Why Allbirds — a Sneaker Company — is Urban Technology

Urban Tech Launches Our New Logo

Good morning everyone - John, here. Welcome back to Urban Tech for returning readers and a huge welcome to our new readers. Check out who readers of Urban Tech are on our about page. Trust me; you’re in great company.

Notice something different? I'm thrilled to share we have a new logo for Urban Tech (see below)! There's also a short write up for the thinking behind the change after my piece on Allbirds.

TLDR; I want Urban Tech's brand to stand for something more than just a logo with my face.

The logo is a big deal, but you're here to read about why I think Allbirds should be considered urban tech. 

If you're not familiar with Allbirds, it gained prominence as a super comfortable casual sneaker worn by the tech community and now folks including Barack Obama, Leonardo DiCaprio, Emma Watson, Jessica Alba, and me. [Disclosure: I've owned several pairs of Allbirds. I find them extremely comfortable and love the company's mission.]

And to address any haters saying Allbirds are unfashionable or ugly, Barack Obama wears Allbirds (picture below), and he's a pretty fashionable guy! 

So why is a shoe company part of the urban tech space? Note: I use an under case “urban tech” to refer to the space instead of capital Urban Tech (this publication’s name).

Established in 2016, Allbirds is way more than just a shoe company in 2020. While many direct to consumer brands have hyped their tech credentials (Caspar, Blue Apron, etc.), Allbirds is probably closer to a tech company than you think. It has an app, but that’s not what I’m talking about.

Allbirds has 14 patents — with undoubtedly more to come — around its proprietary materials, tools, and processes. Allbirds’ proprietary materials and techniques are pushing the entire fashion industry forward.

The company openly shares its proprietary tech with other brands and is even striking deals, like with Adidas, to help companies develop sustainable products and processes. Just this week, Allbirds launched an apparel line that uses materials like recycled crab shells. The company announced in September announced a Series E round, raising $100M at a $1.7 billion valuation. Allbirds is also profitable right now.

Are you starting to believe me? Read the whole piece to see my full case.

Here's what I'll cover:

  • The three macro trends Allbirds is tapping into

  • The company's history

  • My thoughts on the business potential for Allbirds

A few quick notes before I jump in:

  • I'll be in NYC from 10/31-11/1. I'm setting up meetings with friends, colleagues, and Urban Tech readers. Hit me up at john@urbantechnews.net if you want to meet up (safely with all the appropriate precautions).

  • Share Urban Tech with friends, colleagues, and anyone interested in cities.

  • There is no What I’m Reading This Week section today. I wanted the main focus to be on the piece about Allbirds and our logo. I may send out a special weekend edition for Urban Tech this weekend to share thoughts on big news like Jony Ive working with Airbnb.

A quick reminder to check out last week's piece on why Waymo is leading the race for driverless cars. Or here is my tweet thread explaining some of the key points:

A big thanks to Matt Powell at NPD Group, who helped me understand the trends at play in retail and sneakers for this piece. Also, Web Smith and 2PM was a significant resource I leaned on as well while researching.

A Long Thing: Why Allbirds is Urban Tech Too

Created in 2016, although product work began in 2014, Allbirds grew to prominence when direct-to-consumer businesses would become a defining theme for tech and culture. Allbirds capitalized on three trends that are increasingly defining consumer retail:

  1. The rise of athleisure culture

  2. DTC economics

  3. Fusing sustainability with the mission

Think about the brands you see on your Instagram feed or while browsing Twitter; my bet is these three trends, or companies embracing them, are taking up more of your feed's real estate.

Let's look a little more at each of these trends.

The rise of athleisure culture

Even before the pandemic, you probably noticed people increasingly trading in traditional casual wear for comfier, more modern options: yoga pants, anything Lululemon, etc. The Atlantic's Derek Thompson wrote a fantastic essay on the rise of athleisure culture in 2018. Athleisure is a modern variation of athletic clothing that blurs the lines between activewear and casual attire. It is generally socially acceptable to wear athleisure in situations that maybe even ten years ago you would have adopted more traditional casual clothing. Athleisure is also defined by the rise of new materials technology and the shift from cotton to technical fabrics (polyester, nylon, spandex). Retail expert and 2PM Founder Web Smith explained the rise of technical fabrics in February 2020:

And no longer is cotton king, technical-based fabrics (polyester, spandex, nylon) are the cheapest to produce as long as crude oil is in ample supply. These fabrics deliver a host of benefits: they wick moisture from one’s skin, they stretch, they contour the body, and they deliver compression performance in some cases. The endure a day’s commute without the wear and tear of traditional fabrics.

