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Why Allbirds Isn’t a Threat to Nike and Other Shoe Makers

Luke Lango

The Wall Street Journal ran an article recently that highlighted the sneaker market’s hottest new brand, Allbirds.

The takeaway from the article is that the San Francisco-based sneaker company makes some really cool, really comfortable, refreshingly simple and also ecologically friendly shoes.

The other takeaway is that while Allbirds isn’t exactly a threat to Nike Inc (NYSE:NKE), Adidas AG/S ADR (OTCMKTS:ADDYY), Under Armour Inc (NYSE:UAA) or Skechers USA Inc (NYSE:SKX) just yet, the potential for mass disruption in the athletic sneaker market is there.

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Unfortunately, I don’t buy it.

Allbirds presently isn’t a material threat to Nike, Adidas or any other major shoe maker for that matter. Allbirds is too small, too niche, too unknown, too simple and too trendy. It lacks the distribution, resources, size and innovation to ever gain significant share in the sneaker market. And its target marketing model doesn’t lend itself naturally to mainstream adoption.

At the end of the day, the most likely outcome is that the company rides hype waves to gain a loyal niche following in certain on-trend, urban areas. Once that happens, buyout offers will roll in, and Allbirds will be acquired by someone like Nike.

So is Allbirds a threat to Nike stock? No. Rather, it may Nike’s next acquisition and could be something that actually sends Nike stock higher.

Here’s a deeper look.

Allbirds Isn’t Built to Be Big

Allbirds is a very cool brand that is very much on trend. The shoes are simple, look good, and resemble Adidas styles (which have been the hottest in the market as of late). They are very comfortable. And the price point isn’t terrible at around $100 a pair.

But the brand isn’t built for mainstream adoption.

First, the $100 price point isn’t a mainstream adoption price point. Granted, Nike and Adidas price some styles at above $100, but they have a ton of styles that sell for less than $100. Plus, Skechers, which is the fastest-growing major shoe brand, prices their shoes largely in the sub-$100 category.

Second, the product portfolio is too simple. While simple is good, simple also doesn’t lend itself to mass adoption. Think of In-N-Out versus McDonald’s Corporation (NYSE:MCD). In-N-Out has a simple menu. McDonald’s has a complex menu. In-N-Out is a regional chain. McDonald’s is a global chain.

In this sense, Allbirds is like the In-N-Out of the sneaker market. Unfortunately, that doesn’t lend itself to scaling well. A big thing about sneakers is that you don’t want to be wearing the same shoes as the guy or girl next to you. Considering Allbirds only sells a few different designs, it is unlikely that consumers adopt those few styles en masse and risk heavy style overlap.

Third, the eco-friendly side of the business is something that a small number of consumers care a lot about. But it is also something that a large number of consumers don’t care at all about.

Fourth, because of all the aforementioned, Allbirds won’t be cool if it gets big. The bigger it gets, the less cool it will get, too.

Nike Will Likely Buy Allbirds in the Future

Allbirds just wasn’t built to be a big brand.

But that doesn’t mean the company won’t find great success over the next several years selling a ton of $100, comfortable and stylish sneakers to trend-oriented and ecologically conscious individuals in urban areas (the company currently has stores in San Francisco and New York).

That audience, though limited in size relative to Nike’s and Adidas’ audiences, will be very loyal to the Allbirds brand.

Because of that loyalty, Allbirds will turn into an attractive acquisition target over the next few years. Right now, any of the major brands could be a suitor. But the most likely suitor is Nike, considering the company is in the middle of a massive transformation and has already made some acquisitions in that transformation.

Bottom Line on Allbirds

Cool shoes. Great idea. But from this perspective, Allbirds isn’t a threat to Nike or NKE stock. Rather, it may be Nike’s next acquisition.

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As of this writing, Luke Lango was long SKX. 

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