In early 2020, when I last visited San Fransisco - I thought Allbirds was the official footwear of the city. It was everywhere - on Facebook ads, TV commercials to everyone I met in SF wearing these shoes which the TIME magazine called the “World’s Most Comfortable Shoe” ever.
A few weeks ago when Allbirds filed to go public - it gave me an opportunity to look under the hood for what does a very successful Shopify ( Plus!) Direct to Consumer business (D2C) look like. Allbirds s1 is a must read for us to learn - what matters to our D2C merchants and how we can help thousands of D2C merchants in their quest to being the next Allbirds !
5 Key Take Aways :
1. Digital first !
In 2020, our digital channel represented 89% of our sales, while stores accounted for the other 11% of our sales. Our stores serve as an effective and profitable source of new customer acquisition, increase awareness of our brand, and drive traffic to our digital platform.
Looks like , if you want to buy an Allbirds pair of shoes - you will not find them at the Target or the DSW next door or even on Amazon.com . There are only two channels - (a) Online on their website and (b) their own physical store front which is more of a brand building / awareness channel than a true sales channel. Compare this to Nike where their website accounts for 50% of the sales. The rest is third party retailers like Footlocker and resellers.
What is the advantage of selling through their own distribution channels?
… We are able to own the customer experience, which allows us to use data to determine (a) who our customers are, (b) what is important to them, and (c) what products are most relevant and (d) when, allowing us to create a strong connection with our customers…. In addition to communicating more effectively with our customers, these insights allow us to meet customers’ needs through the creation of new products and enhancements to our existing line.
If Allbirds sold through Target or on Amazon.com - guess who benefits from collecting all this buyer behavior ? Thats the reason why Amazon Private label is under attack as Amazon collects data from all third party sales on Amazon.com and then uses that data to create competing products !
2. Get the customers to keep buying again !
..Approximately 53% of our net sales in 2020 came from repeat customers, which we define as customers who have made a prior purchase with us in any period.
Wow ! More than half of their annual sales are existing customers coming back for a repeat purchase. This is very impressive . I would think for Allbirds to do that -
1. They must have a very wide product catalog to get customers to buy various different products : NO ! The entire SKU base is 3 unique shoe designs in various colors for men and women. They have recently added limited apparel as well. Compare this to a traditional retailer like Nike which has hundreds of unique shoe designs at any given time on its stores.
2. They must be discounting for repeat customers to incentivize them for their loyalty! : NO! 98% of Allbirds sales have happened at full price for the entirety of their operating history. If you were looking for a discount code for the Allbirds - you are unlikely to find one !
3. Healthy Gross Margins
…Digital retail not only allows us to better understand our customers, but also enables us to cut out the layers of costs associated with traditional wholesalers, creating a more efficient cost structure. Ultimately, we believe this provides unmatched value to customers, enabling us to deliver better products and a better experience to customers, one that competitors relying on wholesale distribution cannot afford to deliver at our price point.
Allbirds operates at 50% gross margins. So if you buy the WoolRunner Shoes for $100 , after accounting for the cost of manufacturing , distribution, shipping and fulfillment, Allbirds is left with $50 to pay for all the other expenses of sales/marketing and running the business. This ties nicely back to their digital strategy. If Allbirds sold through third party marketplaces and retailers- they would need to pay commissions to these channels for making the sale happen. On their digital channels, they get to keep all the margins for themselves. Allbirds also demonstrates the value of building a strong brand where consumers are willing to pay a premium for a pair of shoes ..
4. Cost of Acquisition (called CAC)
We define CAC as total marketing expense for a given period divided by the new customers acquired during that period. We have consistently achieved contribution profit in excess of CAC within the initial purchase for each cohort since inception.
While it doesn’t explicitly state this - doing some basic math - Allbirds approximately spends $60 in acquiring a new customer. An average cart value for Allbirds is $124. With 50% gross margins , Allbirds generates $62 of margin dollars on every transaction. So every new customer is profitable from the first transaction. When the same customer goes back and repeat their purchase ( since Allbirds didn’t have to spend any more money on acquiring this customer) - this second purchase is purely incremental to Allbirds’ bottom line !
If that was not all , the repeat customer actually spends 25% more in their second year ! That means repeat customers are coming back and spending more than what they did in their first year ! This high engagement is reflected in their high NPS score of 86 and a CSAT score of 96%. This shows the power of building a great product alongside a great customer experience organization which keeps the customers coming back !
5. Positioning and Branding as a differentiator
…An increasing number of consumers want to align with brands that are responsible and purpose-driven. More than ever, people are scrutinizing the products they purchase and what the brands they select represent. Surveys suggest that consumers, and younger generations, including Gen-Z and Millennials in particular, are becoming increasingly focused on product origins and buying from companies that share their values.
…AllBirds aims to reverse climate change through better business by empowering people to make better, more conscious decisions for themselves as well as the planet.
This is the ultimate moat ! Allbirds unique positioning as a global lifestyle brand addresses two of the most important issues for younger generations—(1) health and wellness and (2) sustainability—in a way incumbent brands like Nike and Adidas are unable to do. If you are the Nike CEO - it will take you decades of really tough decisions to unwind a globally scaled supply chain build on completely different fundamentals.
Allbirds claims to be running a carbon neutral supply chain since 2019. They are also a certified B Corp and have clearly stated ESG goals. For the demographics that Allbirds is targeting - conscious consumerism matters and Allbirds’s mission and practices align with it.
There are a few other interesting nuggets of information :
For a company which started in 2015 - 25% of their sales happen outside US . So Allbirds chose to be global right from the onset. They have fulfillment centers in : United States, Canada, United Kingdom, the Netherlands, China, Japan, South Korea, and New Zealand. I didn’t expect to see Japan and South Korea to be top markets for them !
In the US - they have distributed their inventory in Kentucky and California. …Having two distribution centers in the United States allows us to reduce shipping distance, costs, delivery, and our carbon footprint . This enables eCommerce click-to-home time of three to five business days.
For everyone at ShipBob - this pitch should resonate. ShipBob’s mission of providing best in class logistics to ecommerce merchants rings so true. We are providing by default - to every e-commerce brand no matter their size - the same equivalent infrastructure in the US and global that the world’s most successful enterprise brands like Allbirds utilize. For brands using ShipBob - scaling their supply chain infrastructure is a solved problem through ShipBob. This is why we exist !
Returns Policy : Allbirds accepts returns for full refund or exchange if returned within 30 days of the original purchase date.
The word “shoes” appeared 68 times on the s1. Supply chain “64” times - highlighting that a D2C brand needs an effective supply chain to be successful!. The word “sustainable” appeared 100 times ! - The lessons on marketing still hold true - Building a great story around your mission needs a lot of repetition!
Congratulations to the entire Allbirds team on building a phenomenal success story ! And if you own a pair of Allbirds - I want to know ! -
Are they really that comfortable!
Can you wear that without socks ? ( I read you can and they dont smell?!)
In the summers, do the wool shoes make your feet hot?!