Rundown: Allbirds' challenging road, La Colombe and Cuup acquisitions

0:05Hello and welcome to the Modern Retail Rundown. I'm your host, senior reporter Gabby Barco, and I'm here with editor-in-chief Kale Guthrie-Weissman. Good morning, Kale. Happy Barbie release day. Happy. Exactly. It's the big week. We finally hit it. And all I see is pink. What do you see? All I see is pink. I saw the movie last night, so I dreamt pink. Oh, how was it? It was really fun. It was fun. I will say I haven't seen people dress up to a movie in years, so that was kind of fun. You dressed up to it? Yes, yes. The Times Square MC, the girls. I did not get the memo. I was not wearing the right colors.

0:44But, which is so funny, yeah, because speaking of, I wrote a lot about brands having so much pink, and I guess I was so occupied with all these official and non-official collaborations that we wrote about on Modern Retail, you could read about, that I guess I got distracted and didn't actually buy anything. Yeah, you didn't buy any unofficial pink merch. What was our managing editor recently went to the doctor and they gave her a pink bandage. And so even doctors are getting into unofficial Barbie merchandise. Yes, I there's coffee shops nearby that are doing pink lattes. So I might partake in that.

1:22But yeah, other than that, it's been it's been a fun coverage. And but we, you know, of course, this is really dominated the retail news for a couple of weeks. Yeah, exactly. Hopefully it'll die down soon. we can stop writing about all things Barbie, but go to Modern Retail to read about all of the retail collabs official or not, and we'll have this for you. Kale's part of the backlash. Okay, good to know. Yeah, but of course, there's always other major retail news happening this week. We have a lot to cover. There is a really big report in the Wall Street Journal about Allbirds, you know, which is only six years old, but has had a really quick rise and fall.

2:06And I guess, you know, there still has a lot ahead of it to recoup. It's, you know, some of the losses and struggles. And then we get into some M &A news. There's two big acquisitions that happened this week. One of them is, well, you know, majority stakes purchase of La Colombe by Keurig Dr. Pepper, and then D2C Intimates brand Cup also exited. So I think that speaks a lot to the state of the industry and the economy right now. But first, let's get into the all birds of it all. We've talked a lot about this company and sort of how it's become a poster child for D to C brands that go public and don't necessarily, I don't know, quote unquote, hack it, I guess, on the public market.

2:58And there's a lot of different reasons why that is. A lot of them lose money. It's not really unique to Allbirds, but Allbirds itself has tried a lot of different things that didn't work and is in a specific position with footwear that's very, very competitive right now. It's a really interesting case study. I would say while I was researching this and thinking about this, Allbirds and people potentially inside will get angry at me. All Bird seems to be the new Casper in terms of the DTC conversation associated with it where they had a popular product that took over all the marketing, took over all the conversation.

3:33They tried to ride that parade by going public and then it all just nosedived. So the story from the Wall Street Journal gave a bunch of different anecdotes, some great details about some of the things that had gone wrong. They included failed product expansions. We've written about this. We've talked about this, I'm pretty sure, on the podcast, where, you know, Allbirds known for their, were they wool, their, you know, sneakers that were the talk of the town in Techland, you know, five years ago. They tried to go beyond that into like athletic wear and I think loungewear as well, I think. Just all different parts that weren't core to the footwear brand.

4:17there were all there was also a really interesting part of the article that talked about who they were trying to reach. And this is a big question that every every brand that's trying to grow beyond, you know, beyond the threshold of being as, you know, a good midsize brand that wants to scale and reach, you know, hundreds of millions of people or whatever, you know, many, many people is what's the demographic? Who are we hitting? Because usually they start with one. Often it's upwardly mobile millennial people in cities like, you know, people like you and me, Gabby, who live in New York City.

