How the Swiss brand On managed to conquer the American market

Swiss shoe brand On continues its impressive growth trajectory. During the last quarter, sales jumped 32%, reaching 636 million Swiss francs, according to figures released by the company on Tuesday. For the first time, gross profit margin exceeded 60%, setting a record since the company’s New York IPO in 2021.

When On presented these numbers during a recent conference call, financial analysts congratulated the company’s management on its success. Investor reactions were more muted, however, as the company narrowly missed its profit forecast, causing its share price to fall slightly. It’s proof that companies looking to succeed in the U.S. market must continually prove themselves.

The United States remains On’s main market

From a medium to long-term perspective, however, the brand’s future looks bright, as On’s shares have shown a strong recovery. Stocks have nearly doubled in value since the start of the year and are up more than 6% since last week.

Founded in 2010, On has already reached a market valuation exceeding $16 billion – a meteoric rise for a young Swiss brand. On’s decision to list on the New York Stock Exchange, where investors have more experience with fashion companies, has obviously paid off.

To maintain its growth trajectory, the shoe company is investing heavily in brand management, expanding its product offering and opening new stores – efforts that have been key growth drivers in recent months. Thanks to the success of the brand on the Chinese and Japanese markets in particular, Asia should become the second pillar of On, even ahead of Europe. At 79%, sales growth in the region is extremely high compared to the previous year, although revenues from Asia still represent just over a tenth of the company’s total.

However, the United States remains its most important market. The country contributed 396 million Swiss francs to the company’s turnover this year, representing almost two-thirds of total turnover and an increase of 34% year-on-year. And while the shoe maker also claims to be experiencing rapid growth in Canada and Brazil, its success depends on its performance in the United States.

Sport as a driving force

In the United States, On has built a reputation as the go-to brand for ambitious (and wealthy) runners. The Paris Olympic Games helped to strengthen the brand’s image as a driver of innovation. The event was an opportunity for On to preview its new “Lightspray” technology, which the company also presented in early November to curious customers in a New York showroom. The new manufacturing method allows most of the shoe material to be pulverized, eliminating the need for sewing. In the long run, this makes shoe production more local and personalized.

Marathon runner Hellen Obiri, brand ambassador for On, won the bronze medal in Paris wearing Lightspray shoes. Earlier this year, Obiri scored his second victory at the Boston Marathon, reinforcing the brand’s image as an innovator in sports equipment.

We have proven even more adept in the United States than in Europe at capturing the attention of a young, fashion-conscious audience. Its long-term partnership with actor Zendaya aims to build brand loyalty among this demographic. We’re not the first sportswear manufacturer to try to succeed with lifestyle products; Yoga brand Lululemon and On’s main competitor, Nike, have already succeeded in this area.

That said, brands targeting these selective consumers must continually earn their spot. Nike, for example, had overexploited the potential of its classics in recent years. With consumers already stocked up on Air Jordans, the company is struggling with growing inventories. Its new CEO acknowledged Nike’s sales and branding challenges, but warned that fixing Nike’s sales and branding problems would take several quarters.

For the future, we avoid following any passing lifestyle trends. The brand is currently expanding its range to include shoes aimed at other forms of exercise. Asked by an analyst, CFO Martin Hoffmann stressed that On’s growth is based on an increasing number of products. “We are now a seven or eight trick pony, not a one trick pony.” Sales of tennis shoes, for example, saw substantial growth, even though they were starting from a low starting point. We also want to position ourselves more and more as an outdoor brand and make a significant breakthrough in the trail running market.

Sportswear sales, which currently represent just over 4% of the company’s revenue, continue to lag behind the footwear division. However, items such as jogging pants and shirts are increasingly complementing the brand’s product range. Ideally, the marketing dollars On spends on its running shoes will also increase visibility for its clothing line.

More stores

In order to convey its premium image to customers – which ultimately serves to justify the relatively high price of the shoes – On is focusing on establishing its own retail presence in the United States. The brand already has eight stores nationwide, including new locations in Austin and Chicago.

At the beginning of November, On opened its third store in New York. Set to become the new flagship store, it is located near the iconic Flatiron Building on Fifth Avenue, the city’s most important shopping street.

We’re in good company here: a few blocks away, on the same street, competitor Hoka also has a store. The two booming shoe brands have failed to reach “luxury row,” the most famous section of Fifth Avenue, located farther north between 49th and 60th Streets, where Chanel, Tiffany and more other designer brands are vying for attention. of customers.

But while this stretch of Fifth Avenue is perpetually crowded with tourists and Uber drivers, visitors to the On store at 21st Street can enjoy a little more sidewalk space. The store can certainly serve as an advertising showcase to the world, since the area surrounding the Flatiron Building is also on many tourists’ bucket lists.

Streamlining business operations

This spring, however, On was still struggling to adjust to the brand’s growing popularity in the United States. The brand’s sales department struggled to fulfill orders because interest exceeded supply. To address the bottleneck, On ramped up use of its West Coast warehouse and relied on air freight to restock stores – an interim measure that helped in the short term but proved costly and unsustainable.

Looking ahead, the company plans to implement a highly automated warehousing system at its East Coast facility in Atlanta. While Chief Financial Officer Martin Hoffmann said that would lead to higher fixed costs, he also pointed to the long-term benefits: The more volumes Atlanta can handle, the less those costs matter. If initial trials proceed as planned, the upgraded facility is expected to process significantly higher volumes from 2025 onwards, enabling the brand to achieve ambitious growth targets set by management and investors .

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