Enjoy the bbq/long weekend

TLDR:

Happy Memorial Day
How does Allbirds get to $1B?

Happy Memorial Day!

This is coming to you a day late as I was traveling down in DC to visit some friends this week. We have finally hit peak spring in the East coast US and it’s great to be outside. Definitely makes it harder to be writing this when it’s 80 degrees outside.

Hope you’re enjoying the barbecue today. The end of promotion weekend sales are bumping and you’re gearing up for summer

Should Allbirds stint in the Privates?

Allbirds needs a PE stint before becoming a public company again. It’ll benefit from the profitable cash flow discipline a PE company will instill and hit the business operational levels it needs to thrive as a public company.

It’s trading at $1.19/share with a $179m market cap. Down -96% since it’s $41.B cap at the 2021 IPO. Like we always do, let’s imagine I have that PE fund, and we can acquire this for $195m.

Going to try something different today. Going to start with the end and give you the takeaways up top. If you want to read more it’s all down below.

🧠 The Takeaway

Allbirds hasn’t grown out of the spend it like there’s no tomorrow mode of growth and it’s killing their stock.

1. Retail expansion is consuming their cash and making them wildly unprofitable.

2. They need to clean up their catalog and make some serious investments in growth.

3. The brand needs to evolve to become the Footwear made sustainable brand.

👷 What can you do about this?

1. Have an honest conversation with your team about growth. How much do we want to accelerate the future?

2. Really look at your new products and ask: “Would someone buy this by itself?”.

3. Think about how you can collab to keep your brand more relevant.

The Financial TLDR:

• Slow Growth business still investing like a High-growth VC startup

• To many costs are increasing faster (COGS, SG&A) than sales

• No debt on the books

7% YoY is such little sales growth that the street isn’t going to allow a company to be this unprofitable. It violates the growth or cash flow narrative that all investors make decisions on. Allbirds currently is neither.

There have been bumps in their strategy, but this is an overall strong company staring down an existential decision...

How big is their market?

How many people will spend hundreds of dollars on sustainable shoes?

The current market is big enough to sustain them at 9-figs in sales. But are there enough to get them to $1B+ in sales? If the answer was no this would be a really boring newsletter since the response would be slow down and make cuts. So let’s say the answer to that question is yes.

Here’s my 5-step plan get Allbirds to $1B+ Topline:

1) Build a Collab Engine

To become the sustainable Nike they need to have more of a cool factor. They need to run more collabs with other brands. It could be companies, influencers, sustainable organizations. There needs to be an ongoing reason for customers to come back and buy. The novelty that made the brand relevant (Products, Store experience) is wearing off. What comes next to bring people back?

Allbirds needs to take a play out of Crocs book and run more collabs with other relevant brands. Be the physical mass-distributed partner that other brands can leverage to be more sustainable. Allbirds will become cooler and more relevant while the other brands will tap into the eco-consumer.

This is a tougher sell for a sustainable brand, but it can be executed well. Customers won’t buy as many because they are more sustainably focused, but increasing the pairs per customers by 1-2 will be a massive lift. They could run 10-20 a year vs. Cros which ran 66 in 2022.

Solution:  Become the sustainable collab backbone that other brands come to lift their eco-profile making Allbirds the foundation of making sustainable cool.

2) Outgrow their roots.

Allbirds has to outgrow the tech-bro ‘better for the planet’ brand. The strategy worked incredible well to launch, but what go them here isn’t what will get them to the next level. They need to become an approachable brand to the average eco-consumer.

Allbirds needs to shift positioning from the sustainable footwear company, to the Footwear company made sustainably. Convincing the average consumer their products provide the same performance and are sustainable will justify more people tryng it.

The global footwear market is $398B. There is enormous opportunity here. All footwear brands have some sort of sordid past. Allbirds has a real opportunity to expose a the skeletons in competitor’s closets and play the “better for the planet” angle to justify higher prices. I’m surprised Allbirds doesn’t take a lot of shots at Nike and Adidas on “Social values”.

Also if you think it’s a style issue. Ugly shoes can be repositioned. Crocs did $1B and New Balance did $5B in sales last year.

Solution: Evolve the brand positioning to become the footwear brand sustainably made to attract more customers. Focus more on women (particularly Moms and Grandmas) who are the purchasing decisions makers in most households.

