Twelve Days of Commerce: #8 On Running
All I want for Christmas, is a pair of £200 On Running shoes
Picture the Swiss mountains, snow falling from the rooftops of glorious wooden chalets, and the smell of hot chocolate in the air. Switzerland, the landlocked, Narnia-like nation nestled in the belly of Europe, is stereotypically known for a few things: all the above, skiing, hot chocolate, dark chocolate, white chocolate, milk chocolate, Swiss banks, and incredible efficiency. But above all, the Swiss are known for, and fiercely protect, a very important part of their legacy: Roger Federer.
In 2018, whispers of Federer’s move from Nike began looming in the tennis community, with a 10-year, $300M Uniqlo contract rumored to take over. A partnership that had launched the famous R.F. brand was soon coming to an end. However, I remember reading at the time that Federer had decided to take a minority stake (a mere 3%) in an up-and-coming Swiss shoe company, a brand called On Running.
When On knew they were off to the races
ON is a Zurich-born business founded by avid runners Olivier Bernhard, David Allemann, and Caspar Coppetti (read more). Founded in 2010, On’s initial USP was their patented technology and design formula labeled as the On Clouds, now known as CloudTech. These are the independent cushioning chambers in the midsole of the shoe that help absorb energy and increase comfort for the user while training. On has cleverly labeled this experience as “running on clouds.”
The reality On faced was the transition from being a brand known for elite (and expensive) running shoes, tailored for trails, marathons, and more ‘advanced’ athletes, to a brand that could mould its cloud technology into lifestyle products as well. This reminds me of the journey Nike took in the 1980s, only in reverse. At the time, Nike was known for mass-market, semi-cool trainers (mostly for mums and dads in jeans). To redefine their brand in the sporting world, Nike knew they had to make a few big bets, namely their deal with Jordan in 1984 that transformed their name in the sporting industry.
When Roger was onboarded in 2019, he took on partial responsibility (so we’re told) to help reinvent the brand’s products in tennis and also to help introduce lifestyle models that evoked his sense of style, prestige, and elegance. Though competing with brands like Nike, Adidas, and up-and-coming VEJA with younger communities, On managed to find incredible traction with their Roger Models as well as the adoption of their classic CloudMonster series. Now boasting celebrities like Zendaya on their payroll, On’s dominance in the running community is starting to shift into younger audiences willing to spend a hefty price tag to label themselves as part of what seems to be an incredibly powerful trend.
Even the numbers are good
Is there anything the Swiss can’t get right? Granted, the fall of Credit Suisse last year is a stain on their stellar reputation that they’ll be trying to hide. However, even down to the unit economics, On hasn’t followed the traditional trajectory many companies do when newly going public. I call this method the “burning capital, who cares” methodology. Often, when brands go public, as we’ve seen in the D2C markets over the last five years especially, the pressure from investors yields a mentality that pushing growth as much as possible and acquiring customers at a premium is the way to ride the wave, hoping the public jumps on the train and then leaves somebody holding the bag.
In fact, after raising $761M in their IPO in 2021, On has been profitable year after year since 2022, and we’re seeing its bottom line grow at a similar rate. Top line over the last three years, On has generated the following: $1.22B (2022), $1.79B (2023, +47%), and $2.4B (est. 2024, +25%). Net income has climbed at an even greater rate: $57.7M (2022), $79.6M (2023, +37%), and $135M (est. 2024, +90%). As you can imagine, EBITDA margins are also very healthy. So, not only is On growing rapidly in terms of sales, but On is also a profitable public company growing their bottom line as a percentage of revenue.
They’ve focused more on retail instead of D2C channels, which I think is smart, given that 40% of all CPG sales were retail in the last 12 months, and 50% of D2C sales were on Amazon.
Read more: ON Holdings
‘It’s scary that they’re only just getting started’
Similar to the Lulu trend in the 2010s, I have a belief, or a theory, that we’re entering an era of On, which could last a good 3–5 years. Nike is trying to reinvent its marketing to combat a lull in its coolness, while Adidas and Lululemon are sitting at $45B in terms of market cap. Meanwhile, On now sits at a comfortable $18B after only a few years of going public, with its share price nearly doubling this past year. The reality is, On’s only just getting started.
With plans to open a new store every three days in 2025 around the world and showing 70% year-on-year growth in the Asia-Pacific markets (where Federer and Zendaya are almost deities), On has only scratched the surface of its retail network. On only just started sponsoring athletes in 2023, with branding and attire that oozes eccentricity and chic all in one.
Interestingly, I got my answer a few weeks ago when I was wandering through Spitalfields Market here in London while failing miserably to buy Christmas presents. I noticed for the first time that On’s new store had opened, an all-glass, sleek, and modern storefront located just before you enter the market. Though not a big venue, I decided to wander in and have a browse. In all honesty, nothing really caught my eye as I looked around the store, mulling over whether to spend £300 on a backpack or buy four plane tickets to Amsterdam for the same price (ironically, I did neither).
Nonetheless, as I walked out, I held the door open for three elderly ladies making their way into the store. They must have been in their late seventies when I overheard one say to the other, “I’ve heard wonderful things about their shoes.” They both chuckled with excitement and went straight to the shoe collection. I remember thinking to myself as I walked away: How many clothing brands can both appeal to and seem cool to 16-year-olds and up, all the way to people in their eighties? As I looked back through the shop, I noticed an incredibly diverse group of people mulling over the running shoes and sports attire. Have you ever heard your grandmother say, “God, I’d love a pair of Lululemon leggings?” I think not.
Maybe that’s all the affirmation I needed to prove my theory: On is cool, for everybody.