When online shopping erupted at the height of the Covid-19 pandemic, many predicted it would be the last straw for physical retail. For some struggling businesses, it undeniably was. But to the industry’s surprise, stores have returned with a vengeance. At the forefront of today’s brick-and-mortar boom are digitally native newcomers that see stores as marketing opportunities rather than just a means of generating sales.
Among them, footwear brand Allbirds now has over 50 locations, and that’s not counting its growing presence in department stores too. Together, retail and wholesale represents new opportunities for young companies to reach new customers — especially as online advertising has grown exorbitantly expensive in recent years. Embracing these channels will be critical to navigating the new era of retail.
Allbirds co-founder and co-CEO Tim Brown identifies what’s driving the DTC evolution and dissects the exponential value of stores and wholesale partners.
BoF: Some say the direct-to-consumer model has become outdated. How have you observed the channel’s evolution from its heyday in the 2010s?
Tim Brown: Terms and labels go in and out of fashion, and the DTC one certainly feels like it’s become a negative interpretation of a business model that was heavily reliant on cheap, Facebook, social media-based advertising. Then, when that changed, when that became more expensive, the business model no longer worked. But when I think about direct-to-consumer, what I think of is really the growth of people’s comfortability with buying things online and the rise of new brands, infused with purpose.
So, at its best, I think there are some principles that are not going anywhere. In our particular case, the unfair advantage we had as a business was control of the digital ecosystem, incredible amounts of data and a direct relationship with our customer that allowed us to iterate and prove our products really, really quickly. I think at its root at least for Allbirds, that model for us was about innovation and consumer centricity.
BoF: From that original DTC playbook, what elements have gone out of style and what remains?
TB: What has gone away is the idea that it’s as simple as cutting out the middleman, the wholesaler, creating a brand without too much thought, and plugging it online, and then taking advantage of really cheap customer acquisition. I think that story has not played out really well, and I think it’s become incredibly crowded. Some brands capitalised on a moment in time when there was a certain economic situation that made the ability to build brands quite quickly online. Others are inherently anchored to long-term visions and purpose, and they’re broader than the channel strategy, and I’d like to think that’s absolutely us.
BoF: The social commerce landscape looks quite different today than it did five years ago. How has the role of social media ads evolved for Allbirds, and would you say it’s in line with the approach of other e-commerce brands?
TB: I can’t speak to my peers. I would sort of say it’s always been a really relatively small part of our business, and our approach. Like everyone else has seen, it’s gotten more expensive, but we have our retail stores, a powerful word-of-mouth awareness that has driven our brand from the beginning and a really loyal community of customers. Ads are a small part of the story and not something that we spend a lot of time worrying about. We adapt and adjust like everyone else to rising costs, and in every aspect of the business, there are ups and downs at any given time.
BoF: As performance marketing costs have skyrocketed, what are new avenues of marketing that Allbirds is exploring?
TB: One of the big things that’s really been attached to our retail store growth is the idea of our community. We call it Allgood Collective. It’s a series of localised ambassadors, many of whom are connected to our retail stores, that we use in a range of different ways to test products. They tend to be very powerful, local voices, on a range of topics, and this community manifests itself in the form of running clubs in some cases. It’s a cohort of 200 people, and it’s something that we’re really, really excited about.
BoF: Allbirds has opened dozens of stores in recent years. What role does physical retail serve for digitally native brands?
TB: Let’s start with the consumer experience. Everyone’s got a childhood memory of going to a shoe store, getting fitted with a metal sizing device that no one can remember the name of, and a store clerk disappearing to a … basement only to return without your size. So the biggest opportunity we saw really was to remake that experience, and create a seamless interplay between online and offline.
Then I think, in our particular case, we’ve worked on natural materials innovation and sustainability, and the ability to feel and touch our products is an inherent advantage, and it’s best done in person.
What we see is when we put a store in — we’ve got 54 of them now — we see an uptick in digital traffic around those stores, and we’re able to use it as a customer acquisition vehicle for the best customers that we have within our ecosystem. Then on top of that, and this is the best bit about it, the level of knowledge among those frontline retail store staff of what’s working, and what isn’t, is phenomenal. We still have our very first store, it was right under our office, 30 yards away from where I’m sitting [at the company’s headquarters in San Francisco], and I’m in there just about every day, because if we launch something, I want to know what’s going on. That’s where we find out very quickly.
BoF: Allbirds entered into a wholesale agreement with Nordstrom in May. Wholesale is another channel that’s been traditionally neglected by DTC players. What is the value of these partnerships for a brand like Allbirds, and what are the potential challenges or risks?
TB: Wholesale has never been something that we were never going to do. It was always a matter of timing for us. Previously we’ve worked with Nordstrom before with shop-in-shops, and they’ve been wildly successful.
For us it’s always about, where is our consumer, how do we best meet them, and how do we optimise for the brand experience. That really is the thing that we focus on the most. Nordstrom, we’ve been talking with for a long time, and it made sense, six-and-a-half years in, to open up a more formal channel. Similarly with Selfridges in the UK. What a great partner for us to both meet new people and establish ourselves in a new market.
Similarly, we work with [US outdoor apparel and equipment retailer] REI, and one or two others. It’s been really selective. In many cases, we’ve been chatting with these folks for multiple years. It’s the right time, and it allows us to meet customers that don’t know us. We’re still very, very early, and have, relatively speaking, low brand awareness for the size of the market. In some cases, with wholesale, we’re able to meet folks where we don’t have stores, we don’t have a physical presence, and probably don’t plan to in the foreseeable future.
BoF: In times of economic uncertainty, investors want to see even healthier bottom lines. [Allbirds reported net revenue of $140.9 million for the first six months of 2022, up from $117.5 million year on year, and adjusted EBITDA loss of $21.4 million, compared to a loss of $5.8 million.] What is Allbirds’ path for profitability?
TB: We have a really clear path to profitability. There have been obviously some short-term challenges the last few years with Covid. We’re a young business too. We’re also balancing the need to invest in the infrastructure to be an iconic, global brand, and take advantage of the opportunity that we believe exists in a large way and capitalise on this emerging consumer shift away from synthetic plastic products towards natural, sustainable ones. Like anything else, we’re balancing that investment, and we face some short-term pressures around that. The path to profitability is clear for us and it’s just going to take a little bit longer than we planned, but we’ve got a very clear line of sight on that.
BoF: E-commerce growth in general slowed in 2021. How do you define the post-pandemic consumer? Has there been new buying patterns that emerged?
TB: I think we’re still working that out. Part of our consumer base is buying our product because it’s extremely comfortable, versatile, and they’re wearing it into the office, and they’re dressing it up, and they’re dressing it down. One of the big things that we’re seeing is people are out and about, they’re travelling more, they’re back out in the world, and I think that’s really benefited us. So we see a lot of positive tailwinds albeit in a tenuous economic environment that we currently sit in.
This interview has been edited and condensed.
This article first appeared in The State of Fashion 2023, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company.