Warby Parker, Allbirds and Why DTC Brands Still Can’t Scale Profitably

The direct-to–consumer revolution is coming to Wall Street.

Allbirds, a sustainable footwear company, filed for an offering on Nasdaq Aug. 31, following Warby Parker’s filing to go public on August 24.

Both brands played a key role in the development of the idea that a digitally native person is possible. fashion Brand. Warby Parker was instrumental in launching the DTC path back in 2010 when it started selling eyeglasses online. This cut out Essilor Luxottica from the industry and offered attractive frames at affordable prices. Allbirds was founded in 2016 with wool running shoes that became a staple in Silicon Valley. After defying predictions the brand would be a one-hit-wonder, Allbirds’ success has challenged footwear’s established giants by emphasizing its sustainability as well as its development of proprietary materials.

But even though their early strategies were radical — spend heavily on marketing to grow quickly and cut out once-essential fashion partners like wholesale retailers — the filings of Allbirds and Warby Parker indicate that in their quest for profitability, they have already started to operate more and more like the conventional brands they claimed to have disrupted. Notably, both say they foresee running substantially more stores than they currently do — Allbirds plans to add “hundreds of locations” Warby Parker expects to grow its footprint from more than 145 stores in the US to over 900. (Neither filing provided a timeline for these retail expansions.

Allbirds & Warby Parker have already changed their approach, which is a sign of the maturing DTC marketplace. Both companies began as digitally-focused disruptors, but shifted to physical stores and formed partnerships. They’ve also expanded beyond an early reliance on a standout “hero” product Allbirds’ hero sneaker is now joined by socks, sweaters and fitness apparel while Warby Parker now also sells contact lenses.

“Being too pure about your distribution is a mistake [because] some businesses need physical, online, wholesale, and others need a mix of those things,” Nick Brown, cofounder of Imaginary Venture Capital firm, is the managing partner. “Everyone needs to think holistically and these are both businesses that in the last five years have demonstrated they can do that.”


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Despite these shifts, both companies have struggled to achieve profitability. While Warby Parker’s net revenue grew from $272.9 million in 2018 to $370.5 million in 2019, it recorded annual losses of $22.9 million and $55.9 million respectively, according to the New York-based company’s filings.

Allbirds reported net losses in 2019 of $14.5 million and 2020 of $25.9 million on annual revenues of $193.7 and $219.3 millions, respectively. The San Francisco start up said it has “incurred significant net losses since inception,” It anticipates it “will continue to incur losses for the foreseeable future.”

While Allbirds is opting for a traditional IPO, Warby Parker is planning a direct listing — a cheaper way to go public than an IPO because existing shares are sold instead of creating new ones so their prices don’t get diluted.

Allbirds and Warby Parker are two examples of how expensive it is to run ambitious businesses. Warby Parker wrote that it uses “search engines, social media platforms… and other online sources to attract consumers” And that its customer acquisition costs increased from $26 per client in 2018 to $40 for 2020 due to its “deliberate investment in media spend.”

Meanwhile, Allbirds’ commitment to sustainability and new materials “may be more costly than we expect or may not result in the returns we anticipate.” According to the company, it was also “may not be able to increase our revenue enough to offset our higher operating expenses.” It also relies on digital marketing and social media, and said that “as a result of our marketing efforts, it may not offset the additional marketing expenses we incur.”

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All of this is compounded by industry-wide pressures like rising shipping costs or supply shortages.

It is likely that the struggles of AllBirds and Warby Parker are not unique in DTC, begging whether there might be a limit to investors’ risk appetite. Other loss-making digital businesses have received a frosty welcome from investors. The shares of Casper, one of the first in this group to go public in 2020, have lately been trading at around $5.13, down 57 percent from the company’s IPO price of $12 in February 2020. Farfetch and Revolve have shown that they can scale and minimize losses while selling e-commerce platforms and retailers, like Casper. Farfetch reached profitability in February 2021, two years after its public debut.

However, Allbirds and Warby Parker have a positive image with consumers that could be transferred to investors. “There are enough consumers out there who believe [these companies] put people and the planet ahead of everything,”Michael Levin is a business professor at Otterbein University, Ohio.

