A piece of hose stuck to the bottom of a shoe. That is the origin of a company that today is worth 8,606 million dollars (7,968 million euros) on the stock market. In 2010, Olivier Bernhard ended his life as a professional athlete. He had specialized in triathlons and was several times Ironman world champion, one of the toughest disciplines combining 3.86 kilometers of swimming in the open sea, 180 kilometers of road cycling and 42.2 kilometers of running. In the Swiss Alps, where he lived, he was mulling over how to create sneakers that would give wearers such comfort that they felt like they were floating on air. He showed the prototype to several friends, also former athletes, and they decided to patent it. That was the birth of the shoe and sportswear firm On, which has tennis player Roger Federer among its shareholders.
13 years have passed since then and the company has carved a niche for itself in the market, little by little stealing market share from brands with much more history behind them such as Adidas, Nike, Puma or New Balance. Between January and March of this year, On broke its quarterly revenue record with sales valued at 420.2 million Swiss francs (433 million euros). In addition, in this period it achieved a profit of 44.4 million -in the entire financial year 2022 the profits totaled 57.7 million-. This growth has been rewarded by investors: since January, the company’s shares have increased in value by 54%, making it one of the stars of the stock market.
“The brand is experiencing a great moment in all the regions where we are present and in all our products and sales channels,” said Martin Hoffman, co-CEO and CFO of On, in the note to investors that accompanied the presentation of the quarterly accounts. “We have benefited from the end of the problems in the supply chain. We have always highlighted the importance of our multi-channel strategy and we are very happy with the evolution of the new stores that we have opened”, he added.
On’s marketing strategy is not based so much on large advertising campaigns like those that characterize the greats in the sector, but rather on supporting elite athletes whom it turns into its ambassadors. After the good results at the start of 2023, the company has raised its revenue forecast for the year as a whole to 1,740 million Swiss francs —which would mean an increase of 42% compared to 2022 revenue. In the presentation of the quarterly accounts, On’s managers acknowledge that the victories of the athletes they sponsor are key to achieving this objective. And he highlights as an example the first place of Hellen Obiri in the Boston marathon or the triumph of the tennis player Iga Swiatek in the Stuttgart Open.
A luxury signing
In 2019, On became known to the general public by announcing that they had the endorsement of their compatriot Federer. “It is a pride to be able to count on Roger not only as an investor in the company, but as a friend and partner who spends many hours with us in the innovation laboratory to improve his line of shoes,” the five founders acknowledge in a letter addressed to to shareholders and which is hosted on its corporate website. Two years after this signing of bells, in September 2021, On debuted on the New York Stock Exchange. After a bullish opening —in the placement the shares were valued at 24 dollars and a few months later they reached 51 dollars—, the price deflated due to the problems of the suppliers first and due to the increase in the cost of raw materials due to the war in Ukraine after. However, the stock is back in favor with the market in 2023 and is already trading at almost $28 per share after hitting lows a few months ago at $16 per share.
On’s success has not gone unnoticed by its competitors. At the beginning of May, the CEO of Adidas, Bjorn Gulden, recognized in a meeting with analysts that brands like On and Hoka are changing the dynamics of the market by making their shoes used daily and not just for sports. “We are working hard to have a response to this new business proposal as soon as possible,” said Gulden, in statements collected by Bloomberg.
The three pillars in the commercial strategy of the Swiss manufacturer are innovation, the use of alternative materials (in many cases recycled) and sustainability. From a geographical point of view, the United States is its main market; there it generates 60.4% of sales. Europe is in second place, contributing 29% of its income, and where it has the most room for growth is in Asia, since this market barely accounts for 6.6% of its turnover.
In addition to the search for new markets, the company also wants to increase diversification in products and sales channels. In the first case, 95% of its sales come from sneakers. The range of sports shoes has only increased in recent years and they already have models for training on the road, trail, competition, tennis, mountain and urban sports. In terms of distribution, sales through distributors outside the company continue to be the majority, although sales in own stores doubled in 2022 and now account for 36% of total turnover thanks to the fact that they have accelerated the opening of stores .
“Our goal is long-term growth. When we enter a new market we don’t stake our cards on being successful in the first season,” Hoffman said in an interview with Bloomberg. This strategy, however, is not shared by all analysts who cover the stock. Brokerage Williams Trading recently downgraded its recommendation on the company to sell from hold. “The aggressive growth plan is achieving impressive results in the short term, gaining market share from almost all the big players in the sector with the exception of Hoka and New Balance,” argues Sam Poser, an analyst at the firm, in his note. “However, in the long term the health of On’s brand is not being protected as it has expanded its product range and inventories too quickly,” he adds.
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