4:53But Allbirds for a while was trying to go for younger people. And that didn't work. There was also some strife over whether or not the internal team allegedly agreed with a strategic shift. But then the big thing, and you mentioned this in your in your intro, is that footwear is a really gnarly business. to be in because it just it constantly changes what's cool what's not something that was not cool yesterday will become cool today if you become deemed not hip with it it's hard to come back from that and there are a bunch of players right now who are just killing it in footwear and all birds is not one of them you know there's hoka there's on you could even say there's uggs you know like there are all these companies out there that that have a similarly scaled back aesthetic and are writing a similar type of product messaging that are doing much better now than all birds is.

5:50So those are just a few of the many problems detailed in this article, but I found it fully fascinating. Yeah. One thing I think is interesting is that those brands you name-tracked, I Googled earlier and was like, oh, these are actually a couple or more than a decade old, which I thought was interesting. They sort of had this, I mean, On is a European company. It's been around since 2010. Hoka, I think about 2009. So it's just that they happened to strike this very specific tone and trend that is, yeah, the sort of minimalist hiker vibe. One of the things that I think is really interesting is the brands that are really killing it right now.

6:31Their aesthetic is secondary to what they're actually offering. And so On and Hoka are both performance shoes. On is a really interesting company. I would recommend you listen to, I'm going to do some self-promotion right now, the Modern Retail Podcast with one of their co-founders where we talked about it. But pretty much they've aligned themselves with professional athletes. They're a performance-based brand. It's all about how good they work as pretty much an athletic and comfortable shoe. And with that, they've looked kind of chunky, some people said, but that fits with the aesthetic right now.

7:01And that's the similar thing could be said with Hoka, where it's also a performance, a performance brand. Crocs is another one that isn't performance wear. People are not wearing Crocs because they want to run. But also they're all about comfort and have always been considered, quote unquote, ugly. And that's really fitting with the vibe right now. And I think Allbirds is different because it doesn't have a use case beyond trying to fit with the aesthetic of the people who are living right now or the cool people, the demographic they're trying to hit. And when you're just doing that, it's really hard when you fall out of fashion and you don't have an actual utility aligned with it.

7:38Like my mom was wearing Crocs when she would garden. And so if teens stopped wearing Crocs today because it wasn't cool, they'd still have my mom to garden. You know what I mean? Yeah, they're popular with nurses, people who work on their feet. Yeah. It is interesting, too, because, you know, Allbirds was part of that wave of companies that, you know, hit the iron while it was hot. In 2021, a lot of companies went public, and it did. And, you know, at the time, I think we were all just in this like fever dream of the pandemic. And so it was a great time. But of course, we're seeing sort of the fallout now, this like whiplash of the economy going back and forth.

8:18Yeah, I think that's a really big thing. And Allbirds is similar to nearly every other quote unquote DTC company in that it did see increasing sales over the year. But with increasing sales comes increasing losses. And those losses especially mount when you are trying to go beyond your core product. So just to give a sense, when it went public in November 2021, it had a market cap, a market evaluation, it wasn't a market cap, of$4 billion. It reported$277.5 million in sale and a net loss of$45.4 million. Let's go to this past year when we have the most recent full-year outlook. Look, revenue only increased like about$20 million to$297.8 million, but the loss more than doubled to$101.4 million.

9:08And I'm sure all of this can be chalked up to the fact that Allbirds was spending a huge amount of money trying to expand over that year and get into new categories and hoping that people would buy from those products. And that clearly didn't happen. And I think that that's, and I'm sure marketing also played a big role because customer acquisition costs are going up. And companies like Allbirds have always relied on digital acquisition and finding new customers that way. And that is proving out to be unsustainable. So a lot of things at play here. Yeah, there was apparel, there was store openings, a lot of them.

9:45There was expansion into other retailers like Nordstrom. So it was, in a way, it's like it is the playbook that we always write about. It's, you know, that a lot of companies have adopted. It's just that maybe, and I know I've talked to an analyst who said, I think it really just comes down to the shoe itself. Yeah. This is obviously it's subjective taste, but like you were saying, it's just maybe not the right moment for the style. And, you know, the carbon neutral thing, that kind of stuff, those designs, they just came out with an announcement about that. It just is not really the priority for most people.