According to Grand View Research, the market for technical fabrics are only going to grow, doubling between 2015 and 2023. To the untrained consumer, these products are all benefit and with little downside.

Lululemon, which is often credited with launching the trend in 1998, is a brand pretty much 100% dedicated to athleisure clothes. Lululemon has a market cap of around $43.01B.

In 2019, the global athleisure market size was estimated at USD 323.40 billion and is expected to reach USD 348.95 billion in 2020. The market is expected to grow at a compound annual growth rate of 8.1% from 2019 to 2025 to reach USD 517.48 billion by 2025. [Source, Note: research was done before COVID, so the pandemic’s impact is not included — it’s still helpful market context.]

The point is athleisure is a significant trend that is especially pronounced in cities. It might be the most prominent fashion trend of the last decade. Friend of Urban Tech Sophia Kunthara, a Crunchbase News reporter, made a fantastic point about the attractiveness of an athleisure shoe for women living in cities.

Matt Powell, an analyst at The NPD Group and national retail expert, explained that the pandemic has only helped accelerate the adoption of athleisure trends. Powell also pointed out how crucial online shopping has been to the industry as of late. “Online sales grew from 30% of sport footwear sales to 40% of sales,” this year, he told me. 

Online and DTC strategies are a crucial part of the Allbirds story.

DTC economics

This summary from SaaS ecommerce platform BigCommerce is a beautiful definition of DTC:

Direct to consumer means you are selling your product directly to your end customers without third-party retailers, wholesalers, or other middlemen.

If you’re familiar with tech, you probably are somewhat familiar with DTC trends. They have influenced silicon valley this past decade heavily. A piece from Eliot Brown at the WSJ I think gets to the core of the DTC trend of the 2010s:

Mattress startup Casper Sleep Inc. typifies the kind of startup that Silicon Valley investors fawned over through the 2010s, defined by big vision and rapid growth at the expense of profits. 

The experience of Casper offers a window into consumer-focused startups more broadly. Companies including Casper, luggage-maker Away and sneakers seller Allbirds pioneered a new business model selling products directly to consumers instead of through other retailers, often via Google and Facebook ads. Many of them have tech-like valuations and ambitions to go public. Five-year-old Away Luggage’s $1.4 billion valuation is nearly half the $3.1 billion market capitalization of luggage leader Samsonite International S.A. 

One of the biggest winners of the DTC revolution of the 2010s is the ecommerce platform company Shopify. Allbirds is one of the star case studies for a DTC brand leveraging Shopify’s platform. If you want to learn more about Shopify, I highly recommend reading the essay Not Boring Founder Packy McCormick (an Urban Tech) wrote for Not Boring earlier this year. 

While DTC brands have experienced trouble lately, I think Allbirds is positioned better than most companies in the space. I talked a bit about how Allbirds is closer to a tech company than most other DTC plays, but I’ll go into more detail in the business case section.

Fusing Sustainability with the Mission

I've talked a bit about sustainability and Allbirds already. If you have Allbirds or are somewhat familiar with the company, sustainability and Allbirds might be synonymous to you. I'll examine the longer-term business case for sustainability in the business analysis section lower down.

Sustainability is a core theme of everything Allbirds does. You can find a ton of great resources on it here. I'll explain how the brand didn't find its early virality by only leaning into sustainability values in the history section. Allbirds instead opted to highlight the shoes' comfort and quality in initial marketing.

There are other examples of Allbirds' sustainability initiatives over the years beyond its material innovations. The company is incredibly transparent on the carbon footprint of all its products.

In 2019, Allbirds self-imposed a carbon tax to show how companies can take an even more significant step to mitigate climate change. The company is trying to be carbon neutral, which is no easy feat when you have Allbirds' volume. The tax of 10 cents per shoe goes towards various sustainability projects.

