Running the Race: Hoka’s Sprint and Allbirds’ Clipped Wings
Introduction
I’m a big fan of both shoes and was an earlier adopter of each. I first “ran” into Hoka at the Running Event in Austin back in 2011 and received a free pair from them—they were the first maximalist shoes I had ever tried in an era where minimalist was all the rage. It was a strange experience, and unfortunately, I sprained my ankle on my second run in them, blamed it on the huge stack height, and retired them forever.
I don’t quite remember how I discovered Allbirds, but I do remember first buying them (online, of course) during my time working for an e-commerce startup in San Francisco circa 2016–2018. Everyone in the tech scene seemed to be wearing them, so naturally I wore them too. I don’t remember them being amazing to wear or anything, but they certainly made me feel “cool” and part of the “in-vogue” crowd, especially when combined with a Patagonia jacket. They were also a status symbol and signaled to others that I cared deeply about the climate change crisis and was an ethical person with the sensibility of sustainability.
Fast forward to 2023 — I rediscovered Hoka after I bought my first SpeedGoats for trail running and have fallen in love. These are the perfect shoes for bombing up and down the hills trail running in Marin County, nimble enough to navigate the terrain and cushioned enough to save your knees. No ankle sprains so far either.
I still wear Allbirds, but it is definitely less trendy than before, and the primary use case for me is short outdoor excursions when I am too lazy to put on socks. I’ve still stuck with the original Woolrunners and have never branched out to their esoteric offerings.
Business Trajectory
I recently noticed that the business trajectory of both brands has diverged quite significantly, with Hoka ripping up the trails (and more) with aplomb and Allbirds nearly grounded and flapping its wings to stay afloat.
The stock performance of each company tells a shocking story, Deckers (parent company of Hoka) is worth 100x+ of Allbirds in terms of market cap and trending upwards, while Allbirds took a nosedive since its IPO all the way back down to a being a mere shadow of a Unicorn.
From a pure revenue POV, for the fiscal quarter ended June 30 for each company, Hoka as a brand did $420.5M (source — footwear news) while Allbirds pulled in $70.5M (source — Allbirds IR). Deckers/Hoka is also decently profitable; Allbirds has never reached that promised land.
Beyond top and bottom line — perhaps the biggest killer difference is growth. Hoka grew sales by ~27% YoY for that quarter (off a bigger base) while Allbirds went the other direction, shrinking by ~10% (off a much smaller base).
Why did Hoka succeed when Allbirds failed?
These are my hypotheses—admittedly completely POOMA and based off my personal experiences in the real world, as a lover and collector of shoes, and as a business school graduate.
Let’s break it down into quality, distribution, fashion, and funding.
Quality
Hoka’s are absolute beasts when it comes to durability, especially when it comes to their trail running line. My first pair has lasted over 500 miles, and the Vibram outsoles are both grippy and durable. The thick cushioning also helps the shoe last longer. From the uppers to the midsoles to the outsoles, Hoka’s ooze quality and craftsmanship.
Allbirds OTOH, are kind of flimsy all-around. The upper sheds hair, the midsole is relatively thin and lacks cushion, and the exposed rubber on the outsole wears pretty quickly. They’re pretty dang comfortable, but these things blow out pretty fast, and my feet hurt after any extended period of walking in their most popular model. Unfortunately, I have not tried their more durable running shoe line, so that experience might be different, but most people just get the standard lines of Woolrunners and Treerunners.
TBH, outside of the upper (which has a cool eco-chic wool story to it that was a big part of the initial appeal), everything else about the shoe is very generic.
Distribution
Hoka has a strong mix of both traditional wholesale channels (~2/3 of sales from a revenue perspective, more on a per-unit basis) and e-commerce. The initial distribution was primarily focused on specialty running but quickly hit mainstream sporting goods (e.g., Dick’s Sporting Goods, REI) and even extended into places such as Nordstrom. The in-store marketing at big box is really eye-catching and stands out.