10:26I'm not saying this. I'm quoting analysts I've spoken to. Usually if you have to choose between sustainability and style, you're going to go for style. It's sustainability is a great bonus. You know, it's it's cool. But I think most customers are going to go for what they want to wear. And that's the reality. And that's something that, you know, as a journalist in retail, I've been trying to dig it down a lot because we're hearing a lot of companies talk a lot about sustainability. And I think that a lot of people, when you ask them, is sustainability important? They will say, of course it is.

10:56But then when you are given two options, one might look better or one might be way cheaper. I imagine they will choose the non-sustainable option if, you know, when comparing them, whether or not they've said they care about sustainability. It's sort of a nice secondary thing. And it's a sad reality of where we are right now. And companies are trying to change it and organizations are trying to change it. But I don't think we've reached the point yet where it has actually changed consumption patterns. And maybe it will down the line, but I don't think we're there yet. Well, now let's move on to some pretty interesting, I guess you could say, upbeat news.

11:39There is some M &A activity going on this week coming out of the coffee world. I always find these interesting. Cale loves talking about coffee. This is going to be the entire podcast, folks. It's just me talking about coffee. Yes. So, yeah, so Keurig Dr. Pepper is, it's funny because the title, their name itself really, you just think coffee is soda. But they have announced a$300 million investment in La Colombe. And that is a coffee chain slash coffee brand now. It's grown a lot in grocery too over the last few years in exchange for 33 % of the company. This will, again, help La Combe scale more even into RTD drinks, which have become really popular.

12:32And, of course, K-Cups, which is what Keurig is known for. Cale, do you want to talk a little bit about, I know this is a topic you're passionate about. I just find it really interesting that these big CPG conglomerates are very, very interested in acquiring or investing in specialty coffees. And I know that's a controversial term these days. What is specialty coffee? What's an independent coffee shop? And there's a lot of venture kind of being injected in that. Yeah, thoughts? Yeah, it's, I mean, it's super interesting. And this has been a story that's been going on for well over half a decade now, probably closer to a decade where there are just these bigger companies out there.

13:16And pretty much they're only, you know, someone can quote me if I'm wrong, or correct me if I'm wrong, but I think they're pretty much only two. And pretty much if you are a growing specialty coffee business and you want to be more than just a small chain of, you know, independent coffee shops, ideally, if you want to get to grocery, you're probably going to need to get bought up by one of these two. One being Nestle, a Nestle acquired blue bottle in 2017, or the overlord that is a part of cured Dr. Pepper, which is called JAB Holding. And I love I just love looking at their their overall brand, like because they they represent a lot of brands.

13:57I'm going to bring it up right now just so I can name a few, because I think it's really important to get a sense for how this company is the hidden brains behind all of the big players. So Keurig, Dr. Pepper owns Keurig, obviously own Green Mountain Coffee, own Tully's. These are all, you know, well-known more mid-market coffees. But then there's JDE Peet's, which is Peet's Coffee. They own Stumptown. And that was a really, really big bet a long time ago. And pretty much it shows that all of these, pretty much these bigger players, these bigger portfolio companies have been trying to either buy majority stakes or buy outright.

14:40right? These smaller brands that maybe have a certain cultural cachet or they can add to their other ancillary businesses like Keurig, like the K-Cup, so that they can have sort of a nicer premium brand aligned to it. J.D. E. Peetz also owns Intelligentsia. Like Stumptown and Intelligentsia for, I'm really nerding out right now and I apologize and I'll stop, but like they were the two pretty much leading national players in the coffee space for a really long time and they both got bought up by the same company. La Cologne was, you know, sort of rising with that too. It was interesting that Blue Bottle went to a different one, but it just shows how pretty much the only exit, if you want, if you're in the specialty space and you want to make a splash, is you need to get bought up by one of these players.

15:22It's really hard to do the other. The only independent company that still remains as far, I mean, there are others, but the one that has more or less a national presence, I would say, is Counterculture. I will once again plug my podcast. We have interviewed the CEO of Counterculture, and it was a really interesting conversation. We talked about that. But anyway, all this to say is that it's very interesting that these really big billion-dollar companies are seeking out these smaller players. And I imagine it's just so that they can have a huge portfolio of these names, add them to different other brands that they're working with, but then also just change what their perception is.

