Purpose or profit? Allbirds should pick one
Allbirds was never really a Kiwi company, but we all seemed to embrace it given its local origin story and the plucky founder in former All White Tim Brown.
The wool sneaker maker just seemed cool — and what Gen X-er is going to argue when the likes of Leonardo DiCaprio got in behind them as a pre-initial public offering investor and the tech bros of Silicon Valley couldn’t get enough? Unfortunately, since the 2021 IPO it seems you can actually get enough of a sustainably made sneaker, and Allbirds is now at the stage of getting a ticking-off from the Nasdaq for having a share price that’s too low. Turning red ink into black never seemed to be too much of a focus for the company — it never seemed to fixate on generating a profit when it went public, instead talking a big game about growth and sustainability. That should’ve been a bit of a red flag, given the US Securities and Exchange Commission made it walk back some of its sustainability goals from the offer document — never a popular move in marketland, even if the sneakers were adorned the latest unicorn of the time.
And to be fair, raising US$300 million or so ($500m) and achieving a valuation of US$4.1 billion was some achievement for a company that had only been around for six years or so.
If we were thinking of the classics, we might look at Allbirds as the mythical Icarus, flying too close to the sun and crashing down to earth when the heat was too great for its sustainable resins to bear.
I think I prefer the quirky US sketch show of the 2010s, Portlandia, and its “put a bird on it” sketch, where two artisanal hipsters transform everyday items into art by, you guessed it, putting a bird on them.
They’re all well and good until a pigeon flies into the store, breaking everything and freaking the poor hipsters out.
Like those poor hipsters, Allbirds never seemed ready to take the step up to the realities of public company status, with its direct-to-consumer play failing to deliver the growth it wanted.
Leadership reshuffles, job layoffs, store closures, an adoption of working with international distributors and a relaunch of the original Wool Runner 2 shoe have all ensued, which may or may not revive the feathered one’s fortunes.
And to be fair to Allbirds, it’s still got US$130m to fall back on with a US$100m credit line to draw on, giving it plenty of headroom for a few years with its cash burn rate of US$37.1m in calendar 2023.
The worrying part is the reversal of revenue and a shrinking gross margin that’s sitting at 41 per cent from the 51 per cent it was eking out in 2020. Compare that to the grandees of branded shoes — Nike has maintained gross margins around 44 per cent over that same period and Adidas has shrunk from 51 per cent to 47.5 per cent.
Allbirds dreamed of being a more sustainable alternative to those giants in its pre-public days — and the question is, how was raising money as a unicorn going to achieve that?
The 2021 prospectus didn’t really outline how the money was going to be used, instead giving wide discretion to bolster the balance sheet and provide greater flexibility to chase growth.
Perhaps some sharper financial focus might have been in order and a bit less time spent on the sustainability goals that were meant to mobilise an army of Millennial consumers to get in behind a company that cared.
That first principle seems to have been missing in Allbirds’ brief public life, although the new leadership of Joe Vernachio, the former head of global operations at The North Face, will hopefully impose a greater focus on getting the business in order.
But it does beg the question as to why Allbirds chose to go the IPO route back in 2021.
Californian outdoor clothing brand Patagonia chose a different route in 2022, when owner Yvon Chouinard transferred 98 per cent of the company’s stock into a non-profit organisation set up to battle climate change, using the firm’s annual profits of roughly US$100m. The other 2 per cent went to a trust for the family to retain control of Patagonia’s board and protect the ethos underlying it.
Patagonia and its founder are outliers in that the company has been giving away 1 per cent of its sales to environmental causes for decades and stands as an example of how socially conscious entrepreneurs can pursue their goals if the public markets aren’t for them.
As Allbirds’ board considers ways to get the share price back above a dollar to assuage the Nasdaq, a share consolidation is probably the most likely way.
Wall Street has a purpose and that’s to turn a profit. If Allbirds wants to stay there, it probably needs to get on board.