Meet On: The Athletic Shoe and Performance Sportswear Company that is backed by Roger Federer 👀

Hey Everyone - Harry here!

Welcome to Issue #10 of Deep Dive with Inquisition. In this issue, we will cover the story of On, one of the fastest-growing athletic shoe and performance sportswear companies based in Switzerland, from its founding stories to the strategies it used to become the company it is today.

Early Days of On:

On (also known as On Holdings AG) is a Swiss athletic shoe and performance sportswear company founded in 2012 by former Swiss Ironman champion Oliver Bernhard, David Allemann, and Caspar Coppetti. The trio started the company with the mission to “Ignite the human spirit through movement.”

Overview of the Global Footwear and Sports Apparel Market:

1. The global footwear market’s revenue is predicted to reach $412.9 billion in 2024 with a compound annual growth rate (CAGR) of 3.43%.

2. The United States is a leader in revenue generation in the global footwear market with $91.5 billion during 2024.

3. The global per-person footwear revenue will be $53.28 in 2024.

4. According to McKinsey & Company, the global sportswear industry experienced growth of 6% during 2023. However, during 2024, the worldwide regions experienced a strong uptick in growth:

   • Western Europe: 8% growth from a 3% decline during 2022.

   • Asia-Pacific: 11% growth from a 2% decline during 2022.

   • North America: 6% growth from 2% growth during 2022.

   • Latin America: 22% growth from 20% growth during 2022.

5. The global sportswear industry is projected to grow 7% by 2027.

6. Global consumers are shifting towards more “accessible and social” sports. For example, pickleball/paddle tennis has seen a 159% increase in participation from 2019 to 2022.

7. Brands (sports and non-sports) are adopting various distribution channels, from traditional retail stores to direct-to-consumer (DTC), implementing “multi-channel sales” due to individual customer preferences.

   • A survey by the National Retail Federation (NRF) found that 70% of consumers expect brands to offer personalized experiences, which DTC channels are well-suited to provide.

   • According to Paddle, 77% of apparel and accessory companies are now DTC (e.g., Nike, Adidas, Puma, Dollar Shave Club, etc.).

   • According to Retail Dive, 81% of consumers plan to shop direct-to-consumer brands.

Rise of On:

Oliver’s vision sparked the idea of On. He wanted to create a running shoe that would provide a “totally new feel” to the runner, which led him to experiment with pieces of garden hose, gluing them together on a normal sneaker to create the first-ever prototype of On.

During the early stages of the prototype, Oliver reached out to his former Ironman sponsor, Nike, for a potential partnership, but Nike rejected the idea. This rejection became the tipping point for the start of the journey. Oliver believed the rejection was actually an opportunity to showcase a new type of running shoe that couldn’t be found from traditional giants such as Nike and Adidas.

Oliver invited his previous agent, Caspar, an expert in numbers and business, who then invited David, a close friend. The trio registered the company “On Holdings AG,” decided to invest equally in the company (the amount is not disclosed), and flew to China for manufacturing six months after conceiving the idea for the first shoes. The company generated $100,000 in revenue during its first year and leveraged its experience and resources (e.g., connections with manufacturers, money, new customers) to create the second type of running shoe, known as “Cloud Racers.”

In 2013, the On team headed to ISPO, one of the largest exhibitions in Europe for sports-related product innovation, to sign three country partners. On not only won the gold award, beating over 300 competitors, but also signed partnerships with 19 different countries. On the same day, the company received 2,000 orders for the Cloud Racer shoes, which was just a prototype.

Thanks to the strong concept of the product, the prototype, strong first-year revenue, and strong demand from consumers and retail partners, the company successfully onboarded four angel investors (amount undisclosed), marking the official rise of On.

How did On become one of the fastest-growing athletic shoe and performance sportswear companies?

On’s explosive growth started on Day 1. Due to its obsession with creating a new type of high-quality product that would reshape the running experience, it attracted not only investments but also a lot of customers worldwide, ranging from professional athletes to amateur runners.

The product On created was so good that not only Olympic athletes wore it but even the king of tennis, Roger Federer, wore it. The founders noticed this and reached out to Roger for a potential partnership discussion. The two parties formed a partnership in exchange for 3% equity, with Roger deeply involved in the company’s marketing, design, and production of future products. However, On’s success doesn’t only come from having a great product and partnerships with professional athletes.

Since its launch, On has sold over 50 million products after 14 years of operation, secured mega partnerships and collaborations with worldwide athletes, brands, and celebrities, successfully IPO’d on the New York Stock Exchange (NYSE), valued at $12.15 billion, expanded into over 60 different countries, and reached an annual revenue of over CHF 1.98 billion, approximately $2.18 billion, in 2023.

Below are the strategies that contributed to On’s growth:

1. Have the Product Speak for Itself:
   → On’s product was disruptive from Day 1. Having a high-quality product is a necessity for any company that wants to become successful in any market. The product was so good that athletes who weren’t even sponsored by On voluntarily wore On’s shoes in global-level competitions. This is why On was able to not only talk to Roger Federer but also have him as an investor and brand representative, similar to Nike’s partnership with Michael Jordan.