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Consumers can be influenced by brand values. Warby Parker’s buy-one-gives-one program gave away more than 8,000,000 pairs of glasses to consumers. And the brand’s marketing makes a point of regularly underscoring that its eyeglasses sell at fair prices. Allbirds, however, focuses on “renewable, natural materials and responsible manufacturing”Shoes that are 30 percent more carbon-friendly than other sneakers are sold by and.

Warby Parker, on the other hand, reported 100% sales retention for 48 months. According to Warby Parker’s filing, this is unusually high in the eyeglasses industry which often has low brand loyalty. Recurrent customers made up 54 percent of Allbirds sales in 2020, a jump of 46 percent in 2019.

Numbers such as those give Imaginary’s Brown reason to be bullish. “It’s not a question of if, but when”He stated that the companies will turn profit. “There are many examples of companies… that were not profitable and went onto becoming success stories. It’s less about ‘are you profitable today’ and more ‘your [finances] will allow you to be profitable over time.’”

Brown added that the overall DTC market may benefit from Allbirds and Warby Parker going public, given the additional financial transparency required of public companies that will provide richer insights and a benchmark for DTC strategies generally.

“It’s exceptionally important for our businesses to go public so that investors have more data,”Brown said. “Warby and Allbirds didn’t have lots of companies to see what works. They had to build this from scratch and I’m hoping to have a series of data points.”

Otterbein University’s Levin said Allbirds and Warby Parker could serve as a cautionary tale for founders who aren’t factoring profitability early into their business plan.

“You need to have a sense of how you will get to profitability,”Levin said. “Every start-up loses money in the first few years, that’s expected. But you need to figure out the actual plan to achieve that, while you keep your eye on expenses.”

These announcements follow MyTheresa’s, Thredup’s, Thredup’s, The Honest Company, and Figs all becoming public this year. AKA Brands and Authentic Brands Group also filed to go public in the near future. With Rent the Runway reportedly on the horizon, 2021 looks like a record year. fashionIPOs.

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THE NEWS IN BRIEF

FASHION BUSINESS AND THE ECONOMY

Dolce & Gabbana model at the Alta Moda show in Venice. Getty Images.

Dolce & Gabbana’s Alta Moda show is presented in Venice by Dolce & Gabbana. The Italian brand hosted over 400 clients and celebrities on Aug. 29, including Jennifer Lopez, Sean Combs, Dame Helen Mirren and Kitty Spencer, in the city’s St Mark’s Square for a lavish couture presentation. Due to past controversies that the brand has had for racial sensitiveness and outright racism as well as sexism or anti-gay remarks, there was some backlash from social media.


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Paris Fashion Week will include 37 runway shows. Balenciaga is set to return to the Paris schedule, the first of Kering’s major brands to return to the traditional calendar after showing outside organised fashionThe pandemic lasted for weeks. Rick Owens and Valentino, based in Rome, are also planning to return to Paris.

WatchBox invests in De Bethune brand on its pre-owned platform WatchBox. Justin Reis, Watchbox chief executive, stated to Reuters in April that the independent Swiss watchmaker was one of the fastest-growing brands on the Watchbox platform. De Bethune was established in 2002 by Denis Flageolet, a watchmaker, and Pierre Jacques (chief executive), who will continue to be with the brand after the deal closes.

Joe’s Jeans owner Sequential Brands files for bankruptcy. The move comes after many retailers that carry Sequential’s brands were closed for part of last year, denting revenues. The company started in late 2020 that it was considering selling its products as part of a wider sale plan. “exploration of strategic alternatives”In an effort to maximize shareholder value. Jessica Simpson’s family has offered to buy her brand from Sequential for $65 million.

Zara joins the high-low collaboration space for Kassl Editions’ collection. The Spanish company’s tie-up with the Dutch collective, best known for its $900 utilitarian coats and luxe padded Pillow Bags, will span ready-to-wear and home goods. It is set to debut at this year’s Salone del Mobile.

American Eagle’s online sales fall due to Covid-19 curbs being relaxed. Shares slump. The retailers reported a 35 percent increase in quarterly revenue to $1.19 billion, which is below estimates of $1.23 trillion on Thursday.

China’s JNBY group annual net profit is up 86.7 percent. The Chinese fashion retailer’s revenue was up 33 percent year-on-year with total revenue of 4.13 billion yuan ($638.56 million) for the year ended June 30.

