DTC Business Breakdown: A Closer Look at Allbirds
December 17, 2021
May 10, 2023
min read

DTC Business Breakdown: A Closer Look at Allbirds

Allbirds Inc., based in San Francisco, positions itself as a mostly online (89% of net revenue) D2C global lifestyle brand with a focus on naturally derived materials with a light carbon footprint. Allbirds has sold over 8 million pairs of shoes since founding and in 2016 the company registered as a B Corporation with intent of codifying how materials used in their shoes produce 30% less carbon emission than the average sneaker. 

The company’s S-1 shows FY2020 net revenue of $219M (+13% YoY) on an AOV of $124, with a gross margin of 52%. In 2020, 24% of revenue came from outside of the United States, growing at a 2-year CAGR of 113%. Approximately 53% of 2020 net sales came from repeat customers. In terms of LTV, the top 25% of the customers acquired between 2016 and 2019 spent on average of $446 through the end of 2020. thru 2020 end. Allbirds does not break out customer acquisition cost or customer base data.

DTC Financial Metrics

The company recently released their first public earnings report covering the 3 month periods endinged September 30, 2021th. Gross margin increased by 200 bps YoY and there was impressive net revenue growth of +27% vs Q3 2020. A breakout of financial metrics are below:

Some quick highlights:

  • Gross Margin %: Allbirds GM% of 54.1% is right in line with the Bainbridge DTC average of 55%. Gross margin saw impressive leverage gains as the initial introduction of apparel created a mix shift towards higher margin products. This change more than offset pressure from D2C outbound shipping surcharges. 
  • SGA % of Revenue: Selling, general and administrative expenses (SG&A) rose as Allbirds invested in opening new physical stores, a channel they see as driving significant digital growth as omnichannel LTVs are notably higher and physical stores receive a halo effect from marketing.
  • Marketing % of Revenue: Allbirds saw leverage gains here as revenue increased while the company narrowed its marketing efforts to its All Good Collective (AGC) community marketing program. AGC sponsors in-person local running groups and uses physical stores to host events. Former NFL star Marshawn Lynch signed on to appear in online video advertising content for this campaign, which drove brand recognition.

Where Does Allbirds Go From Here?

As we’ve mentioned in previous articles  on driving financial performance in a D2C online business, Allbirds is focused on familiar strategies for revenue growth and margin improvement. The management team elaborated on the company’s strategic focus on physical stores, international growth, and expanding the product offering into apparel. The earnings call shared financial targets of 20%-30% YoY net revenue growth, 60% gross margin, and mid-to-high teens adjusted EBITDA margins. Although revenue growth is notably lower than the Bainbridge DTC average of 55%, the company has a number of initiatives underway to see their 20%-30% growth target hit for several consecutive years. 

Omnichannel Strategy

Allbirds markets directly to consumers via  localized digital platforms in addition to a physical presence of 27 stores as of June 30, 2021, up from 22 stores three months prior. Digital channel made up 89% of sales, with the primary strategic focus of physical stores being customer acquisition and driving traffic to the digital platform.

Allbirds positions their physical store footprint as a driver for digital growth, noting that 12% of all customers are multi-channel purchasers and on average spent approximately 1.5x more than single channel repeat customers.

Product Line Expansion

Apparel is currently just under 10% of revenue, but the Allbirds team sees this as their next growth opportunity. The next 24-36 months will see “the most exciting product pipeline in the history of the company.” Management sees significant upcoming payoff of the current research and development investments. The team also sees a broader product offering as driving greater product awareness, describing their current brand awareness as “low” at 10% (US Q1 2021).

A Successful Approach to DTC Growth

The initiatives that Allbirds is pursuing would drive leverage throughout the income statement, especially as $5M in 2021 IPO costs fall into the rear view. The company is already close to it’s sales growth targets and could maintain the 20% to 30% growth rate via expanding into a full line of leisure and performance athletic apparel. The challenge will be ramping new product lines up as global apparel supply chains struggle in COVID-affected nations like Vietnam.

Marketing efficiency gains could continue as the company seems more focused on in person activations by using influencer led groups and events supported by the store network. This approach is not as easy to scale as digital channels but may be a source of less expensive customer acquisitions. Allbirds is also implementing minor price increases, which should add the last bit of juice to get adjusted EBITDA margins to target (mid teens) in the coming year or two.

Allbirds Inc. has built a business with just enough of a physical presence to get all the upside from owning retail stores with almost none of the disadvantages. Their success shows it is possible to start with one product, the All Runner in 2016; and increase colors, materials, and partnerships to gain a strong initial impression and customer base.

The company is wise to  focus not only on growing revenue but growing their profitability in a way that is sustainable and scalable. Bainbridge offers the ability to model new product launches and a multi-channel online strategy that can follow a similar approach for your growing D2C business.

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