Why Hoka Is Slowing and On Keeps Growing

In the race to become the next sneaker giant, Hoka’s pace is flagging while On shows no signs of slowing.

The two European brands are regularly mentioned in the same breath as the challengers shaking up the running market and putting a scare in behemoths like Nike and Adidas. Hoka was born in the French Alps in 2009, On in the Swiss Alps in 2010. Both are known for their distinctive midsoles — an exaggerated, stacked platform in Hoka’s case, and an array of tubular segments in On’s — and just as importantly, for their runaway growth over the past several years.

But recently, their paths have diverged. Last week, Hoka-owner Deckers Group reported that Hoka’s sales increased just 10 percent in the quarter through March 31, with growth in its direct-to-consumer channels of 23 percent. Those numbers would be welcome to many companies, but they signalled a significant deceleration from Hoka’s typical growth rates, sending Deckers’ stock down more than 19 percent since, as investors wonder whether the brand is losing momentum and seeing performance more typical of a mature brand.

On, meanwhile, reported 43 percent year-on-year growth in the same period, beating Wall Street’s expectations. Sales in its DTC channels grew 45.3 percent.

“Overall, Hoka has had tremendous growth, but there is increasing competition, and the need to constantly update and innovate is required to continue to maintain the growth metrics,” said Dana Telsey, chief executive of Telsey Advisory Group, which downgraded Deckers’ stock after its recent results.

The question now is whether the slowdown is temporary. Deckers’ leadership attributed Hoka’s results to slower acquisition of new customers due to macroeconomic uncertainty; high levels of promotion for outgoing product models as the brand introduces new ones; and shoppers opting to move towards wholesale accounts to try on and buy new products, which hit its DTC sales. It expressed confidence that performance will pick up as it moves through these issues.

Both Hoka and On, however, are looking for their route forward as they strive to maintain their growth, and they could see different levels of success in their strategies.

For Hoka, a brand that built its customer base around performance-running, it’s working to reach a new lifestyle consumer, evident through actions such as its first luxury collaboration with Marni this year. For On, which has long-established wholesale relationships with fashion and lifestyle retailers around its CloudTec sneakers, as well as an ongoing collaboration with Loewe, the brand is shifting gears to emphasise more innovative performance-focussed products, like its Cloudboom Strike sneakers made with LightSpray technology that podiumed the Kenyan distance runner Hellen Obiri at this year’s Boston Marathon.

Victor Diaz, founder of the fashion-forward specialty running retailer Renegade Running, believes both brands have achieved recent wins with their respective strategies. Diaz currently finds that the best middle and long-distance elite runners today are running for On rather than Adidas or Nike. And when it comes to high-heat lifestyle sneaker releases, he believes Hoka has quickly come up to speed with collaborations and can rival larger brands such as New Balance. But On’s current streak of innovation around supershoes could leave Hoka in the dust.

“Hoka hasn’t crossed that threshold yet. They’re still struggling to find their racing shoe or their fast shoe,” said Diaz.

Strengths and Weaknesses

Diaz said that Hoka and On are both strong brands that customers continue gravitating towards for different reasons. When it comes to who’s currently winning in regards to selling high-priced innovation, he finds that his 25 to 35-year-old customer base is paying up for On’s premium supershoes, such as its $330 Cloudboom Strike LS sneakers or its $220 Cloudmonster Hyper. Hoka has lagged behind on innovation in his view, and while it continues to resonate with trail runners, it’s still catching up to On in the lifestyle market.

However, he feels both brands are losing grip of a middle-market they once dominated and allowing larger players to grab a hold, pointing to shoes such as Adidas’ Adizero EVO SL and Asics’ Novablast.

“There are shoes [by Asics, Nike and Adidas] that just feel more lively than anything that Hoka and On are doing in that middle-range, $140 to $160 price point,” said Diaz.

Hoka is hoping to reassert its grip with recent updates to franchises like the Bondi 9 and Clifton 10, but its rollouts for these products haven’t gone as smoothly as planned. The brand has only had limited colour assortments upon release, while discounted pairs of older styles have remained widely available through wholesale channels, eating away Hoka’s DTC sales.

On, meanwhile, has been able to mitigate any competitive challenges with a more diversified offering that includes products for tennis, hiking and training. These categories also open up more avenues for future growth.

“New categories build a broader positioning for the brand as it grows into a perceived white space in the premium segment of the market,” wrote William Blair consumer research analyst Dylan Carden in a recent research note. “Power of the brand in turn opens new categories, where the company will follow a similar playbook, building performance credibility from which it can offer broader lifestyle products.”

Setting a New Pace

But analysts who are still bullish on Deckers believe Hoka’s slower growth this quarter wasn’t about cooling demand. UBS analyst Jay Sole, for instance, said in a recent note that he anticipates Hoka’s growth will improve with more colours arriving for its best-selling franchises, old products being cleared out and other new product launches coming down the pipeline.

“I’m not really seeing the demand erosion,” said Sam Poser, a Williams Trading equity analyst. “My guess is in their next quarter, we’re going to see some kind of a flip where the domestic DTC business in the US inflects positively and is better than wholesale.”

Hoka is also gaining ground outside of the US as it builds awareness globally. Deckers shared on its recent earnings call that Hoka’s international sales now represent 34 percent of its total revenue, with chief financial officer Steven Fasching adding that “internationally [Hoka] would outpace what we’re seeing in the US.” Deckers’ chief executive Stefano Caroti shared that Hoka was “moving up brand rankings” with specialty partners in the UK, Germany and Italy, and that it was “increasing its partner footprint in key cities” in China. The brand is approaching international growth in a meticulous and cautious way by focussing on sell-ins rather than sell-throughs, according to Poser.

And even with brands like Nike and Adidas putting out new running styles that are clicking with shoppers, Hoka remains a well-known — and trusted — name in the running world.

“Very serious runners, because of the risk of injuries, like to stick to products they already know,” said Cole Townsend, founder of the running-fashion newsletter and online directory Running Supply.

For that reason, many runners will still gravitate towards Hoka for daily trainers. On, meanwhile, still has work to do to win over legions of more serious runners, though Townsend does believe the brand is making inroads with professional runners.

Granted that lifestyle is a segment On has a stronger footing in, analyst Telsey believes that Hoka’s authenticity and connection to customers such as Townsend will move them to try new offerings from Hoka, in running and beyond.

“They’re going through a period of transition a bit given the new product that’s being introduced,” said Telsey.