On, the sports shoe disrupter hotfooting it towards leisure

On Shoes has made rapid progress in the brand's short life. Keystone / Peter Klaunzer

The Swiss start-up brand has grown rapidly with its revolutionary designs of high-performance sports footwear.

Ordinarily, a shoe with holes in the soles would be primed for the dustbin. But On, the Swiss sports brand launched in 2010, has turned that irregular aesthetic into a multibillion-dollar USP — its signature crater-soled sneakers made 95% of the company’s $1.5 billion sales in the first nine months of 2023.

Patented as CloudTec, prototypes for On’s curious, crumpet-like rubber treads were conceived from a cut-off hosepipe some years before the company’s founding in 2010. Now, they’re made using special injectable moulds. They look a bit futuristic, are visually a tad weird and the vibe is borderline dorky. Nevertheless, both runners and pedestrians have fallen head over heels for them.

In Dubai, they’ve replaced Yeezy as the go-to fashion sneaker, says thirtysomething physicist Abdulla Alhajri, while in Tokyo, all-black pairs of the stacked-sole Cloudmonsters (£160) are being worn by trendy, gorpcore types, according to Sam Millen-Cramer, a Portland-based strategist who works with sneaker brands.

In the US, they’ve been adopted by the tech bros; in the UK, by pensioners. Peter Stephens, a 65-year-old former teacher from Surrey, switched his trusty Skechers for a pair of On’s Cloudeclipse (£170) six months ago. The Cloud technology, designed to “roll” by collapsing on impact to propel runners forward, alleviates his arthritis pain, he says.

Sales expected to double

On’s star is ascendant in the running sphere, too. In 2023, Kenyan Olympian Hellen Obiri won the Boston marathon wearing On’s carbon-plated race shoe, called the CloudTri 1.

Martin Hoffmann, On’s co-chief executive and chief financial officer, expects the brand to double sales by 2026, to $4 billion. He has good reason to be confident: the company has achieved seven record top-line quarters in a row, focused mostly on just one product category and one sport. “The lifestyle market is much bigger than the running market,” says Hoffmann. In other words, they’ve barely gotten started.

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It’s otherwise a tricky time for performance brands. Sales of athletic footwear in the US increased just 2 per cent in the year to November 2023, according to research firm Circana,

with revenues driven by price hikes rather than a growth in the number of shoes sold. Amer Sports, owner of Arc’teryx and Salomon, is currently looking to raise up to $1.8 billion in an IPO to reduce debt. Allbirds revenue was down 21% in the third quarter of 2023. Nike’s overall sales (encompassing all its sports categories, not just running) rose 10%, to $51 billion — but, in December, the company lowered its outlook of sales growth for 2024 to 1%, and its stock slid 10%.

On, which raised $746 million when it went public in 2021, has seen its shares rise 57% in 2023. “We have confidence in On’s forward pipeline,” says Jonathan Komp, a senior research analyst at RW Baird, a US-based financial advisory firm, pointing at emerging opportunities within apparel, hiking and gym training for the brand. “The market is currently challenging . . . but we see On as one of the winners going forward.”

Stiff competition

On’s growth aligns with a consumer shift towards speciality brands that blend the boundaries between lifestyle and performance. It is also one of the few new contenders to penetrate the sports shoe category and become a challenger to heritage sports brands — quite the feat for three founders with no prior experience of footwear design or manufacturing. (David Allemann worked in marketing; Olivier Bernhard was a pro triathlete; Caspar Coppetti was a strategy consultant at McKinsey & Co.) “Athletics is a competitive space, and it’s difficult to break into,” says Komp.

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Hoka, founded in 2009 and now owned by Deckers, is one other rarity in a saturated industry where established performance brands, including Under Armour, have struggled to become known within the footwear sector. Shoes have many technical components and are expensive to execute — and many shoppers by default go to big-name brands for reliable performance and broad product offerings. (Nike currently has about 115 different styles of running shoes on nike.com.) On, which has 23 dedicated running styles, is currently clawing 10-15% of footwear’s sales in speciality running stores, according to RW Baird’s Komp.

Still, it’s hard work going up against the big dogs. Adidas and Nike each spend 10-12% of revenue on marketing. How to make noise, and stand out? “On’s distinctive product and technology, wrapped up in Swiss design and colour, [give it] intrigue,” says Komp. Its branding is also a point of difference. Neat and minimalist, in its early days On was cited as the go-to brand for design types.

Allemann, who formerly worked in marketing for Vitra, the trendy Swiss furniture firm, admits there were brands on the moodboard when the trio started On. But none were sports labels. “Apple changed the way we look at computers, not just the aesthetic of the hardware but the feel of the software,” he says. “Dyson made his technology very visible — you can peek into that turbine engine.” On’s holey soles follow the same view. “The customer sees the technology just by looking at it.”

Innovation is another of On’s strengths. Its shiny Zurich HQ has an incubator hub, an on-site lab for prototyping and a recycling facility: in the latter, it breaks down its bio-based Cloudneo sneakers and turns them into brand new shoes. In a pioneering subscription model, runners rent a pair of Cloudneos for £25 a month and return them once they’re worn out, to be swapped for a new pair.

Strong demand in China

On is so far the only sportswear brand to take ownership of end of life, thus addressing running’s waste problem. (Performance shoes generally wear out after 300 miles; most brands have focused sustainability efforts on using recycled materials.)

“We’re ambitious to create a new kind of sports brand; we spend 50 days a year in the lab with our teams,” says Allemann. On now makes shoes and apparel from captured carbon emissions, using a process called CleanCloud — it created its own supply chain that turns emissions into pellets, then into yarns and soles, in partnership with three external firms.

The company is also pushing into different categories. Roger Federer’s 2019 investment saw On’s segue into tennis. Apparel is the next big focus. Belgian designer Tim Coppens, whose eponymous label is sold in Dover Street Market, was hired in 2022 to head up the apparel line. The kit is slick, with no big bold logos in sight, and it works well in the gym or down the pub.

“You go from being a shoe brand to a full sportswear brand,” says Allemann. Pick-up for apparel is strongest in China, where On has 22 stores. In the past year, the company opened two stores in London, a second in New York and 10 more in China, as well as in Paris and Miami. Portland and Austin are next. On is also sold in speciality stores (Runners Need, Achilles Heel), mainstream shops (Foot Locker, Bloomingdale’s) and fashion-forward retailers (Net-a-Porter, END).

But there’s work to do to turn on Gen Z shoppers; its demographic is predominantly 35-55. Introducing baggier apparel fits, athleisure pieces and partnerships with young athletes such as 21-year-old tennis star Ben Shelton form part of this strategy, as do ongoing collaborations with LVMH-owned Loewe that have increased its fashion plate.

“It’s a marathon, not a sprint,” says Allemann. Shareholders might be keeping an eye on the podiums and the pavements, but the founders’ ambitions are looking skyward, towards the clouds.

Copyright The Financial Times Limited 2024