50 organizations representing Bangladeshi and Sri Lankan workers demand Covid-19 protections. Workers unions and labor advocacy organizations called on governments, factories, and international apparel companies to protect garment workers during a surge in Covid-19 use in Sri Lanka and Bangladesh.

Kanye West unveils Balenciaga album merch. The collection that was released with Kanye West’s long-awaited 10th studio record “Donda” Was “engineered by Balenciaga,” according to West’s site, and includes four black long sleeve T-shirts, one printed with the year 2024, a potential nod to the artist’s presidential ambitions.

Prada and Theaster Gates open an experimental design center in Chicago. The luxury group and Dorchester Industries, Chicago-based artist Theaster Gates’ design and manufacturing studio, are teaming up to create a three-year program to provide artists and designers of color with financial support and creative opportunities.

THE BUSINESS OF BEAUTY

Estée Lauder Companies inks three-year deal with poet Amanda Gorman. Estée Lauder Companies.

Estée Lauder Companies inks three-year deal with poet Amanda Gorman. Estée Lauder Companies.

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Estée Lauder Companies inks a three-year deal with poet Amanda Gorman. The beauty giant will donate $3 million over three years to Writing Change, a literacy initiative. Gorman, who is the youngest inaugural poet in US history, will appear in her first Estée Lauder campaign in the spring of next year.

Olaplex files for an IPO. The California-based beauty brand, known for its high-quality hair repair products, plans to list its shares on Nasdaq as OLPX. The company posted net sales of $282.3 million in 2020, an increase of 90 percent year-on-year. Net sales totaled $270.2 Million in the first six months of 2021.

Givaudan invests $80million to expand Mexican production. Fragrances and active cosmetic ingredients manufacturer, Givaudan will invest 75 million Swiss francs ($80 million) to support its growth in Latin America by expanding its Pedro Escobedo production plant located in Querétaro, Mexico.

Jennifer Aniston launches a beauty brand. The actress shared the name and launch date, LolaVie, via Instagram on Thursday with a link to the LolaVie brand account. The brand, which originally filed a trademark request to create skincare and hair products in July 2019, will launch on September 8.

PEOPLE

Balenciaga appoints Ludivine Pont as chief marketing officer. Balenciaga.

Ludivine Pont is appointed chief marketing officer at Balenciaga. Balenciaga.

Ludivine Pont is appointed chief marketing officer at Balenciaga. Pont comes from Moncler, where her position as global marketing and communications director was at the time when the skiwear brand was undergoing rapid growth. “Genius” designer collaboration program. Balenciaga-owned Kering has created the CMO position. The label has been enhancing its marketing and press operations to keep up with its growth.

Camille Miceli is named Pucci’s artistic director. Louis Vuitton’s former accessories chief, an industry insider known for her lively personality and commercial touch, takes over the creative reigns of the Italian label effective immediately.

Forward has appointed Kendall Jenner as its creative director. Forward, a luxury e-tailer owned by Revolve has appointed Kendall Jenner as its creative director. In her new role, Jenner will curate brand and product edits, oversee the site’s look, and have a hand in marketing and brand partnerships.

MEDIA AND TECHNOLOGY

Mel Ottenberg named editor-in-chief of Interview Magazine. Getty Images.

Interview Magazine’s editor-in-chief is Mel Ottenberg Getty Images

Interview Magazine’s editor-in-chief is Mel Ottenberg Ottenberg, who is known for styling Rihanna, and other celebrities will publish Interview Magazine’s first issue as editor-in-chief in October. He succeeds Nick Haramis. Interview’s first creative director, Ottenberg, joined Interview in May 2018 after the publication filed for bankruptcy. The publication was relaunched by undisclosed investors.

China threatens to ban eCommerce sites that violate IP laws. According to a draft version of the law that was posted by the State Administration for Market Regulation (which is tightening supervision of companies like Alibaba, Pinduoduo), e-commerce platforms will be barred from operating online businesses or have their licenses revoked for failing to deal with serious IP rights violations by vendors on their platforms.

Amazon launches in South Korea through a partnership with 11st. The Korean Herald reports that Amazon has partnered with 11th, a local e-commerce platform, to expand into the lucrative Korean market.

Joan Kennedy compiles this list.

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