People watching is one of the best ways to eyeball new trends, and I don't know about you, but everywhere I've been of late, whether that's the airport, walking the city streets, or at the office, every other person seems to be sporting a pair of On Running shoes. And it turns out this isn't just an anecdotal phenomenon I'm observing, as On Running is becoming one of the most loved running (and doing everything else) shoes in the market.
Specifically, the brand IPO-ed in 2021, 11 years after its founding, and has maintained both a healthy stock price and profitability, things that are increasingly rare in consumer brand initial offerings. Most recently, the company posted FY 2022 results reaching $1.3 billion, including a 92% jump in its Q4 revenues.
These refreshingly positive results highlight the fact that this company has clear vision and product strategy. Below we highlight what On is doing to set itself apart in the market.
While other brands have shifted away from wholesale in recent years, On is firmly invested in partnerships with wholesale. In fact, the company makes more revenues from wholesale than its own DTC channels. So what does this look like?
First, we have seen wholesale partners like SSense and Nordstrom grow their On assortment by more than 600% and 400%, respectively, since the beginning of 2020, and it looks like there's no slowdown in this growth on the horizon.
Second, what we see is not only a growing number of products in wholesale channels, but also a diverse type of wholesalers that are stocking the brand. While traditional sports retailers like Dick's and Foot Locker are of no surprise, Net-a-Porter and SSense might not be the most obvious partners for an athletic footwear brand. Indeed, we're seeing performance footwear brands like On, Hoka, and Salomon be co-opted by the fashion crowd in recent months and years, and when you combine that trend with On's premium positioning, these wholesale channels start to make a lot of practical sense.
What has been behind the rising popularity of On Running shoes? To start, the shoes are a product that many elite runners swear by; funnily enough, its founder Olivier Bernhard was an Ironman champion and pitched his original idea to Nike. (It was rejected.) But the idea behind the shoes even then, was its "cloud" cushioning for runners.
In product 101, we all know that if you want to achieve and maintain a premium positioning, it starts and ends with a great product. A great product means you can better withstand the market conditions, command the prices you desire, and abstain from discounting.
Indeed, the data shows the average price of a pair of shoes from On is $46 higher than Nike, though we see that Hoka's average price is even higher than On's - at $153. What else we can glean here is On's ability to withstand discounting - none of their current season footwear product on their own DTC site has been discounted in the last few months, while we see an average of 40% at Nike and 6% at Hoka. Instead, in order to move aging merchandise, On cleverly puts their "last season" product in a separate section of their site, where only shoppers with an On account can purchase these products.
One other competitive point to differentiate On is its apparel assortment. It's an area of increasing focus for the company, especially in their own DTC channels, both online and in its owned stores. Right now, it indexes higher than Hoka (20%) in terms of share of assortment in apparel, but lower than Nike (76%).
Underscoring all these strategies is a relentless focus on profitability. As CFO and co-CEO Martin Hoffman stated in an interview, "We are Swiss, and from the very beginning, it was very important for us to build a profitable business. And in the end, aiming for profitability gives you also a clear guideline and rail guards what you do — and that helps a lot in terms of where you allocate resources, how much you grow, where you grow.”
Innovation At Its Core
In a crowded athletic footwear landscape, the only way to stay ahead is to innovate. The company has been doing so through various activities, including the aforementioned growing apparel line. Let's discuss some of the top innovations coming out of On's product pipeline and marketing machine.
Brand partnerships are an oft pursued avenue for brands to get in front of a new audience. One of On's most recent partnerships is with LVMH-owned luxury label Loewe. This tie-up saw an assortment of colorful sneakers in some of Loewe's signature shades, priced at $450 each - above On's average, but below the average price for a pair of Loewe sneakers.
Another major avenue the brand is investing in is circularity. The founders have long wanted to do something about the ongoing cycle of use and disposal for running shoes. To that end, they have launched the Cyclon subscription service where the shopper can send in their used Cloudneo shoes to be replaced with a new pair. As the Cloudneo shoe model is made from castor beans, the old shoes can be crushed and recycled into a new pair.
Lastly, one can't tell the story of On Running without mentioning its partnership with Roger Federer, the tennis star who also happens to be an investor. His involvement has made way for a line of shoes made for tennis called The Roger. The company sees major opportunity in the sport of tennis, and has recently signed sponsorships with the "next generation of world class talent" in tennis stars Iga Świątek and Ben Shelton.
What On Running has accomplished in its decade-plus of existence is a testament to vision, fiscal discipline and a focus on best-in-class product and innovation. Something to be inspired by, indeed!