It's important to point out the DTC market, and athleisure has sustainability consequences outside of traditional supply chains and athletic wear. For example, the use of technical fibers introduces plastics to water systems. This quality is where Allbirds' material innovation shines through in comparison to other athleisure brands. The company uses just four sustainable materials across a considerable share of its products:

  • SweetFoam a sugarcane blend for shoe soles

  • Eucalyptus fiber for Tree Runner sneakers

  • Merino wool for Wool Runner sneakers

  • Trino, mix of eucalyptus and merino wool fibers

Company History

The founding story for Allbirds combines two things I don't know a ton about, but can easily see the romance behind: New Zealand and the soccer pitch. 

Tim Brown developed the idea for Allbirds while he was playing professional soccer in his home country New Zealand. Brown, who went to business school, came to wonder why a shoe company hadn't taken advantage of a material popular in New Zealand, merino wool. 

He noticed merino wool has many of the same qualities that have defined athleisure: a super comfortable, sustainable material that wicks away moisture, regulates temperature, and minimizes odor. Brown took the idea for the shoe to Kickstarter, raising $119,000 in five days to build the prototype.

A bioengineer Joey Zwillinger, who knew Brown because their wives were friends, was impressed by the campaign and Brown's vision. They teamed up to bring it to market. Both still lead the company together as co-CEOs. They spent the next two years improving the shoe even further. 

Allbirds officially launched in the Spring of 2016. Their strategy proved to be out of the box: Allbirds invested heavily in brand marketing. This is atypical for early-stage startups typically, which often follow the mindset of pouring the bulk of resources on the product and waiting to spend on marketing.

The team spent 20% of their initial budget—roughly $400–500K—on marketing and PR campaigns. What was the focus of these campaigns? Not sustainability, but quality. Brown and Zwillinger made it clear through marketing and PR that these shoes felt incredible to wear. The campaigns paid off. On the day Allbirds launched, Time magazine published a piece on the sneakers, with the headline “The world’s most comfortable shoes are made of super-soft wool. [Privy]

By 2017, the company had reached a virality level, leading to mainstream coverage in Time and The New York Times.

By 2018, Allbirds sold more than a million pairs. Since 2018, the company has also reached several other significant milestones:

  • Agreed to a partnership with Adidas "to design the world's most sustainable shoe."

    • These types of deals are typically small volume and tone mainly for media and marketing purposes. It has worked, though.

  • Launched physical retail locations.

    • While the vast majority of sales are online, Allbirds operates globally with 21 retail locations in the United States, Europe, Asia, and New Zealand.

  • Created an app.

  • Reached profitability as early as 2016(!!!)

    • This is just so different from many recent narratives of tech companies or DTC companies. This means Allbirds was profitable in its first year of operations as an official company.

  • Expanded shoe product lines.

    • Allbirds launched a running shoe earlier this year.

  • Created sustainable apparel products (socks, sweatshirts, outerwears, etc.)

The company reached a new level of credibility for sustainability in 2019. Amazon’s internal retail brand began selling a wool sneaker product similar to Allbirds. Allbirds responded by essentially saying, “don’t steal our designs. Steal our sustainability practices.” 

Analysis of Allbirds as a Business

(Allbirds’ fundraising to date, Source: Crunchbase)

Key Details:

  • Allbirds has raised 202.5 million dollars total, and during its series D and E raises was valued at $1.6 billion. [Crunchbase]

    • It should be noted that Allbirds being able to keep its valuation after a historic pandemic started is pretty impressive.

    • The Series E raise of $100M doubled the company's total funding to date. It would appear the company is building a war chest for big plans.

  • The company is profitable, with the best estimates for revenue I found being:

    • "The brand was reportedly expected to earn $150 million in 2018 revenue, according to Axios. Rakuten Intelligence estimates that Allbirds' revenue increased 48% between 2018 and 2019 and that its customers bought an average of 1.7 items in 2019. If it achieved its 2018 sales expectation, it would mean Allbirds earned $222 million in 2019." [Glossy].

  • Allbirds continue to make progress in new markets like South Korea, China, and across Europe. Asian markets have proven to be challenging for American brands to navigate.

    • Allbirds doesn't need to be the best shoe in these countries; it just needs to build a loyal following in these massive markets. 

