2024 has proven to be a rocky road for many struggling retailers, particularly for some of those who had enjoyed good runs during the pandemic.
Brands that enjoyed relatively unchecked prowess, trendiness and popularity when we were all sheltering inside and looking for new entertainment options have now saturated the market, and many consumers have grown bored with what has now become the status quo.
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Now, it seems like almost every day you check on the newest business headlines, a new company is either liquidating, filing for bankruptcy, receiving delisting warnings, or somehow spiraling into what seems like a hopeless death of despair.
Take, for example, Peloton (PTON) , which thrived because of covid in the early 2020s.
The company bought up big, shiny (and expensive) warehouses to ramp up production in order to keep up with demand. It hired countless new instructors, added new equipment options, and grew at such a breakneck pace that its fall from greatness almost seemed inevitable.
Almost.
Now, everyone who wants a Peloton bike has one. They're available on Amazon and many are sold second hand on Facebook at a fraction of the price. Those who've hung on to their bikes largely complain that they function more as upscale clothes hangers than actual pieces of exercise equipment, especially now that all our favorite boutique workout classes are back open and in full swing.
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Allbirds has struggled in recent quarters
Something similar has happened to another pandemic darling, Allbirds (BIRD) , the sneaker and shoe company born out of New Zealand in 2016.
The sustainable sneaker brand quickly gained a foothold around the pandemic, when consumers sought comfort and functionality over stuffy work attire they no longer had to wear five days per week. Much of Allbirds' appeal is the fact that its shoes are made out of sustainable, breathable material like wool and other recycled materials, making them an ideal option for running errands, working out, or just lounging around.
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Its corporate identity also held a lot of appeal. Since it preached sustainability and environmental consciousness, it quickly took on a cult following similar to that of Warby Parker, a sustainable and affordable glasses company popular among millennials and a younger demo looking for high quality without the price tag.
But what goes up must come down, and in April Allbirds received a delisting warning from Nasdaq, which gave the sneaker brand until Sept. 30, 2024 to get its stock price above $1 for at least 10 business days straight. As of this writing, Allbirds stock trades for just over 60 cents per share.
Allbirds problems haven't been solved yet
So the company has embarked on a multi-month program to right the ship. It has closed over a dozen stores in the United States since the start of 2024.
“We have closed 14 underperforming U.S. locations to bias toward a smaller physical footprint that better serves our footwear product strategy and advances our goal to build a profitable retail fleet,” CEO Joe Vernachio said during the Q2 2024 earnings call.
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Management has said it plans to close between 10-15 stores by the end of 2024, but the rapid shuttering has not helped to completely stave losses entirely.
Allbirds also had a lot of inventory to work through, and since it's mostly a direct to consumer brand, that can be difficult to move. Vernachio is optimistic about sales opportunities, but Q2 net revenue was still down 26.8% year-over-year to $51.6 million.
"We cut our inventory by more than half and drove improvement in working capital in 2023 versus prior year," he continued.
Allbirds has been working to transition away from underperforming brick and mortar stores, working with third party distribution partners internationally to help offload some of those liabilities instead.
"The full year impact from our retail store closures and international transition is now expected to be in the range of $25 million to $30 million versus our prior expectation of 32% to 37%," CFO Annie Mitchell explained.
"The impact on retail is higher than anticipated due to the speed at which we've been able to exit these. The impact from international transition is lower than expected due to the timing of this year's transition combined with slightly higher initial orders from orders," she continued.
But the key to achieving success and meeting its financial priorities is still going to be an uphill battle. Part of the reason Allbirds has sputtered is because it's already saturated the market, and its designs aren't exciting customers anymore. Unlike Nike, which routinely comes out with new lines and exciting color schemes, Allbirds has remained stagnant.
Vernachio is aware of this issue, reassuring analysts that the team is working hard to reinvigorate excitement with new designs.
"Using our existing tooling, we swiftly introduced new colors and materials into the product line, which is allowing us to infuse freshness into our offerings for the second half of 2024 and the first half of 2025," he said. "You’ll first see this reflected in the fall when we plan to introduce corduroy as well as more rugged versions of our water resistant collection."
But not every analyst is convinced. Wedbush analyst Tom Nikic says Allbirds still has quite a ways to go.
“While they are transitioning the business model to improve fundamentals, we believe it will take quite a bit of time to reenergize the brand,” Nikic said.
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The impact on retail is higher than anticipated due to the speed at which we've been able to exit these. The impact from international transition is lower than expected due to the timing of this year's transition combined with slightly higher initial orders from orders.
