Why On Running Could Be Worth $6 Billion

To become the global sneaker brand it is today, On Running had to overcome some challenges after launching in 2010. For one, it needed to attract shoppers well beyond its home base of Zurich, a small city not exactly known as a sneaker hotbed. It also needed to convince customers to choose its somewhat odd-looking footwear, with its midsole of segmented tubes, over products from established running brands like Brooks and Asics, not to mention giants such as Nike and Adidas.

It’s done both. Today, On boasts fans in more than 60 countries and sells in more than 8,100 stores worldwide. The next step in its expansion is an impending IPO on the New York Stock Exchange, which it expects will raise as much as $622 million and value it at more than $6 billion, the company revealed in a regulatory filing this week. To put that figure in perspective, Adidas just sold Reebok — a faded but still widely recognised and valuable name — for $2.5 billion.

On is a fast-growing upstart in the sneaker business and among those supercharged by a pandemic boom in running. In 2020, its global sales were 425.3 million Swiss Francs (about $464 million), rising 59 percent from the previous year. In the first six months of 2021, sales already reached 315.5 million Swiss Francs. It also brought in a net income of 3.8 million Swiss Francs during the period, after a loss of 27.5 million Swiss Francs for the full year in 2020. By comparison, Allbirds, the other big sneaker company gearing up for an IPO soon, reported a loss of $21.1 million in the first half of this year.

The key to On’s success, it says, is the unique feel of its sole. “It’s all based on one radical idea,” the company notes on its website and stated in its filing. “Soft landings followed by explosive take-offs. Or, as we call it, running on clouds.”

It started out trying to build a better shoe for runners, but its trajectory shows it growing beyond that market into a bigger lifestyle brand. It’s a lucrative path, if On can get it right. Nike and Adidas, for example, got their starts focusing on athletes. On now advertises shoes for all-day wear and has a line of tennis shoes with Swiss star Roger Federer, who invested in the company in 2019 and serves as a prominent face for the brand. If On successfully makes the transition, it could eventually surpass its competitors in the running market.

“On makes a great product that runners really like,” says Matt Powell, the sports industry analyst at research firm NPD Group. But they aren’t the only ones buying its shoes these days, he notes. The distinctive design is helping them catch on as casual footwear, a market that’s much larger than performance sneakers, Powell says.

These shoppers are key to On’s growth plans. “We started with the run specialty channel and then selectively expanded to additional premium retail partners to reach a broader audience,” On said in its filing. The company already sells at a number of upscale retailers, including Ssense, Dover Street Market, and MatchesFashion, and means to keep adding more partners on the premium end as well as branching out to new customers.

It’s also growing in other ways, beefing up its direct-to-consumer channels, for instance, which currently make up about 37 percent of On’s sales. It’s further developing its e-commerce operations, as well as opening physical stores. At the end of last year, it opened its first brick-and-mortar location in New York.

North America, in fact, has become On’s largest market since it entered the US in 2013. It’s another strength for the company. The US is the world’s largest market for sports footwear, including performance, outdoor, and “sports-inspired” shoes, projected to reach $36 billion according to Euromonitor. Just over half On’s global sales came from North America in the six months through June 30.

On’s signature cushioning was the work of co-founder Olivier Bernhard, a former duathlon and Ironman champion. He wanted padding in the centre of the foot for landings but a firm feel at the front of the shoe for pushing off into the next stride. He experimented by cutting a garden hose into pieces and securing them to the bottom of an existing shoe. Bernhard and two friends — David Allemann and Caspar Coppetti, On’s other co-founders — took the idea to an engineer and refined it into what On calls CloudTec. It’s the basis for On’s Cloud sneaker, a popular model that runs about $130.

Innovation has remained central to On’s brand since, helping it gain trust among its core audience of runners and athletes. To develop new products, it has sought partners such as the Swiss Federal Institute of Technology. It has introduced items designed for speed, trail running, and added cushioning. It also makes clothing, though it’s the original running platform that remains the core of the company.

There are challenges ahead. All the footwear On produced so far this year came from 13 sites run by 10 suppliers in Vietnam, a country whose factories are currently being hobbled by Covid outbreaks and where local freight operations have ground to a halt. It’s unclear when these disruptions will ease. On expects them to affect its operations for the rest of 2021 and into 2022, though to date it has only experienced temporary disruptions due to Covid.

Still, to mitigate future risks, the company will start producing shoes, clothes, and accessories at eight new suppliers in Vietnam, Lithuania, and Turkey. It needs that capacity for another reason too: to supply enough sneakers to the rising number of shoppers who want to get their hands on a pair.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Valentino flags couture ambitions, recovery from coronavirus slump. Chief executive Jacopo Venturini said a new merchandising strategy and upmarket repositioning helped sales rise almost to 2019 levels. In the first half of 2021, revenue jumped 64 percent year-on-year, to €574 million ($679 million), after being hit hard by lengthy pandemic shutdowns in Italy.

Ferragamo retail sales close to pre-Covid levels in July, August. The Italian luxury label said on Tuesday it returned to operating profit of €66 million ($78 million) in the first half of 2021 from a loss of €72 million in the year-ago period.

Tod’s posts strong sales growth but still lags behind 2019 levels. The Italian shoemaker, which also owns Roger Vivier, Hogan and Fay, announced on Wednesday its sales in the first half of 2021 increased 55 percent compared to the same period last year, totalling €398 million ($470.6 million), but is still down 11 percent relative to pre-pandemic times.

