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Allbirds received a warning on 2 April that the Nasdaq could delist it for non-compliance after the San Francisco-based sustainable footwear company’s month-long failure to keep its stock price above the $1 threshold. And in February, textile recycler Renewcell filed for bankruptcy, as it looks for a buyer to take it private from the Swedish stock exchange. It’s a dual blow to public sustainability companies, raising questions about why public markets seem to hinder fashion’s changemakers.
Known for producing sneakers from planet-friendlier materials like wool, eucalyptus and sugar cane, Allbirds has been rocked by layoffs and executive churn over the past year, culminating with co-founder and co-CEO Joey Zwillinger’s recent demotion to special advisor and board member. The “carbon neutral” shoemaker’s stock is trading for pennies on the dollar, putting its market cap at around $95 million, nearly 95 per cent below 2021’s IPO-day sum of $2.6 billion.
“My business is in making fantastic shoes and selling to customers and creating great experiences,” Zwillinger told CNBC after Allbirds, which declined Vogue Business’s request for comment, went public on the Nasdaq on 3 November 2021. “The financial part, we’ll let the investors drive the way.”
Public pitfalls
Investors indeed are driving the way, and their message suggests that companies like Allbirds need more than planet-saving mantras in order to keep bankers happy. Public markets almost exclusively measure success by growth, making anything less than quarterly and annual expansion essentially a failure, says Michelle Gabriel, programme director of sustainable fashion at Glasgow Caledonian University (GCU). “This exerts a lot of pressure on a firm to perform perfectly, and in the public eye no less, which is very challenging for an early-stage company,” she adds.
Allbirds’s share price collapse signals a lack of investor confidence in the company’s strategy and trajectory, says Neil Saunders, managing director of Globaldata’s retail practice, noting the firm’s lack of profit and clear path to get there. “Sustainability is nice, and it’s important, but unless firms can find a way to monetise it or make it part of their strategy without damaging the commercials of the business, it is a road to nowhere as far as investors are concerned,” he says.
This unwavering pressure to perform can distract some companies from their core sustainability mission, leading them down the well-trodden road of profit-seeking versus prioritising the ethos that first led to their success.
“We see over and over again that a rush to IPO is almost a guarantee of failure for all kinds of companies, but particularly fashion and textile companies,” says Gabriel. “When you become a public company, with a board and the required governance structures, you now must prioritise activities that provide shareholder value, which is not necessarily the value the company needs for longevity. Certainly none of these conditions offer the flexibility to promote innovation, which can be a messy and iterative process.”
Sustainability-oriented fashion startups that are still exploring a sustainable, profitable business model must button up their financial fundamentals before testing the public markets. “Having the technology and capacity to create sustainable apparel products and creating a sustainable and profitable business selling these products are two separate things,” says Dr Sheng Lu, director in the department of fashion and apparel studies at the University of Delaware.
Few would dispute Allbirds’s prowess in producing comfortable, innovative shoes that once won hordes of shoppers, but Mark Cohen, director of retail studies at Columbia Business School, believes the company has lost its footing. “They created all sorts of line extensions they didn’t have the right to engage in, involving expertise they didn’t have,” he says of Allbirds’s expansion into lifestyle categories such as underwear and basic apparel. The brand regularly used markdowns to clear through clothing that underwhelmed consumers, veering into the unsustainable overproduction territory that haunts the fashion industry at large. A company spokesperson says that Allbirds went “too deep on narrow-end use cases” in clothing beyond sensible classics like T-shirts.
The brand’s decision to quickly grow its brick-and-mortar retail network — when it had yet to “fully optimise” its value proposition, says Saunders — proved problematic, too. “They got way ahead of their skis, which is very common when a business goes public and promises growth that it can’t deliver in the normal course,” Cohen says, framing the Adidas collaborator as a “one-trick pony that had no business opening stores”. Research analyst in TD Cowen’s retail and consumer brands group John Kernan blames the store-opening strategy for the heavy cash burn that forced Allbirds to restructure last year. The spokesperson says the brand is closing 10 of its 15 stores this year to focus on high-performing locations and “better position the business to drive long-term, profitable growth”.