Another interesting thing that I noticed about Hoka distribution is that they are often found at local (non-running) shoe stores alongside brands such as New Balance and even more specialized walking shoe brands. The target market here is senior citizens, for whom substantial cushioning is a big sell. I see a lot of senior citizens walking around in Hoka, but very few wearing Allbirds.
One that Hoka hasn’t really invested heavily in are brand stores. According to their website, they have <10 locations in the US.
Allbirds OTOH, given their roots, are heavily concentrated in e-commerce vs. wholesale, with an additional big play in brand stores. Based on their website, they have~30+ locations in the US and a total of 59 worldwide. While that doesn’t seem that much more than Hoka on the surface, keep in mind that Hoka does ~6x the sales of Allbirds, so from a multiple perspective, it’s a significantly higher investment in this play. Allbirds also recently started doing outlet stores; I went to one in East Bay recently and it was unsightly, just a junkyard of never-made models in extremely bright colors. When you resort to doing outlet stores this early…might not be a great sign.
Focusing efforts on these two channels has multiple challenges, but the main one to call out is the issue of CAC.
- E-commerce CAC efficiency is notoriously difficult to manage wisely, especially given open competition and changing algorithms. You are often at the mercy of Google and Meta.
- Brand store is technically another form of CAC, for prime locations, the real estate cost is high, the labor is expensive, and you need to drive sufficient traffic into the store.
While these two channels give you better gross margins vs. wholesale (for lack of middleman), I’m not convinced the net payoff is there; hence, Allbirds is now moving aggressively into wholesale channels.
The physical distribution has an impact on who ends up buying the product. Allbirds became a symbol of coastal tech elitism and never really made it into the mainstream. While it seems like everyone in SF wears them (and maybe NY/LA with a few other coastal cities), it is much less popular in mainstream America.
Hoka somehow got around their initial target market (high-mileage running enthusiasts) and made it mainstream; perhaps the distribution in your local shoe store and Dick’s helped make that happen. When I go running on the trails or on the road, I see a LOT of Hoka’s on runners (25–50%), they have grabbed a significant market share, in addition to shifting the overall running shoe market into maximilism.
Fashion
This one is a more controversial take — Hoka’s are some of the objectively ugliest shoes out there on the market, yet... it doesn’t matter. In fact, their ugliness is almost an advantage and a potential marketing hack; the bulky midsoles stand out and make bystanders take notice (free impressions!).
Allbirds, on the other hand, are very low-key in terms of appearance; they almost blend into any outfit. This made them perfect for me when I had to go into an office for work; it was subtle enough that you could make it work as part of “business casual” while still being much more comfortable vs. a dress shoe that didn’t breathe well.
Funding
The companies were also very different in terms of funding.
Allbirds as most everyone knows was a child of Silicon Valley VC frenzy for DTC e-commerce.
Being a VC-funded startup in that era meant pursuing growth while being OK with losses. The problem with DTC e-commerce is that it can’t replicate network effects (e.g., Uber, social networks), nor does it have the gross margins of a SaaS business. Pursuing a tech business strategy while having a non-tech business dynamics is a death knell.
Hoka was initially a startup, then was bought early by Deckers, a public company (famous for Uggs and sandals) for $1.1M. Yes — that’s the real price, which in SV VC terms is peanuts of an exit.
As a public company in a non-tech and traditional industry, Deckers had many more constraints. Growth with losses was not acceptable, so the approach taken was much more pragmatic and focused on being a great shoe company in the shoe industry vs. something else.
The peculiar path of Deckers
Deckers has a very interesting path — it used to be a sandal company (with several brands), then shifted into Uggs (a higher-end fashion statement and way more material than sandals), then into Hoka (running shoes). There are three entirely different categories of shoes in terms of the use case, but at the end of the day, they are all shoes.
Their growth strategy is almost exclusively M&A: buy emerging brands at low prices, then leverage the companies expertise and distribution networks to scale these brands.
The diversification into different shoe categories has paid off → what’s interesting to note is that now Hoka makes up the biggest chunk of Decker’s sales and is growing significantly faster than the others, which means that their internal share will continue to grow. What was a sandal company that then become a fashion boot company is now a running shoe company.