2. Obsession with Product over Competition:
   → Everyone told Oliver that the global sports shoe market is packed with giants such as Nike, Adidas, New Balance, and more. However, even in a crowded market, there is always an opportunity for improvement and new players to enter. This is why On focused heavily on improving its product rather than worrying about its competitors.

3. Forming the “Right” Partnerships:
   → During the early stages, On focused on forming partnerships with the best retailers. Since the market is crowded, the founders decided to make retail decision-makers try On shoes and experience them first hand instead of going for the typical sales pitch. This strategy was so successful that most of the initial retail partnerships were formed because the retail partners were impressed with On’s products, allowing the company to scale further and form new retail relationships.

4. Becoming a Leader in Social Change:
   → Many companies in the industry have announced ambitious goals, such as reducing carbon emissions and following sustainability goals. However, the actions weren’t exactly translating into results, except for On, which truly cares about its ambitious sustainability goals and has implemented actions such as the “Cyclon Program.”

5. Community, Community, and Community Always:
   → On emphasized creating a global community of like-minded people. The company didn’t just focus on famous athletes and celebrities; it created a global running community, allowing On runners to train together, build new relationships, and more. This allowed word of mouth to spread rapidly and build its global fanbase. The company also sponsored various events from amateur running clubs to professional clubs and created its own running club known as “On Athletic Club.”

6. Subscription for Running Shoes:
   → On offers premium running shoes that are pricey for most customers. To make its products more accessible and achieve its ambitious goals, the company introduced a subscription plan where people can pay $29/month and receive a new pair of running shoes every six months. The running shoes get recycled and later used to build new On shoes.

7. Collaboration with Various Brands and Individuals:
   → One of the best ways to spread the word about a brand is through collaboration with various brands and individuals. On is one of the few brands that actively collaborates with others, which not only promotes and increases sales but also enhances brand credibility.

Challenges for On:

1. Overcoming the Ongoing Competition from Traditional and Rising Players:
   → The market is heavily crowded with traditional and rising players such as Nike and Adidas to Lululemon, consistently expanding by leveraging their resources and making their products stronger every day.

2. Overseeing Supply Chain Management:
   → Since the start of COVID-19, global brands have experienced inventory management issues, a crucial part of the supply chain. Specifically, shoe manufacturers such as Nike have seen a spike in shoe prices due to factory shutdowns in 2020 and 2021, along with high consumer demand. However, later in the pandemic, the demand for activewear and shoes decreased, resulting in high inventory stock for brands like Nike and Adidas. The same could happen to On.

Future of On:

1. Continuous Improvement of Its Products:

   → One of On’s core focuses is creating the best possible product for its customers. Since the beginning, the founders were obsessed with customer experience by creating and providing a great product. On’s future heavily relies on its ability to innovate and provide great products to its existing and future customers.

2. Strategic Global Market Expansion:

   → The company has announced it will increase its global presence by opening 100 additional stores around the world to give customers the On experience even before purchasing its products. Additionally, to continue increasing its revenue and securing more net income, it will be crucial for the company to expand into the global market.

Key Takeaways from the Story of On:

Nothing is impossible even if the market is crowded, and there is always space for someone new to solve market pain points. Also, having an obsession with your customers is always a great thing.

On was able to achieve its milestones and become a $12 billion+ company by listening to the needs and wants of its target customers, building a great product that solved pain points while implementing those needs and wants, and performing many strategic actions that were carefully planned (e.g., collaboration with other brands, celebrities, athletes) to build a global community instead of simply becoming a brand. The story of On’s founders is very inspiring and teaches many valuable lessons, from customer obsession to why every company should build its own community, whether it is a physical product or a service.

Below are the key strategies that On used to become the company it is today:

1. Creating a Great Product that Solves Pain Points and Fulfills the Needs and Wants of Its Target Customers:
   → Create a product so good that worldwide legendary athletes like Roger Federer decide to invest in the company and own 3% after being impressed by using the product without being affiliated in any way. Create a product that not only solves pain points but also fulfills the needs and wants of the customers.

2. Always Being Obsessed:
   → The founders were obsessed with their customers and providing a better experience. Even when everyone told them it would be “impossible” to beat the traditional and rising competitors in an extremely competitive market, the founders focused on providing a better experience for their customers.

3. Leveraging Creativity to Rewrite How Things Are Done:
   → On’s initiatives, such as the Cyclon program (6-month shoe subscription) and the dedicated re-commerce platform “Onward,” which allows individuals in the US to shop and trade their gently used On gear. These creative initiatives are not only making our world more sustainable but also strongly attract existing and future customers to use On products.

4. Building a Global Community from Day 1:
   → One of On’s biggest differentiating points compared to its competitors is the community aspect. On focuses heavily on creating and fostering a community for amateur to professional athletes who genuinely love to run and use On products. This strategy allows the company to communicate directly with its customers, build loyal customers worldwide, and result in brand advocacy, product development improvement, and more.

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Thank you so much for reading!

-Harry