The tragedy of Allbirds (or, why Silicon Valley's favourite brands are failing)

Allbirds, once tech's favourite sneaker brand, just sold for next to nothing. Other 2010s D2C darlings are circling the drain. That's what happens when you run a fashion brand like a tech startup.

Allbirds’ flopped ‘carbon-negative’ shoe

A couple of years ago I interviewed Allbirds co-founder Tim Brown for GQ. The once high-flying sneakers startup — at its peak in 2021, it was valued at a ridiculous $4.1 billion — was promoting the world’s first “carbon negative” shoe. The sneakers were an impressive piece of engineering, no doubt requiring years of R&D and supply chain investment. There was just one problem: they were ugly. Sneakerheads on Reddit dubbed them “goofy as hell”. “You want to design something that provokes a reaction and discussion,” Brown told me, sheepishly. Sure, I thought. But not if your job is to sell shoes.

In retrospect, by then the writing for Allbirds was already on the wall. The company, one of the biggest direct-to-consumer (or “D2C”) success stories of the 2010s, had endured successive quarters of declining revenue and profits. In 2023, it made a net loss of $152million; in five years its stock price has fallen by 95%. So it didn’t exactly come as a surprise when Allbirds announced this week that the company is being sold to American Exchange Group, a collector of distressed fashion assets, for just $39million.

Allbirds is not the only 2010s direct-to-consumer success story that has fallen on hard times lately. Everlane is reportedly looking for a buyer. So, it’s said, is Glossier, the beauty brand whose $2billion valuation earned its founder Emily Weiss fawning cover profiles in Entrepreneur and WIRED. And Warby Parker, the original poster child of the D2C unicorn era, is itself struggling in the face of competition from rival glasses startups — many of which it surely helped to inspire.

You’ll notice these brands have more than a few things in common. They all launched a fundamentally basic product (sneakers, glasses, wardrobe basics, makeup) with a seductive story. Legacy brands, they argued, were bloated ripoffs. By offering simpler products and spending less on advertising and physical stores, the D2C disruptors could make better, more ethical products for less.

And it worked! Or at least it worked for long enough to convince Silicon Valley to pump in money. Glossier raised over $250million in multiple funding rounds. Warby Parker raised $300million. When it went public in 2021, Allbirds raised $348million. All were at some point valued at well over $1billion. The founders all became multimillionaires. These were, by most metrics, successful businesses.

But as so often, those numbers hid the reality. Those valuations were all based on multiples of revenue — which is to say, they were valued not on profits but on growth potential. That’s standard venture captial fare is you’re betting on a social media or rideshare app, markets where startups can quickly grow massive on cheap debt and eventually turn a profit by leveraging their new monopoly. But in fashion, where the whole business is based on trend cycles and the fickle boom and inevitable bust of consumer taste? It’s insane.

I liked Allbirds. I once owned a pair, and they were perfectly comfy shoes. Their dedication to sustainability seemed genuine. But as a company, Allbirds made basic mistakes over and over again.

Its launch product, the Wool Runner, was more or less in line with the footwear trends of the time. This was the mid 2010s. Jeans and ties were skinny; the -core was norm. Minimalist, narrow-profile running shoes like Nike’s Roshe Runs and the Yeezy 350 were mainstream. So was virtue signalling: once niche brands that talked about sustainability, like Patagonia, quickly grew from hippie fringe to mainstream cringe as they were adopted as the uniform of tech workers and Wall Street bankers.

But fashion is unforgiving, and by the time the pandemic was over skinny jeans were out, and baggy jeans and Bostons were in. Allbirds was left behind. When it did try to update its product line, it released dud after dud. Worse, the brand became associated with Big Tech (I once saw them referred to, devastatingly, as “Salesforce Ones”) at the exact moment that mainstream sentiment towards Silicon Valley flipped from admiration to widespread disgust.

Allbirds didn’t seem to realise this until it was too late. But more fundamentally, neither Allbirds’ leadership or its investors ever seemed to understand what sneakers are.

Sneakers are a performance product. People buy them to run faster, or jump higher, or be more comfortable, which is why sportswear companies spend billions on R&D to launch features that, if marketed well, become synonymous with the brand: Nike Air, Adidas’s Bounce, On’s CloudTec. They spend billions on athlete sponsorship deals to burnish this image. Our products will make you run like Eliud Kipchoge; serve like Serena Williams; dunk like LeBron James. Even if you’re not an athlete, you’re buying their products to feel like you could be. The product is the brand.

