What went wrong at Allbirds

June 28, 2024
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Allbirds, for me, is not just a case study. It is one of my favorite brands. Over the years, I bought five pairs just for myself, not to mention the rest of the family. This makes it all the more difficult to write about them as a cautionary tale. I’m still hoping the company will turn things around, but it’s fair to say that these days, prospects look bleak. Revenues and profits are down, and their stock is at risk of being delisted from Nasdaq less than three years after a high-profile IPO, which valued the company at $3.5b at the peak.

And yes, footwear is a tough category dominated by huge brands but it has still produced a number of successes, most recently brands such as Hoka and On Running, which are both still doing very well.

As a customer, I felt Allbirds’ customer experience has been very strong. They accepted returns without questions, had a very nice omnichannel integration (at least for me, living in a city where they have stores), and their customer care wasn’t needed much but was always helpful and efficient.

Allbirds was considered one of the breakout stars of DTC e-commerce. Does their failure imply the whole category is doomed, or were there most specific idiosyncratic errors in strategy?

I think it’s the latter. Let’s dig into what happened.

Takeaway 1: understand what your customers truly value

In my humble opinion, the first mistake Allbirds made was mistaking their key differentiator. The company has positioned itself as a designer of sustainable yet fashionable footwear. Sustainability seemed like the key difference between Allbirds and big brands such as Nike and Adidas and was the focus of most early advertising.

Sustainability indeed resonates more and more with customers. We see it all the time working with brands at Chattermill. Year over year, concerns about packaging, carbon footprint, and other related issues are becoming more prevalent. And sustainability was, in fact, a differentiator for Allbirds, but was it the main differentiator? I don’t think so.

Allbirds became the footwear of choice for Silicon Valley VCs because they were the first brand that produced extremely comfortable yet fashionable shoes in an understated (unlike the Hokas and the Yeezys of the world) way.

One can argue that for Allbirds, sustainability credentials were more than just a tactic, but their whole mission. And if that is true, then the problems were unavoidable. But being more realistic, the company was forced into making poor decisions on product quality to hit its sustainability goals. Allbirds are notorious for often becoming unusable after only a year because the materials they use just can’t be both sustainable and strong enough for real-world usage.

So rather than optimizing for comfort and design (key differentiators) subject to quality, price and sustainability (secondary differentiators), Allbirds executed in reverse, losing a lot of loyalty from customers disappointed in product quality. Complaints about torn and otherwise damaged sneakers flooded the reviews, social media, and forums. And there was no way of fixing the quality using the tried and tested industry techniques without comprising the sustainability objectives (or at least Allbirds haven’t discovered it).

Takeaway 2: think before you grow

There’s no denying that Allbirds got too drunk on its own champagne. The company grew quickly, adding geographies, models, and product lines before building sustainable, profitable growth in its core categories and geographies.

In the early 2020s, this strategy seemed like the right one. Money was cheap, but growth targets attached to ever-increasing funding rounds got more and more ambitious. For a time, it seemed like consumers would just keep buying stuff at much higher rates than ever before. 

Covid especially played a cruel trick with brands such as Allbirds (and even more with Zoom and Peloton). Suddenly, their demand seemed years ahead of plan, which meant they invested aggressively. After things normalized, demand then quickly came back to previously observed patterns.

Atoms, another footwear brand popular among the West Coast tech crowd, took a different strategy, keeping its SKU range very lean and limiting itself to the US market. Atoms is quite a bit smaller than Allbirds, so who knows what it would have done at scale, but so far, Atoms has reported profitability despite going through a tough few months itself.

Takeaway 3: don’t let your experience stay still

Like all companies building a “good” customer experience, Allbirds asked for a lot of feedback across the customer journey. I am sure this feedback was collected with the earnest goal of turning it into action—and perhaps the company even tried.

And yet, while Allbirds introduced many cool innovations over the years, it never felt like the most important things for the customers were actioned. Year after year, even a die-hard fan like me kept struggling with the same exact problems. 

Over time, they stopped being the only fashionable yet comfortable brand, and the problems became more apparent. I mentioned above that I bought many pairs of Allbirds. Well, I also returned quite a few because of small issues, like sizing, that they could have addressed as part of the selection process.

This is hugely different from what I have experienced with HelloFresh, another breakout DTC company, but with far better execution. Over the years of being a customer, I can see the constant evolution of all aspects of customer experience aimed at gradually doubling down on differentiators (greater choice, tastier recipes) and reducing the “papercuts” (recipes becoming a bit easier to make in the advertised time, less cleaning required after, easier menu selection, etc.).

Too often, companies get attached to the initial successes (and failures) and lock into them as beliefs rather than continuing the process of improving the CX. At Hellofresh, this process has resulted in far higher order values and retention (both of which, in turn, boost profits) than the competition. It seems that Allbirds relied too heavily on the brand cachet from those early days.

Putting it all together

The Allbirds at this point in time is hardly inspirational, but it doesn't spell doom for the entire DTC space or for all independent fashion brands. Success is still attainable, but the tough market means we need to be more disciplined. There is little room for error. Brands must be laser-focused on understanding and delivering what their customers truly value and continuously learning and adapting based on customer feedback.

To end on a more optimistic note, I sincerely believe that Allbirds still has time to course correct. Recently, I’ve noticed them being smarter with new launches, focusing more on product quality and other key differentiators while being pragmatic on the secondary ones. I feel like the company is finally starting to get it.

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