3) Catalog Pt 1: Clean up Apparel

Apparel makes complete sense for a footwear brand. It’s the obvious playbook that predecessors (Nike, Adidas) have made billions running.

But if you look at Allbirds apparel it doesn’t stand out. Sustainable Apparel is not longer a differentiator. Hundreds of companies make sustainable clothing. There’s no real reason why a consumer should buy or wear those specific items. Which seems like an obvious miss.

I don’t know their customer that well, but here’s how I’d describe their super bowl photoshoot if they had nailed Apparel:

A financially well off family who shops at Whole Foods is planning a getaway for the weekend. They’re going campaign with the family + friends.

They pack their Yeti cooler, Solo Stove, Tent from REI in their Tesla. They’re wearing Allbirds apparel + shoes ready for their outdoor trip. The dog jumps in the car also wearing Allbirds trainers.

It’s so comfortable they were it while they go shopping for the trip and around the house.

The products you are imaging are what they should be making.

If they really make a stand out and tap into people’s love of the wild this should be a no brainer. Then they can sell more complete outfits increasing AOV with the Apparel + Shoes look.

Solution: Rethink and rebrand the apparel lineup to be an ‘REI brand” targeting Yeti/Solo Stove/Carhartt customers and have a clear reason why someone needs to buy Allbirds clothes.

4) Catalog Pt 1: Expand deeper into Footwear

Sustainable footwear is still unique. There aren’t too many competitors in that space. It’s inevitable that the big players will eventually enter but it’s much more difficult than other categories (like apparel). They should have more time to build a unique brand in this space.

Allbirds has the chance to move into every major footwear category (Causal, dress, boot) to own the consumers’ closet and turn loyal customers into Allbirds’ fanatics.

Especially in women’s who buy more footwear + spend more on sustainability. Great footwear brands explode their catalog tapping into the right designs and patterns. There are still so many massive categories for them to be the sustainable options this seems like the most viable growth path.

This analysis is simple, but the execution is the hardest. Footwear is a difficult category to enter and expand, but they’ve already mastered sneakers so they have a good foundation. They could move into other popular categories especially in Women’s like slippers, sandals, heels, boots. And be the sustainable provider for each of those types.

Realistically this would take decades to execute well but if they could expand one category at a time they could greatly increase AOV and LTV and become the largest sustainable shoe manufacturers to rival the Titans.

Solution: Own customers shoe closets by expanding into more footwear categories as the sustainable supplier for what’s already popular.

5) Grow faster in private.

It shouldn’t be a surprise they grew 7% YoY when only investing 3% more in Marketing. The company has such aggressive growth goals they are over-investing in Sales but not the corresponding marketing to sustain the growth. The market expectations to cut costs are going to stunt their growth plans.

The challenge Allbirds is running into is their GM % is shrinking (-18% YoY) and SG&A (+36% YoY) in shooting up. This is actually a real death trap they’ll need to navigate. Margin is eroding from both sides, not leaving them enough capital to invest in growth. If this continues they’ll eventually be a ship in the middle of the ocean with no fuel.

Most of the SG&A increases are from Retail expansion + public company admin costs. Obviously going private will solve part two of that equation, but one is really tricky. The aggressive retail expansion investment is outpacing sales growth and sucking up cash.

If they really believe the TAM is there they should.

1. Go private with a big balance sheet

2. Run the dominate growth playbook they want.

3. Re-list at the larger size with market dominance.

The major risk is they’re too early and the sustainable movement doesn’t catch on as much as they believe in the next 5 years. Leaving them overspending to meet market demand that never materializes.

If that’s the case then they should slam on the brakes. Skate to profitability and survive until Gen Z are in their financial prime. They have $146m in cash with no debt on the books. If they can slow down the growth investments, return to unit economic sales and live to see another day they can continue to grow more sustainably over time.

As always. Stay confident, connect with your customers, and keep crushing it.

Jeremy Horowitz

P.S. If you’d like to learn more check out some of our other resources:

1. If you're looking for daily insights like this follow me on Linkedin 🧠

2. Interested in know what the Top 100 apps used by Shopify Plus Brads? Shop News and Reviews 🤯 

3. If you have any feedback always send it through. Hit Reply and send me your thoughts. These emails go directly to my inbox.