How On Is Balancing a Growing Wholesale Channel With DTC Ambitions

On just reported stronger than expected results for Q4 and full year — and sales in the wholesale channel were a major standout.

Wholesale sales for the Swiss running brand grew 104.3% to CHF 217.3 million (or about $235.32 at current exchange) in Q4, after slowness in prior quarters. For the full-year of 2022, wholesale grew 73.1% as the brand expanded its distribution from about 8,000 to 9,200 doors throughout the year.

On co-CEO and CFO Martin Hoffmann said in a call with investors that the strong numbers in the wholesale channel were a result of high demand and sell-through in the channel. For example, he noted that Q4 marked the strongest sellout quarter in history at Foot Locker, a key partner for the brand.

Despite this growth, On is being more selective with the retail partners it chooses to sell with as it doubles down on its DTC channels. On pulled out of 200 wholesale doors that were “less additive to the positioning of the brand,” in Q4, Hoffmann said. These stores lived mostly in the brown shoe and comfort space.

“It’s really about which consumers are we reaching with which product,” On co-CEO Marc Maurer told FN in an interview. “And we want to work with partners that are able to bring our products to life in a premium way and reach the respective consumers.”

At the end of Q4, On said it was in 150 Foot Locker doors, 166 JD Sports stores, 275 Fleet Feet stores and 58 of Dick’s Sporting Goods stores, the latter of which will increase to about 150 by the end of 2023. Moving forward, On will expand its wholesale presence with partners that elevate the brand.

At the same time, On is doubling down on its DTC share as well, which was about 36.4% for full year 2022.

“We continue to build strong direct connections to our customers and to invest into our DTC capabilities to drive stronger growth of our DTC channel compared to wholesale,” Hoffman said.

This DTC focus has been a common strategy for other footwear brands such as Nike, Adidas and Crocs in recent quarters. However, analysts have previously noted that direct channels can often yield lower profit margins than wholesale channels before taxes and interest. A 2021 report from BMO Capital Markets analyst Simeon Siegel noted this possible downside to the retail industry trend of brands nixing partnerships with different wholesalers to focus on key accounts and direct-to-consumer channels.

But according to Maurer, the brand is finding success with reaching new consumers in its own DTC channels “at great margins all at full price.” It’s also helping drive apparel sales. DTC sales for On grew 76.4% in Q4. And in North America, DTC sales grew faster than in wholesale in Q4. Plus, On recently rolled out its new website under the new domain on.com and has expanded its fleet of owned retail stores.

DTC growth doesn’t have to come at the expense of wholesale. As Maurer noted, when On opened its flagship store on London’s Regent Street earlier this year, it prompted a boost in sales to neighboring stores, like JD Sports.

“I think it’s very much a positive correlation between how we can grow the owned channels and how retailers can continue to grow,” Maurer said. “And we foresee that to remain the case for quite some time to come, also because we’re very careful in which partners we’re adding.”

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