Allbirds’ third quarter was another episode in the footwear brand’s series of negative growth, which, according to an analyst, suggests that it is now a ‘passing fad’.
The company reported a 23.3 per cent decrease in sales to $33 million and a net loss of $20.3 million for the quarter ending September 30.
This quarter’s sales decline was just another addition to the brand’s persistent downward trend. Since 2022, sales have dropped 54.6 per cent.
“This underlines the fact that Allbirds has fallen out of favor with consumers and suggests that its early success was more of a passing fad than the foundation for a sizable business,” said GlobalData MD Neil Saunders.
“By no stretch of the imagination are these good results, and management’s attempt to jazz them up by saying that they are aligned with expectations will do little to convince investors that Allbirds is on the right track,” he added.
Misplaced focus
The analyst pointed out two main factors behind the company’s struggle.
“First, the company’s focus on sustainability, while worthy, is misplaced,” Saunders elaborated. “Consumers like and respect sustainable solutions, but in footwear this is almost always a secondary or tertiary consideration that comes way below factors like style, fit, or price.”
While management has made some subtle shifts to comfort and style, the rebalancing needs to go beyond words and be embedded into the operational focus of the business,” he said.
The second issue lies in the brand’s narrow range and autonomy products, Saunders continued.
“Not only does this limit the appeal, restrict purchase frequency and lower average spend, it also raises the question of the viability of Allbirds operating its own stores in many locations.
“In our view, the push into stores – as nice as these look – was something of a vainglorious exercise, rather than one based on sound business fundamentals,” he said.
The analyst noted that management has attempted to address the problem, such as introducing new designs, but many of their initiatives have fallen short.
“To be fair, there are some more positive moves, such as the gift collection for the holidays, which includes slippers and some ‘ugly’ type boots and clogs. This suggests that more thought is being applied to where Allbirds might find success, but in this competitive area of the market, a lot of effort will need to be made to improve awareness and create some buzz around the product,” he said.
There is still a place
According to Saunders, there is still a place for Allbirds in the market, but as a niche brand with carefully controlled distribution and the cost discipline befitting a smaller player.
“That wasn’t the route that previous management teams pursued: rather than realizing their position in the market, they chased the pipedream of becoming a household name by opening stores and placing bold bets on expansion,” he said.
The challenge now is to try and remold the existing business model into a shape that works for the market, he added.
For the full year, the company lowered its revenue outlook from the prior $165 million to $180 million range to $161 million to $166 million. The retailer expects an EBITDA loss of $63 million to $57 million, compared to prior guidance of $65 million to $55 million.
