Core Performance Summary
On, a Swiss premium running brand, has experienced mixed results recently: its direct sales channels (official website + stores) have seen rapid growth, with gross margins reaching new highs; the collaboration with Zaynaya has successfully attracted young female consumers; and the market in the Asia-Pacific region (especially China) has witnessed explosive growth. However, the growth rate of its wholesale channel has significantly slowed down, and sales of its regular running shoes in the American market have fallen short of expectations. In the face of a widespread discount trend in the industry, On has chosen to do the opposite—instead of offering discounts, it has raised prices. The brand relies on technology (such as the LightSpray shoe upper) and celebrity partnerships (like Zaynaya) to justify its higher prices, while also expanding its clothing business. Nevertheless, the long-term sustainability of this high-price strategy ultimately depends on whether ordinary consumers are willing to pay more for basic running shoes that lack these premium features.
Uneven Performance: Strong Direct Sales, Weak Wholesale
On’s overall revenue grew well in the second quarter, but the performance of its two sales channels varied significantly:
- Direct Sales Channels (DTC): The brand’s official website and stores sold 388 million Swiss francs, a year-on-year increase of 34.3%, accounting for 45.7% of total revenue (a record high).
- Wholesale Channel: Revenue from selling to other retailers (such as sports stores in malls) was 462 million Swiss francs, an increase of only 12.7%, down from 25.1% in the previous quarter.
Why has wholesale sales slowed down? It’s not because products aren’t selling; rather, On is deliberately controlling inventory by reducing shipments to wholesalers, fearing that excessive stockpiling would lead to discounts and damage the brand’s image of selling at full price. Management indicates that the main pressure comes from the demand for regular running shoes in the American market, which did not meet expectations. They prefer to sell fewer units now to make room for future new products.
Counterintuitive Strategy: Raising Prices Instead of Offering Discounts
While companies like Nike and Adidas are clearing inventory and offering discounts, On has chosen to increase prices:
- Past Price Increases: A few years ago, On’s shoes were sold for an average of $145 per pair; now they cost over $170, with gross margins rising from 59.4% to 65.4% (meaning more profit per sale).
- Future Pricing Plan: The brand plans to offer three price tiers: entry-level shoes at $160, mid-to-high-end models at $200-$210, and premium models over $300. For example, shoes with the LightSpray technology (which uses a robotic spraying process for the upper) are priced as high as $290 and are in high demand due to limited production capacity.
On’s logic is that a luxury brand cannot afford to discount; it needs to rely on technology and exclusivity to encourage consumers to pay more. However, the question remains: can its high-price strategy sustain itself if ordinary consumers lose interest in its products?
Zaynaya: More Than Just a Collaborator
The partnership with Zaynaya goes beyond just selling joint-branded shoes:
- From Endorser to Designer: Zaynaya has collaborated with stylists to create complete collections that have sold better than expected, helping On attract younger female customers (who previously primarily purchased its products for running).
- Branding Expansion: On aims to break out of its “professional running” niche and appeal to a broader audience by allowing non-runners to wear its clothing and shoes in everyday outfits. Zaynaya’s influence on red carpets and fashion trends has helped On transition from a sports brand to a trendy one.
This also explains the rapid growth of On’s clothing business, with revenue increasing by 56.2% in the second quarter, compared to only 18.9% for running shoes. In the future, consumers may buy On products not because of their functionality but because of Zaynaya’s presence or the quality of the clothing.
China as a Growth Driver
On has not specifically mentioned its revenue from China, but the Asia-Pacific region has seen the fastest growth:
- Impressive Numbers: Revenue in the Asia-Pacific region increased by 54.7% in the second quarter (at constant exchange rates), with annual growth expected to reach 106.7% by 2025, driven mainly by Japan, South Korea, and Greater China. The brand’s Tmall store has performed exceptionally well, and its first store in Macau has opened.
- Comparison with Nike: While Nike is still dealing with inventory and discount issues in Greater China, On does not need to offer discounts because it is still in the expansion phase. Its relatively low popularity makes it seem “novel” and “scarce” to consumers, who are willing to pay full price.
However, whether On can maintain this sense of exclusivity as it grows will be crucial.
The Risk of High-Price Strategy
On’s high-price strategy seems successful, but there is a hidden risk:
- High Prices Depend on Technology and Celebrities: The LightSpray technology and Zaynaya collaborations allow for higher prices due to their unique value and scarcity. However, ordinary running shoes (such as the $160 entry-level models) lack these premium features. In a market full of discounted sports products, why would consumers pay more for them?
- Long-Term Challenge: On cannot apply the LightSpray technology to every shoe or collaborate with every celebrity. If regular models fail to sell, the entire high-price strategy could be undermined.
Therefore, On’s real challenge is not whether it can produce shoes priced at $300 but whether it can continue to attract consumers to pay for its $160 entry-level products—this will determine how far it can go.
Conclusion
On’s current strategy focuses on maintaining profits through direct sales, increasing prices with technology and celebrity partnerships, and expanding its presence in the Chinese market. However, the performance of its wholesale channel with ordinary running shoes poses a significant threat to its overall success. Whether it can balance its luxury positioning with consumer demand will determine whether it can evolve from a niche sports brand into a global powerhouse.