16:01Because for the longest time, they were about sort of mid-range, okay, coffee. Coffee you would find in the grocery store that wasn't very good. Coffee you would find in a hotel. But now they want to have these nicer names and ideally be able to get some of the cachet from that. That's what I think is going on. Yeah. And it's a win-win sort of because the average person, I like to do this mini poll, is they don't really know that Blue Bottle is owned by a multinational conglomerate. So you still, you retain that cool factor, you know, that cachet that comes with it. But yeah, I think I wanted to talk a little bit about RTD because I've spoken to a lot of column about this and this became a really, really big, they only have 30, not only, but that's a pretty small number when you think about it, 32 coffee shops.

16:47So the fact that their subscription and their Amazon and, you know, grocery business really grew in the last couple of years makes sense for a company like Keurig, which is now going to help them expand even more into more grocery stores and create more products. And those are, you're thinking about$3,$4 a can, those margins at Utah at scale. But I feel like that's another way to supplement the coffee shop business itself. Well, and that's the thing is that the coffee shop business as a whole is really not a great, I mean, it's a good business if you own a few, but it will not make you a multimillionaire.

17:25You have to pay for rent. The margins of coffee on its own aren't, you know, I remember working in a coffee shop and talking with, you know, owners about this, just like, unless you are in the most trafficked area, you know, in the city, it, you know, it's hard to scrape by because, you know, you're selling a cup of coffee for, you know, maybe four,$4 max, you know, you're doing, you can sell a latte, unfortunately, for$7, but still you're not making the money that say a bar makes, you're, you're making a little bit less. And so, and you're paying rent, you're paying, you know, other costs, raw material like beans, et cetera.

18:03And so the fact that you want to expand into other areas that have a better margin profile, like ready to drink, you know, and if you have a big, a big company like JAB backing you, that probably has a lot of help producing that at scale. It's going to really make you into a bigger company. So if La Colombe is able to do ready-to-drink iced coffee drinks in grocers nationally, that's going to make its revenue skyrocket and probably make the business look much better than if it just said it was going to open 50 new locations this year and 100 new next year. That's really hard to do. And the hard costs on that are insane.

18:44Yes, this was not planned, but I am actually literally drinking a la Colomb cold brew right now. Oh, wow. So it is an RTD. It's actually their subscription. It's like a little box that you can get monthly. And to me, that's very cost effective. And I think that's how a lot of people think when they think cold brew specialty coffee. I personally am drinking my counterculture monthly beans that I receive, which I love. And so shout out to counterculture for every three weeks sending me new beans that I then make. We should make it clear that we have purchased these. Yes, we have definitely purchased these.

19:20I spend so much money on coffee. Yes, this is not a sponsored podcast. But yeah, it is interesting how, you know, of course, at home and hybrid schedules have really impacted that. And of course, that's really where they're thinking with this acquisition. Speaking of, I want to talk about, you know, D2C acquisitions. We love them. We talk about them all the time when they do happen. Seems like they are happening more and more often. I think, you know, talking about them here on the podcast. The latest one is this direct-to-consumer Intimates bra company called Cup. We've spoken to them in the past.

19:57They're sort of a little bit under the radar when it comes to this category, but have been around since 2017. They specialize in large bra cup size. So it's a little bit of a niche, although you could argue not. But they have been acquired by Full Beauty Brands, which is this fashion group that actually does specialize in plus size inclusive sizing, which makes a lot of sense. It seems like it is a good fit, but it's for an undisclosed sum. And it seems like it's just the latest news headline that I see where D2C brands are going the exit route instead of the IPO, which we talked about a little bit earlier.

