Rival Nike’s CEO is sounding the alarm about a growing problem amid store closures

2024 has proven to be a tough road for many struggling retailers, especially some who have enjoyed good runs during the pandemic.

Brands that enjoyed relatively unchecked prowess, trends and popularity when we were all holed up indoors 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 the latest business headlines, a new company is either liquidating, filing for bankruptcy, receiving delisting warnings, or somehow headed for what seems like a hopeless death by despair.

Take Peloton for example (PTON) which thrived due to covid in the early 2020s.

The company bought big, shiny (and expensive) warehouses to ramp up production 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 seemed almost inevitable.

Almost.

Now everyone who wants a Peloton bike has one. They are available on Amazon and many are sold second hand on Facebook for a fraction of the price. Those who have hung onto the bike are largely complaining that they function more like fancy hangers than actual pieces of exercise equipment, especially now that all of our boutique training classes are back open and in full swing.

Allbirds entrance seen from Hayes Street in San Francisco.

San Francisco Chronicle/Hearst Newspapers via Getty Images/Getty Images

The Allbirds have struggled in recent quarters

Something similar happened to another pandemic darling, Allbirds (BIRD) shoe and sneaker company born in New Zealand in 2016.

The sustainable sneaker brand quickly gained a foothold around the pandemic, when consumers sought comfort and functionality over stuffy work outfits they no longer had to wear five days a week. A big part of the appeal of Allbirds is the fact that its shoes are made from durable, breathable materials such as wool and other recycled materials, making them an ideal option for running errands, working out or just relaxing.

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Its corporate identity also had a lot of appeal. Because it preached sustainability and environmental consciousness, it quickly gained a cult following similar to that of Warby Parker, a sustainable and affordable eyewear company popular with millennials and a younger demographic 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 September 30, 2024 to raise its share price above $1 for at least 10 consecutive working days. At the time of writing, Allbirds shares are trading at just over 60 cents per share.

Allbirds problems have not been solved yet

So the company embarked on a multi-month program to right the ship. It has closed more than a dozen stores in the United States since early 2024.

“We closed 14 underperforming locations in the US to pivot to a smaller physical footprint that better serves our footwear strategy and furthers our goal of building a profitable retail fleet,” said CEO- ul Joe Vernachio 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 closings haven’t helped stem losses completely.

Allbirds also had a lot of inventory to process, and because it’s largely a direct-to-consumer brand, it can be difficult to move. Vernachio is bullish on sales opportunities, but Q2 net income was still down 26.8% year over year to $51.6 million.

“We have more than halved our inventory and driven the improvement in working capital in 2023 compared to the previous year,” he continued.

Allbirds has worked to transition from underperforming brick and mortar stores, working with third-party distribution partners internationally to help offload some of that debt.

“The full-year effect of our retail store closures and international transition is now expected to be in the range of $25 million to $30 million, compared to our previous expectation of 32 percent to 37%,” explained CFO Annie Mitchell.

“The impact on retail is greater than anticipated due to the speed with which we were able to exit these. The impact of the international transition is lower than expected due to the timing of the transition this year combined with slightly higher initial orders from orders,” she continued.

But the key to achieving success and meeting his financial priorities will still be an uphill battle. Part of the reason Allbirds pulverized is because it has already saturated the market, and its models are no longer interesting customers. Unlike Nike, which routinely comes out with new lines and interesting color schemes, Allbirds has remained stagnant.

Vernachio is aware of the issue, reassuring analysts that the team is working hard to revive enthusiasm for new models.

“Using our existing tools, we quickly introduced new colors and materials to the product line, which allows 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 velor as well as more robust versions of our water-resistant collection.”

But not all analysts are convinced. Wedbush analyst Tom Nikic says Allbirds still has a long way to go.

“While they are transitioning the business model to improve the fundamentals, we believe it will take quite some time to reinvigorate the brand,” Nikic said.

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The impact on retail is greater than anticipated due to the speed with which we were able to exit these. The impact of the international transition is lower than expected due to the timing of this year’s transition combined with slightly higher initial orders from orders.