• by Sarah Mahoney , Staff Writer @mahoney_sarah, November 28, 2022

Allbirds’ newest store offers insight into its shrewd shoe thinking. It's adding a fifth location, one of its biggest ever, in Boston.  By increasing its penetration in a town known for loving sneakers, it continues to lower the cost of acquiring new customers. It’s also been able to reduce marketing spending, finding new omnichannel efficiencies.

The new store is in Boston's bustling Prudential Center and has all the natural materials fans of the D2C brand have come to expect in its brick-and-mortar incarnation. This one, though, has a Beantown twist, with tote bags that honor the local yellow-crowned night heron, and special-edition pins inspired by the turtle population of The Fens park.

The physical stores are driving overall sales. "In Boston, we've seen a great resonance for our product and omnichannel experience, resulting in repeat customers spending 1.5x versus a single channel," said Tim Brown, co-founder and co-chief executive officer.

"From a retail perspective, when we added a store in Cambridge, we saw almost no cannibalization and a really great incremental lift to the business in that region," he noted in an email to D2C Insider.

In its most recent quarterly results, released earlier this month, Allbirds execs reiterated the relationship between its stores, which now include 38 locations in the U.S., digital sales and the growing list of third-party retailers. Those include Nordstrom, Dick's and REI.

"Our stores remain a powerful acquisition tool," said Joey Zwillinger, co-founder and co-chief executive officer, in a conference call for investors. Brick-and-mortar locations allow Allbirds "to gain leverage on marketing spend to lower customer acquisition costs, increase the penetration of valuable omnichannel repeat customers, and are ultimately the best expression of our brand."

But he noted that about half its stores are still in the "ramp-up" period. Typically, that takes about four quarters to reach revenue maturity. But a more challenging economic environment means that's taking a bit longer.

The San Francisco company beat expectations, with net revenue rising 16% to $72.7 million year in the third quarter. In the U.S., sales at its physical retail channels grew 53% compared to 2021, with the company opening six stores during the quarter and 15 since the end of 2021. Its losses increased to $25.2 million, up from $13.8 million in the year-ago period.

Allbirds' marketing spending decreased in the quarter, both from the previous quarter and year-over-year. That stepdown was due to increased efficiencies in digital channels, with the company looking to be more "balanced through the funnel and making sure we're optimizing both our creative and our media mix," said Zwillinger.

The results beat expectations, and some observers believe the shoe company has plenty of legs.

"We continue to like the brand's long-term potential and are encouraged to see management make progress on growth initiatives," writes Mark R. Altschwager, an analyst who follows Allbirds for Baird. Those initiatives include product innovation, store expansions and third-party distribution.

Altschwager says third-party sales are a significant growth driver but notes traffic at Allbirds stores still lags pre-COVID levels.

He notes a "choppy start" to the quarter. "The near-term operating environment remains difficult, and Allbirds is appropriately recalibrating the business to prepare for weaker consumer demand." He continues to rate the company as an “outperform” compared to its peers.

In the company's earning call, Zwillinger reiterated that the months ahead are likely to be challenging. "We expect the external environment to be the most promotional we have experienced since launching the company in 2016," he said. "Despite that, we have prepared a great product roadmap alongside the right mix of inventory, and we've coupled that with a strong holiday marketing campaign."