The shoe company that pivoted to AI is dying

Allbirds, a once-popular shoe brand, rebranded to Smartbird – an AI company – a few months ago, and the stock soared.

While shares had been slowly – and then quickly – deteriorating since the brand’s IPO, on news of this pivot, they quickly shot up to over $20 overnight, an increase of over 800%.

But in a situation that is darkly reminiscent of the infamous Long Blockchain Company, Smartbird’s share price has since collapsed to the exact same price it was before becoming an AI company, and the future looks bleak.

What was Allbirds?

Full disclosure: I own a pair of Allbirds [editor note: I also have owned several pairs and enjoyed them]. They’re great. They look snazzy, in a casual sense. They’re a lovely, warm, wet sand-yellow. I bought mine on a trip to Tokyo; I can even recall the sales pitch.

The Allbirds store was mostly empty, and I wasn’t hunting for a new pair of shoes. But the rows and rows of Allbirds called to me. The Japanese saleswoman started her initial spiel about how the shoes were sourced from high-quality, sustainable materials. Finally, perhaps in an act of desperation, she told me, “You can throw them in the washing machine and they will look just like new.”

I was sold.

I love my Allbirds. I generally use slip-ons and the best part of my Allbirds is that they aren’t slip-ons. They’re real shoes with heel and arch support. I can walk for miles and my feet don’t hurt, and, lastly, the saleswoman wasn’t lying: I wash them and they look like new.

But despite never hearing about Allbirds before this moment in Japan, I was late to the game. It turned out, in fact, that I was showing up for the fleeting encore performance right before the dramatic end of the show.

What happened to the shoe company?

The short story is that, after a brief moment of explosive sales years and years ago, to the point that the C-suite could take the company public, no one wanted to buy Allbirds anymore. Revenue fell through the floor, the stock died, and the company desperately needed to pivot.

The longer story goes something like this:

Allbirds was celebrated by Silicon Valley elites and politicians and was even a media darling, largely due to its campaign of using sustainable materials. Before going public, the brand was pushing hundreds of millions in revenue every year and was considered a fashion icon at the time, along with the likes of Lululemon, focusing on casual, cozy clothes.

Fashion is a fickle mistress. Allbirds IPOed at the peak of consumer interest in the brand, and the stock tumbled basically forever after day one. Allbirds remained focused on sustainable materials, shoes, and their direct-to-customer sales model. To put it bluntly, an inability to change killed Allbirds.

After being valued at $4 billion on IPO day, it only took two years for the company to lose over 85% of that valuation.

This year, Allbirds sold off its footwear IP and merchandise to American Exchange Group for a measly $39 million – a massive fall from grace. In general, American Exchange Group buys failing clothing companies and licenses and distributes them after purchase, owning such well-known brands as bebe, Rocawear, Ed Hardy, and Rampage.

So, while the shoes will likely no longer be seen in global retail stores, they’re still available online. It’s unclear if quality will remain the same or if American Exchange Group will need to cut costs significantly to make the brand profitable again.

As for why a pivot to AI? It helps that the company is steeped in Silicon Valley culture and was invested in early by the biggest names in tech at the time, along with private equity funds.

With America in the midst of an AI boom, it makes sense for the company, which remains publicly listed despite years of price action in the doldrums and poor returns, to try and jump on the biggest hype train around before it’s completely left the station.

What does Smartbird do?

Bluntly: nothing yet. But maybe they will do something related to artificial intelligence soon?

Their latest quarterly financial documents put forward stark realities about headwinds the company faces, from “fac(ing) intense competition from larger, more experienced and significantly better-capitalized companies” to the fact that “[Smartbird] may be unable to implement [an AI Infrastructure Business] successfully or at all.”

The once fashion miracle story is now looking for a second miracle, this time related to AI infrastructure. Whether it can stumble upon that miracle is yet to be seen, but post-pivot it’s looking downright ugly for Smartbird: since hitting a peak of just over $24 on April 15^th, Smartbird has shed 90% of its value, now trading around $2.50.

The CEO released a lengthy, optimistic letter to shareholders in August. There are no specifics or timelines, but they seem to be targeting every industry and all sizes of customer.

Allbirds’ mantra used to be pretty clear, if overly optimistic: “Create better things in a better way.” Smartbird’s new slogan is more ambiguous and certainly not optimistic, if it suggests any personality at all: “Built for AI, managed for you.”

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