“Allbirds was established on the premise that profit and purpose can coexist,” the spokesperson continues. “We maintain that belief today, and continue to see our sustainability initiatives as both a key differentiator and an imperative to building a lasting business. As we execute on our strategic transformation plan and position the company to drive profitable growth in future years, we are dedicated to offering a no-compromise solution for consumers, delivering compelling products that are better for the earth.”
Renewcell, meanwhile, might have avoided bankruptcy if it had waited longer before going public, says Tricia Carey, the textile recycler’s chief commercial officer. The H&M-backed used-clothes-to-clean-cellulose innovator cut the ribbon on its first factory late in 2022, commercially launched a supplier network in July, and ran into financial trouble by October, nearly three years after going public. “We just didn’t have enough time on the commercial side,” Carey says, noting Renewcell’s “ambitious” attempt to slot itself into fashion’s typical 12 to 18-month production cycle.
Securing offtake agreements with giants like Inditex also failed to save Renewcell from bankruptcy. Carey says she received more “promises than POs”. This dearth of committed purchase orders is why the company is sitting on 40,000 tonnes of product with nowhere to go.
The cost of innovation
Innovation doesn’t come cheap, and innovating post-IPO can keep some companies out of investors’ good graces.
Investors often lack the patience needed for sustainable innovation to reach price parity with existing technologies. “I think that the market has misconceptions if they think that new innovations are going to come into the market at exactly the same price as virgin materials,” says Carey.
Kernan believes Allbirds — which eventually wasn’t innovating enough to stand out, he says — faced too much competition from “highly profitable” rivals like On, which has been closing the ESG innovation gap without the steep supply chain investments that burden legacy footwear companies. “The pricing of your market cap and enterprise value can’t just be based on ESG; it’s got to be married to some type of financial discipline,” he adds.
As a result of Allbirds’s and Renewcell’s troubles, investors might cool off on companies touting an innovation-first green image. “I think the cautionary tale is you better be able to deliver what you promise or what you infer, and promising profitability from sustainability efforts is a leap of faith in most cases,” says Cohen.
Companies making sustainable operations their business model would be wise to re-examine their value-add and how that dovetails with the realities of reporting to investors on a three-month cadence. This gives firms clear insight into whether they’re primed for manageable, on-brand growth or at risk of straying into dangerous territory because they’re running on half-baked fundamentals. “Sustainability is the icing on the cake, it is very rarely the cake itself,” says Saunders.
IP-uh-oh?
With fashion awaiting Allbirds’s and Renewcell’s next acts, many wonder if their problems will persuade public-market contenders backed by private equity firms to wait in the wings — whether longer than they’d like or sidelined altogether.
GCU’s Gabriel sees the upsides to staying private versus going public. “Any company who is significantly focused on innovation needs strong leadership, a good team and the privacy to iterate and make mistakes away from the public eye,” she says, noting the freedom and time innovators require to commit the stumbles that lead to critical breakthroughs. “If companies do that in the public eye, the flexibility vanishes and the pressure is on to get it right the first time, which is at odds with the innovation process.”
The public market itself should carry some of the responsibility. Though Allbirds and Renewcell are attempting to sustainably transform fashion from the inside, Gabriel wants to see the industry learn from impact-focused outsiders and look to new ideas. “We have reached as far as we can go with self management and market-driven solutions to our market-caused problems,” she says. “Bold new solutions are necessary if we are to improve the conditions, impacts and economics of the fashion industry.”
A new generation of consumers growing up in a world on fire could soon help publicly traded sustainable innovators succeed. “With public and Gen Z consumers’ growing awareness of sustainability, I believe we will gradually see a more supportive market environment that helps innovative sustainable fashion companies survive, prosper and find their market niche,” adds Lu. “Additionally, we are all learning lessons from Renewcell and Allbirds’s experiences — such as what they did right and what could be done differently. These real-world case studies will offer valuable input for other sustainable fashion companies.”
This article has been updated to include response from Allbirds. (18 April 2024)
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