20:39So what are your thoughts on, yeah, the increase of these types of acquisitions? I mean, Full Beauty actually also bought Eloquii, which is a plus size apparel brand from Walmart just a few months ago, which was an interesting story. Yeah, there are a few things that stand out. One One is that Full Beauty is clearly on an acquisition spree with Eloquii and Cup. And also, I think that now is the time when you're going to be seeing a lot of quote-unquote DTC brands and probably ones that have spent a lot of time and money trying to say that they are healthy and growing being acquired because it's a really tough time to raise a new round of capital.

21:23And you probably you might raise a down round. You might not be able to raise. You don't want to, you know, get a line of debt or, you know, whatever, because interest rates are so high. And so for a company like Full Beauty, this is when if you are looking to acquire brands now is when you do it. And so it makes sense that we're seeing this. I remember six months ago, I was talking with some sources who were just saying that we're going to be seeing a lot of M &A happening because that's what happens when the economy cools and companies that aren't folding all together, they're looking for some type of exit.

22:01So in that sense, zooming out beyond the company cup itself, it makes sense that we're seeing more M &A in this. I think there's also something we said about the plus size apparel market, which has for so long been considered, you know, quote unquote niche or when, you know, we've been writing more and more about it. And it's just it is such a big market. And there are some companies that have been really trying to capitalize on it and have been really been able to get certain attention, but have also faced hardship with like retailers, you know, cutting back their assortment. So it's a really interesting time.

22:37And so the fact that you have a bigger company buying another plus size brand shows that ideally it's going to become a more prominent part of the apparel space in the near future. So yeah, those are my thoughts. Yeah, and Full Beauty is interesting. It's been around since 1901, so it is not a startup. But they have historically catered to this segment. And it makes sense that now they're modernizing by buying these sort of startup brands. And there's plans to actually fold them into sort of like a marketplace or a digital mall is what they were saying. So, yeah, it seems like a lot of plans coming up for Cup, which also went into Bloomingdale's pretty recently.

23:20recently up until now, they have been actually mostly D2C, truly, which is kind of rare these days, actually. That is kind of rare, but probably they saw the writing on the wall that especially if you're in the plus size apparel space, you might get a wholesale thing with a major retailer. And then a year later, they might say, never mind, we don't want to do it. And that will really screw over your business. And so I don't know, I just think about how I think it was Old Navy. They, They were beloved as a place where they would have a really great selection of more inclusive sizes. And then they stopped and there was a huge amount of backlash about it.

23:56But still, it didn't change anything. And so I think that there's a lot of trepidation, especially with the brands in the space, wanting to make those expansions. Because the leaders in the industry have yet to really go full in on it, despite the fact that it is a truly huge market and so many people are buying it. Mm-hmm. And then lastly, we could wrap up by just saying that preparations for IPOs have been put on ice from what we've seen or are on hold. I mean, there are people, you know, companies are still announcing plans or filing for IPO, but they are sort of on hold for obvious reasons, the market and all that.

24:37But the other day we saw Skims is planning to IPO. I mean, that's a very different example of this category sort of being, you know, I mean, they specialize in shapewear. They have the Kim Kardashian aspect of it. And so they have a lot going for them. But who knows? I mean, it's hard to predict, you know, will Skims be doing well on the public market today? I don't know. It sure had got a big valuation. But as with Allbirds, it's not always great when you get a big valuation right before you IPO. But I think it shows just how frenetic and uncertain the apparel space is specifically right now.

25:16When you have some companies that are doing very well being acquired, others trying to lay the groundwork for an IPO even in this market, it just means that the next few months are going to be kind of wild. Yeah, so we will be watching this space as always and see where the IPO statuses will be headed. And with that said, that is our show for this week. Please rate and review us on Apple Podcasts, Spotify, or anywhere else you're listening to us. Also, don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders hosted by Kale, as he mentioned earlier. That comes out every Thursday.

25:59Cale, do you want to preview who you have on next week? Sure. I'm talking with the CEO of Bolin Branch, which is a high-end DTC bedding, linens, homewares company. We talked about all things bedding, and it was a really fun conversation. Please listen. Great. And then, of course, come back on Saturdays for the Modern Retail Rundown. And as always, thank you for listening.

26:29Thank you.