plenty of room for companies to sell products that look the same but cost less.
- Allbirds writes in the risk section: "We face competition from counterfeit or 'knock-off' products manufactured and sold by third parties in violation of our intellectual property rights, as well as from products that are inspired by our footwear in terms of sustainability, design, and style, including private label offerings by eCommerce retailers."
- A quick search for "Allbirds" on Amazon, for instance, will bring up 550 results, none of which are sold by Allbirds. The top results look remarkably similar and are fulfilled by Amazon Prime.
- Allbirds says that third parties have "established websites to target users on Facebook or other social media platforms with 'look alike' websites intended to trick users into believing that they were purchasing Allbirds shoes at a steep discount."
- The company says the "counterfeit" or "inspired-by-Allbirds" goods could result in "customer confusion, harm to our brand, a loss of our market share, and/or a decrease in our results of operations."
Finally, Allbirds has made sustainability commitments that could result in reputational damage or increased compliance costs.
- A central part of the Allbirds brand is its "highly ambitious sustainability strategy in service of our aim to help to reverse climate change through better business."
- Allbirds says that it could incur "additional costs and require additional resources to monitor, report, and comply with various ESG practices and regulations and to achieve our sustainability goals."
- It also says that it risks reputational damage over these commitments should it fail or be perceived to fail at meeting these environmental goals.
Who gets rich
Here's where the ownership of Allbirds stood prior to the IPO share offering and how much each party stands to make, assuming a $2.2 billion valuation:
- Maveron owns 14.7% of shares, which would be worth $323 million.
- Timothy Brown, the Allbirds co-founder and co-CEO, owns 11.9% of shares, which would be worth $262 million.
- Tiger Global owns 11.1% of shares, which would be worth $244 million.
- Joseph Zwillinger, the Allbirds co-founder and co-CEO, owns 10% of shares, which would be worth $220 million.
- T. Rowe Price owns 6.1% of shares, which would be worth $134 million.
- Fidelity owns 5.7% of shares, which would be worth $125 million.
What people are saying
- "We began our journey in 2015 with three fundamental beliefs about the emerging generation of consumers: first, these consumers recognize that climate change is an existential threat to the human race; second, these consumers connect their purchase decisions with their impact on the planet, demanding more from businesses; and third, these consumers do not want to compromise between looking good, feeling good, and doing good." —Allbirds writes in its S-1.
- "If you're not familiar with Allbirds, it gained prominence as a super comfortable casual sneaker worn by the tech community and now folks including Barack Obama, Leonardo DiCaprio, Emma Watson, Jessica Alba, and me." —John Thomey wrote in October 2020 on his Urban Tech Substack.