The Independents acquires Bureau Betak at valuation north of $70 million. The events production company, known for staging some of fashion’s most impactful shows, generated more than $100 million in 2019. The deal is a bet on the return of big physical fashion events, albeit with a digital dimension.

Lululemon raises full-year forecast betting on strong athleisure demand. The sportswear maker saw net revenue rise to $1.45 billion in the second quarter, beating estimates of $1.34 billion, according to IBES data from Refinitiv.

Dior inks two-year partnership with football club Paris Saint-Germain (PSG). Dior artistic director Kim Jones has designed the team’s official wardrobe for the next two seasons, marking the luxury brand’s first tie-up with a sports club. Previously, PSG was tied to Hugo Boss.

Hong Kong moves to reopen China border, boosting retail stocks. Visitors from China will be allowed to skip the strict quarantine process required for most arrivals, a key first step toward reopening the border with the mainland and reviving a flow of visitors that’s long been crucial to the local economy.

China accuses Canada Goose of ‘misleading’ consumers in ads. China fined the high-end parka maker because it claimed to use “the warmest material from Hutterite,” even though most of its products are made with other material. Chinese state media criticised the ads as evidence Canada Goose hasn’t “carefully studied China’s law and ignores changes in the Chinese market.”

Everlane exits China market. The US retailer will follow in Urban Outfitters’ footsteps and close its Tmall Global store on Sept. 12, citing the Covid-19 pandemic and an adjustment in global strategy as contributing factors.

THE BUSINESS OF BEAUTY

Mexico bans animal testing for cosmetics. The new law also bans the manufacture, import and marketing of cosmetics tested on animals elsewhere in the world.

Indian superstar Deepika Padukone to launch beauty, lifestyle brand. The Indian actress, who boasts more than 100 million followers across social media accounts, will launch a lifestyle brand in 2022, with beauty and skin care set to be its first categories.

PEOPLE

Nensi Dojaka wins LVMH prize. The London-based womenswear designer beat out a shortlist of nine finalists, including Bianca Saunders and Christopher John Rodgers, for the prestigious fashion prize.

Etro names Dolce & Gabbana executive Fabrizio Cardinali CEO. Cardinali joins the company later this year from Dolce & Gabbana, where he most recently served as chief operating officer and a member of the company’s board. He has also previously held chief executive roles at Richemont-owned brands including Lancel and Dunhill.

Veronica Wu steps down from VF Corp. board. The Silicon Valley-based venture capitalist’s departure comes after a leaked email published by Axios showed her downplaying racism in the US and calling Black Lives Matter “the true racists.” The owner of brands including Vans, The North Face, and Supreme, said in a statement Wu had decided to step down from the board immediately and that the decision “was not the result of any disagreement with VF on any matter relating to VF’s operations, policies or practices.”

Ex-models go public with allegations of assault by former elite model boss Gérald Marie. French investigators last week collected testimonies from several women who say they were raped or sexually abused by Marie, and more than five others are set to be interviewed in the coming week, Agence France-Presse reports, citing sources close to the inquiry. Victims of the alleged assaults who are speaking out publicly include Swedish model Ebba Karlsson and former BBC journalist Lisa Brinkworth.

MEDIA AND TECHNOLOGY

Vogue names new heads of editorial content for French, Italian Editions. Eugenie Trochu, former editor of Vogue.fr, will helm Vogue Paris, while Francesca Ragazzi will take the lead at Vogue Italia, after having served as the magazine’s fashion market director. The appointments follow a series of high-profile departures as Condé Nast streamlined its flagship publication. Both editors will work under Vogue’s European editorial director (and British Vogue editor-in-chief) Edward Enninful.

Marie Claire US to cease print publication. The American fashion magazine, which was partially owned by Hearst until May, will become a digital-only publication, according to the New York Post. The paper said subscribers would be offered print editions of Hearst’s Harper’s Bazaar instead.

Facebook and Ray-Ban release smart glasses. The companies debuted the product, called Ray-Ban Stories, on Thursday. It retails for $299 and is for sale at both Ray-Ban stores and on its website. The product is available in the US, the UK, Australia, Canada, Ireland and Italy.

JD.com launches new resale platform. On the new platform, titled Jing Zhi, sellers can host second hand products and pay a 6 percent commission or sell goods directly to JD.com’s AiHuiShou second hand division.

Alibaba’s logistics arm invests in European last mile. Cainiao, Alibaba’s logistics business, announced Friday the launch of its locker network in Spain and France in the Chinese retail giant’s bid to ramp up efficiency. While Cainiao’s network currently spans 170 lockers in Madrid, Barcelona and Paris, the firm plans on expanding the programme to 2,000 lockers across the two countries by March 2022.

PayPal to buy Japan-based Paidy in $2.7 billion deal. The largely cash deal will expand PayPal’s capabilities in Japan (the world’s third-largest e-commerce market), another step for the brand toward claiming the top spot in the buy-now, pay-later industry, which is experiencing a pandemic-led boom.

Shopee owner looks to raise $6.3 billion in Southeast Asia’s biggest fundraising. The funding round marks Southeast Asia’s largest ever capital raising, and is the second major funding round in less than a year for the $185 billion e-commerce and gaming company.

Compiled by Joan Kennedy.