The last decade in tech has been a rollercoaster for many DTC companies. Extreme highs and now seemingly extreme lows for some (Caspar, Blue Apron, Quibi). To me though, Allbirds as a business is a much different story.

The first differentiator being Allbirds is already profitable. This factor is pretty remarkable since Allbirds is still relatively young and remains private. Even outside of DTC companies, profitability has remained difficult for many of tech’s most prominent companies in the last decade (Snapchat, Uber, Lyft, WeWork, etc.)

In comparison to many other DTC companies, I also think Allbirds truly is a tech company. It’s more of a tech company than a fashion brand. Web Smith, writing on the Adidas partnership, makes a great comparison between Allbirds and Gortex:

“Guaranteed to keep you dry, Gore-Tex was invented in 1969. The fabric was a notable technical innovation at the time. It could repel water while allowing vapor to pass through. The lightweight, waterproof fabric was designed for all-weather use. Its origin was interesting in its own rite. The technical specifications were identified by accident; Wilbert Gore stretched heated rods of Teflon (polytetrafluorethylene) and realized that it safely stretched 800%, forming a microporous fabric that consisted of 70% air. Gore-Tex revolutionized an industry. By 2017, the company earned over $3 billion annually.”

“Together, Allbirds and Adidas aim to reduce each pair of shoes’ carbon footprint to less than three kilograms. Eventually, the two brands hope that the partnership can reduce that number to zero. Equipped with 11 patents and counting, Allbirds is actually well-positioned at its impasse. As a technical purveyor of sustainable materials, construction, and measurement, Allbirds is as much a Vibram or a Gore-Tex. It’s more than a shoe retailer or apparel brand, it’s a technology company. One that could become far more valuable than a brand itself.

In this way, Allbirds’ total addressable market is much greater than Gore-Tex fabrics or Vibram soles.”

This approach is where I think the potential lies for Allbirds too. It's why I believe Allbirds needs to be taken seriously as a tech company. The company is genuinely pushing the boundaries of sustainable materials, measurement, and processes. This will lead to larger market potential for Allbirds than selling shoes.

Will sustainability and materials innovation sell long-term, or is it just a fad?

In 2018, Forty-one percent of consumers surveyed indicated that eco-friendly/sustainable materials were significant when considering their footwear purchases. That number is pretty staggering, considering the idea of sustainability in footwear is still young. If the team conducted the same survey today, I think consumers' share would be even higher.

In my conversation with retail analyst Matt Powell, he confirmed sustainability is more than a fad. He described it to me as "a sizable portion of consumers say they will pay more for shoes that are sustainably made."

Allbirds will need to continue to innovate, which is never an easy thing to do, but the company has genuinely shown its an outlier in the noisy DTC space. The factors that make it stand out in the DTC realm also make it an urban tech company.

Final Thoughts on Allbirds
Some people wonder if the company will be looking to exit soon through an IPO or sale. Allbirds is indeed entering a period where it would begin looking for exits, and my dream scenario is Leonardo Dicaprio (a well-known sustainability advocate) creates an investment vehicle/SPAC to take the company public. 

In my opinion, our cities and communities are overall better because of Allbirds.

So, believe me yet that Allbirds is urban tech? 

A Medium Thing: Urban Tech's New Logo

I gave a summary of the thinking behind Urban Tech's new logo in the intro, but I wanted to dedicate a little more space to share my thoughts. Earlier this year, I started Urban Tech as I prepared for grad school to remain connected to the tech and policy spaces I worked. I genuinely believe cities and the innovation economy are intersecting more every day. Multiple times, I searched for a newsletter about the topics I cared about, I couldn't find anything that aligned with what I saw in the space — so I built it with Urban Tech.

While the original Urban Tech vision began as just my personal newsletter, my goals have evolved as I've continued writing it. As the plans for Urban Tech grew, the more it became apparent to me that my face couldn't be the sole logo for the company and brand. I also found that establishing a logo and visual identity for Urban Tech helped me focus on what the goals are for Urban Tech for the next 6-12 months. We have many exciting projects in the works — some of which I'll be sharing more on in the coming weeks. 

I'd greatly appreciate it if you could share this story and Urban Tech with your networks. It's such an exciting time to be thinking about tech and cities. Thanks for all the support so far, and I can't wait to keep building Urban Tech.

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