Swiss running shoe brand On Running’s styles have quickly surpassed those of Allbirds to be the default footwear for many business casual outfits. And the brand continues to see a meteoric rise in sales.
The company’s earnings for the third quarter, reported Tuesday morning, showed a sales increase of 46% year-over-year, marking the seventh consecutive quarter of record sales for the brand. Total net sales were $540 million for the quarter. Sales grew the most in Asia-Pacific, at around 71%. However, the Americas remained the company’s largest market, in terms of pure sales, accounting for $294 million of the quarter’s revenue.
But the most notable element revealed in On’s earnings is its continued focus on DTC sales. While wholesale revenues were up by 42% in the last quarter, DTC is the main driver of On’s growth. Direct sales grew 54% over the last three months.
“The brand momentum for On’s footwear, apparel and accessories continues to convert into high sales growth across all channels,” said co-CEO Martin Hoffmann in the brand’s earning statement. “We are planning to add less additional wholesale doors in the future and to focus on our existing wholesale partners and our own DTC channels, e-commerce and own retail.”
To bolster the DTC strategy this quarter, On plans to pull out of an undisclosed number of wholesale stores, particularly in Europe and the Middle East, and replace them with openings of its own direct stores. Its newest store opened in Miami in October, bringing the total number of owned stores to 26. Based on the reduction in wholesale doors, On expects to see only high-single-digit growth in wholesale this quarter, while it predicts that DTC will drive a 21% increase in total sales through the holiday season.
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On’s focus on opening its own stores is key to profitable growth, according to Nikki Baird, vp of strategy at retail tech company Aptos.
“Brands get leverage from their stores,” she said. “It’s why omnichannel has been such a big benefit. Whether it’s pick-up-in-store or return-to-store or ship-from-store, when you leverage store inventory, labor and locations, you’re basically leveraging things you’re already paying for. So it may be easier and faster to invest in digital, but profitable growth is really only going to be found in stores.”
On’s success with direct-to-consumer sales comes at an interesting time for the model, as many other brands are struggling with it. Small DTC startups are having a harder time than ever finding funding. In 2021, venture capital firms poured more than $5 billion into DTC retail startups, but in 2023, that number dropped 97% to just $130 million. Large publicly traded brands are also having issues with DTC, as NIke’s re-embracing of wholesale earlier this year showed. Allbird, the original DTC footwear startup, has been in freefall over the last year as its sales have continued to crater.
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Caspar Coppetti, co-CEO of On, attributed the brand’s success to both operational and branding strategies. On has remained strict about avoiding promotions, and the full-price focus of its DTC channel has helped increase revenue. The brand has also benefited from a number of big publicity moments, including runner Hellen Obiri winning the New York City Marathon in early November while wearing On shoes.
“We are thrilled about the ongoing strength and momentum of the On brand,” Coppetti said. “We’ve seen exceptional On athlete performances on the streets, trails, tracks and tennis courts, alongside a number of innovative and exciting product launches. Hellen Obiri’s win at the New York City Marathon was of course a huge highlight and makes our team even more excited for the Paris Olympics 2024.”
