In the past two weeks, two different direct-to-consumer (D2C) sneaker brands have each filed for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC), a sign of how competitive the footwear and apparel market has become.
Last week, Allbirds, hoping to cash in on increasing demand as the pandemic continues to wane, said it planned to move forward with an IPO even though it’s lost money since its inception and will continue to be unprofitable. And earlier this week, On Holding, a shoemaker backed by tennis star Roger Federer, said it was aiming for a $6 billion valuation when it makes its public debut.
Both companies are seemingly trying to cash in on the rise in athleisure and disrupt the success that athletic giant Nike has seen in transitioning its business to be more D2C focused. In June, Nike projected that digital will account for 50% of its business by 2025; the combination of owned and partner digital revenue is currently about 35% of Nike’s total business, which executives say is three years earlier than expected.
To be sure, taking on Nike — as well as Adidas, New Balance, the newly-sold Reebok and other well-established footwear and apparel brands — is no small feat, and, as On noted in its prospectus, “the market for shoe, apparel and accessories is highly competitive and fragmented,” with “increasing competition from established companies … as well as from frequent new entrants.”
But while Nike is a traditional retail brand in the midst of transitioning to D2C, both Allbirds and On are D2C at their core, which could be an advantage for the companies. According to PYMNTS research, over 41% of consumers have used D2C channels to buy shoes and nearly 36% have used the channel to buy clothing and apparel.
Additionally, over 50% of consumers say they made a consumer packaged goods (CPG) purchase from a new brand since the pandemic began, and 83% of consumers who adopted D2C channels during the pandemic say they plan to maintain some or all of their new habits.
A Sustainable Edge
Allbirds also places sustainability at the core of its operations, which brands large and small have come to realize is among the keys to attracting consumers in 2021. According to a report by the National Retail Federation and IBM, 57% of consumers would be willing to change their habits in order to reduce their environmental impact and 77% say it’s at least moderately important that brands are sustainable and environmentally responsible.
Joey Zwillinger, co-founder and co-CEO of AllBirds, said at a forum last year that consumers are realizing that “climate change is upon us, and that the next five years are going to make or break the next hundred years for our species.” He added, “We are at the very forefront of a massive tidal wave of change in consumer perception on this stuff.”
On also makes a 100% recyclable brand of running shoes, called Cyclon, that’s available through a $30 monthly subscription. Cyclon shoes must be returned when they wear out, and On replaces them for the customer.
PYMNTS research has found that approximately 58% of consumers have D2C subscriptions, with 25% of consumers using D2C subscriptions exclusively. Among the top reasons for using D2C subscriptions are saving time, convenience, higher quality items, saving money, and the ability to try new and different products.
Adidas’ New Focus
Startups and D2C brands, of course, are not the only ones nipping at the heels of Nike’s dominance. Adidas earlier this year said it intends to double its eCommerce business over the next five years as it shifts to a D2C-led strategy focused on 12 global megacities. Part of the transformation will include tripling its loyalty program to 500 million members over the coming years and digitizing its 2,300 retail stores and 10,000 branded franchise locations.
“Our strategic focus is on increasing credibility of the Adidas brand, elevating the experience for our consumers and pushing the boundaries in sustainability,” Adidas CEO Kasper Rorsted said on a conference call in March.
Last month, Adidas also sold Reebok to Authentic Brands Group for $2.5 billion, 15 years after Adidas bought Reebok for $3.8 billion. The Reebok brand had been essentially discontinued by Adidas earlier this year as it focused on its own footwear.