As soon as customers stop seeing you as a performance product, you’re in trouble. Look at Nike, whose stock has fallen 65% in recent years, as fashion trends moved away from technical running silhouettes into vintage styles (Sambas, ballet flats) while athletes embraced competitors that were seen as more innovative (On Running, Hoka) or specific to a performance niche (Brooks, Altra).

The alternative to being a performance brand is to be a fashion brand, which most people in fashion will tell you is a silly idea. Trends are outside your control, and even spending millions on advertising isn’t guaranteed to drive success. (Performance brands often become fashion brands — Salomon, for example, is doing that right now — but fashion brands rarely become performance brands.)

But on fashion, Allbirds failed too: while competitors adopted collab culture, and streetwear inspired “drops” of rare colourways and limited releases, Allbirds did… nothing. Their product line right now looks remarkably similar to ten years ago, which is to say it is deeply, deeply uncool. If you’re trying to be a fashion brand — hell, any kind of brand! — that’s suicide.

The truth is that Allbirds wasn’t selling sneakers. It was selling a slide deck. Its USP, or “moat”, was little more than “we’re more ethical than those guys!” This looked good to VCs, who understand flywheels but not art or taste. But growth rooted in a cultural moment does not extrapolate into future revenue. On the contrary! While internet companies benefit from network effects — the bigger a product gets, the more useful it becomes — fashion suffers from the exact opposite. The more mainstream (or lamestream) a product gets, the faster and deeper the backlash. Too big to fail? More like get big, fail.

When you look back at the faltering first wave of D2C brands like Allbirds, Glossier, and Everlane, you’ll find a similar story. Most of the time, these billion dollar companies were not using their ample VC funding to load up on innovative R&D or new IP. In fact, they were mostly selling simple products that could be (and were!) easily duped by anyone with a half decent design team and access to Chinese supply chains. Their advantage was not in having a unique product, or an artistic vision. Instead, they were simply among the first to take advantage of the modern startup stack, where companies could leverage private-label Chinese manufacturing to make, say, mattresses or acetate eyewear, and then use social media tools to target customers cheaply. But their designs were bland, and the marketing techniques, novel at the time — Instagram, SEO, podcasts — were quickly adopted by their rivals. There was, in the end, nothing really special about them.

Spoiler: it’s “raise loads of VC money”

It’s easy to use the declines of companies like Allbirds to push clichés like “go woke and go broke”, or that sustainability doesn’t sell. That’s not true. In fact, sustainability is now seen as a basic requirement for younger consumers. Look at Keen, huge right now among the gorpcore crowd, which has long campaigned against PFAS. Or On, which went big on low-carbon sneakers at the same time as Allbirds. It just doesn’t base its whole business model on that fact.

If I had to guess what damned Allbirds, part of it was that they were headquartered in San Francisco — a great place to raise money if you’re pretending to be a tech company, but one of the worst places in the world to work out what’s actually cool. As Emily Sundberg, who has impeccable taste, wrote, Allbirds is “a reminder of how a lack of sex appeal (along with mismanagement) can tank a business.”

With the benefit of hindsight, we’re now starting to see how many of the big 2010s consumer companies were genuinely innovative, and which were simply a low interest rate phenomenon. (Another example, from my own industry, is Buzzfeed.)

Of course, Allbirds will still hang around in some form. Who knows? Maybe in another ten to fifteen years it’ll have a nostalgia-based resurgence of its own. People wrote off Abercrombie. The Gap is attempting yet another rebrand. Nike is now doubling down on its core performance market and weird mindfulness gimmicks, hoping to earn back its reputation as being both cool and good. But turning around a brand’s image often takes longer than markets are willing to give.

BELOW THE FOLD

1. In a world where insane news stories are now a daily occurrence, I was nevertheless blown away by this New Yorker story about a former CIA officer whose job was to recruit Iranian spies.

2. My tsundoku pile is threatening to kill me, but of the many great new books coming out at the moment I’m excited to get into Alex Perry’s Blood Will Flow, a thrilling retelling of horrific ISIS terror attack in Mozambique and the secrets it revealed about the (extremely dodgy) oil industry.

3. This FT piece by Ravi Somaiya about Nathan Newby — an ordinary man who was recently awarded the George Medal for stopping the bombing of a British hospital — is one of the most remarkable example of how to recreate narrative from court documents that I’ve ever seen.