What’s Next for Footwear’s Big Disruptors, Allbirds & Rothy’s?

Hilary George-Parkin

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It’s no small feat to build a brand that stands out in today’s crowded field of footwear startups. Rothy’s and Allbirds have done just that, but for both companies, 2020 is poised to be an inflection point, testing their staying power for the long run. After all, the best brands aren’t built on buzz alone.

While they may diverge in terms of aesthetics and core customers — Allbirds’ wool sneakers have become the tech world’s go-to shoe, while Rothy’s knitted styles have found fervent fans among women looking for a stylish, comfortable work flat — the brands also have a lot in common. Both are based in San Francisco and launched their first styles in 2016 after several years of development. Sustainability is core to their respective missions: Rothy’s uses recycled plastic water bottles for its signature textile, while Allbirds is a certified B Corp whose innovations in raw materials have been arguably as impactful as the shoes themselves. They each offer five silhouettes, and their products feature minimal branding, relying instead on color cues (Rothy’s royal blue heel “halo”) and unconventional textiles.

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They’ve also been among the many digitally-native direct-to-consumer brands to break into physical retail in recent years: Allbirds, which last year was valued at a reported $1.4 billion, currently has 14 stores — half in the U.S. and the other half abroad, in countries like China, the U.K. and co-founder Tim Brown’s native New Zealand — and has plans to open 20 more in 2020. Rothy’s — FN’s 2019 Brand of the Year — meanwhile, just opened a location in Washington, D.C. (its second after San Francisco), and is expanding to Los Angeles, New York City and Boston in the new year. It’s also on track to double its 2018 sales, which reached $140 million on 1 million pairs of shoes.

While the brands’ respective trajectories so far have been steep, one challenge both are sure to face in the coming months and years is how to continue this growth while staying true to their environmentally-conscious roots.

“Certainly the tailwind they have is that consumers are consistently gravitating towards [sustainable] brands,” said Bryan Gildenberg, chief knowledge officer of retail at Kantar Consulting. “That appears to be a trend rather than a fad for a variety of reasons, and appears to be something that will be a staple of those categories going forward.”

On the other hand, he said, the process by which the brands make their shoes is likely going to make it harder to lower costs simply by ramping up production: “If you’re manufacturing something out of easily sourced commodities on a giant manufacturing line, it’s pretty easy to see how to make more goods cheaper. If you’re hand-making things with raw materials, it’s harder provide scale.”

“I think at the end of the day, when it comes to scale, you have to have your core business priorities,” said Syama Meagher, founder and CEO of Scaling Retail, a retail consultancy. “It’s nearly impossible for any single sustainable company to do every single thing it can to be 100% sustainable to everyone’s standards.”

Allbirds — FN’s 2018 Brand of the Year — has taken the unconventional approach of making its raw-material inventions open source, so other brands (including competitors) can integrate them into their own products. In August 2018, it partnered with Brazilian petrochemical company Braskem to launch a carbon-neutral, bio-based EVA resin made from sugarcane rather than petroleum, which it now uses to make the soles of its shoes. Last month, Brown and co-founder Joey Zwillinger invited Amazon to “please steal our approach to sustainability” in an open letter calling out the e-commerce giant for purportedly copying the design of Allbirds’ signature Wool Runners for one of its private-label brands.

While the incident was a PR win, it also highlighted a concern some analysts have expressed about Allbirds, Rothy’s and brands like them: the potential for cannibalization by mass-market competitors.

“When it comes to sustainability and developing a product that’s better for the planet, the moment a larger retailer or larger brand sees the economic upside for going in that direction — which they’re already now testing — they’re going to be able to move the needle a lot faster and take over the market,” said Meagher. “Allbirds and Rothy’s have done a great job at being first to market. But being first doesn’t mean that you’re going to win.”

More immediate is the concern about knockoffs — both brands have filed multiple lawsuits against alleged copycats since they launched — though Gildenberg said this is par for the course. “The best way to avoid copying really harming your business is to continue to innovate,” he said.

Rothy’s, for its part, recently debuted its second collaboration — tapping Italian designer Marta Ferri — as well as a Merino wool collection and a Chelsea boot for the fall and winter seasons. It also carries a kids’ line, and while it hasn’t expanded into men’s styles yet, some of its more unisex silhouettes — the sneaker and the loafer — could have crossover potential.

Allbirds, meanwhile, launched socks in August — entering a competitive field alongside better-established brands like Bombas, Happy Socks and Stance — and the following month unveiled its first all-weather styles, Mizzles, featuring a water-repellant treatment and a breathable, water-resistant layer made with natural products.

With its already relatively democratic price point of $95 to $135 per pair, the brand’s next test will be whether it can democratize further by releasing products that are “a little less identifiable with a very specific type of look,” said Gildenberg.

While bigger brands may be able to undercut Allbirds and Rothy’s on price point, “I wouldn’t be surprised if we start to see more premium styles coming out of both [brands] in order to cater to a more affluent millennial customer,” said Meagher. This, paired with more brick-and-mortar stores and national media campaigns through channels such as cable television and Spotify, is what she thinks will take them to the next level.

As of their most recent funding rounds, Rothy’s had raised $42 million at a valuation of $700 million, while Allbirds had raised $77.5 million at a reported valuation of $1.4 billion. In the latter case, Brown has called talk of an IPO premature, though there’s also been plenty of speculation over the potential for a future acquisition.

“I think that these brands are very well poised for acquisition. Right now, the larger mass-market brands are trying to find their foray in the innovation front, and what both Rothy’s and Allbirds have is something that they will want to buy.” The question, of course, is whether they’ll be willing to sell — and if so, to whom.

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