On Running posts explosive growth as Nike doubles down on D2C

Article by Rachel Wolff | Mar 21, 2023

The news: On Running passed the CHF 1 billion ($1.05 billion) sales mark for the first time in 2022. The sneaker company reported CHF 1.22 billion ($1.28 billion) in revenues and turned a profit of CHF 57.7 million ($60.4 million)—a remarkable achievement for its first full year since going public.

On’s net sales grew 91.4% year-over-year (YoY) in Q4.
The company reported Q4 gross profit margins of 58.5%, well above what Nike (43.3%), adidas (39.1%), and Puma (44.0%) reported for their most recent quarters.
And On expects its positive sales momentum to continue into 2023: The company forecasts net sales to grow 61% YoY in Q1, and 39% for FY 2023.

On the road to success: On has quickly become one of the leading performance shoe companies, helped by its association with Roger Federer, whose dual roles as investor and brand ambassador have given the company a boost akin to Michael Jordan’s impact on Nike.

Lean inventories and healthy demand have allowed the company to steer clear of excessive promotions; CEO Martin Hoffmann told Bloomberg that over 90% of its holiday sales were at full price.
That’s in stark contrast to Nike, whose net income declined 11% in its latest fiscal quarter ended February 28 due to the high levels of discounting needed to clear excess stock.

Filling in the gap: Like other sneaker brands, On has been a beneficiary of Nike’s decision to pull back on wholesale in favor of direct sales as retailers like Foot Locker and Dick’s Sporting Goods broaden their brand assortment.

On’s wholesale revenues increased by 73.1% YoY in 2022 to CHF 777 million ($813.8 million), outpacing direct-to-consumer (D2C) growth to account for nearly two-thirds of the company’s annual sales.
Similarly, Deckers Outdoor Corporation attributed Q3 sales growth for its Hoka sneaker brand to “share gains with one specialty account in the wholesale channel.”

Nike stays bullish: Despite the healthy competition, Nike continues to dominate the sneaker and sportswear industries.

Nike’s revenues rose 14% YoY in fiscal Q3 to $12.39 billion. For context, that’s nearly one-third more than Puma’s total sales in 2022.
While the brand has leaned on retail partnerships with Foot Locker and Dick’s to reduce its inventory glut, direct sales grew faster (17%) than wholesale (12%) as Nike continues to prioritize its D2C business.
Foot traffic to Nike stores is outpacing the overall sports goods apparel segment by a significant margin. Monthly visits to Nike and Nike Factory stores rose by 8.2% YoY, 21.8%, and 6.0% in December, January, and February, respectively, per Placer.ai. By contrast, sports apparel retailers saw visits fall 3.6%, 5.5%, and 7.6% in the same periods.

The big takeaway: Upstarts like On and Hoka might not pose much of a threat to Nike right now, but they are a potential stumbling block for adidas as it attempts to regain relevance and revitalize wholesale partnerships.