On Holding AG's Diversification into Apparel as a Strategic Growth Lever: Assessing Non-Footwear Revenue Streams for Long-Term Value Creation

On Holding AG's (ONON) strategic pivot into apparel has emerged as a critical catalyst for its financial trajectory, offering a compelling case for long-term value creation and stock outperformance. While the company remains synonymous with its innovative footwear, the apparel segment's explosive growth- up 46.7% to CHF 101.0 million in 2024-demonstrates how diversification into non-footwear categories can unlock new revenue streams and insulate the business from sector-specific volatility. This analysis examines how On's apparel strategy, underpinned by direct-to-consumer (D2C) dominance, technological differentiation, and alignment with global market trends, positions it to outperform peers in the premium athletic apparel space.

Apparel as a High-Margin Growth Engine

On's apparel segment has not only grown at a blistering pace but also contributed to a broader margin expansion. In Q3 2025, the company achieved a record 65.7% gross profit margin, outpacing industry benchmarks like Nike (41.9%) and Under Armour (48.1%). This margin superiority is driven by the D2C model, which accounted for 48.8% of Q4 2024 sales and grew by 27.6% year-over-year. By controlling the customer relationship and eliminating intermediaries, On captures higher margins while gathering data to refine product offerings and marketing strategies.

The apparel segment's rapid adoption of D2C is particularly noteworthy. In 2024, D2C sales surged to CHF 314.7 million, reflecting a 27.6% year-over-year increase. This channel's scalability and profitability align with the company's ambition to expand its retail footprint in high-growth markets like China, where On's Asia-Pacific sales jumped 94.2% year-over-year to CHF 144.9 million. Such geographic and channel diversification reduces reliance on any single market, enhancing resilience against macroeconomic headwinds.

Technological Differentiation and Brand Premium

On's competitive edge lies in its ability to blend innovation with premium pricing. The company's proprietary CloudTec cushioning technology, initially a footwear hallmark, is now being integrated into apparel to create a cohesive product ecosystem. For instance, the upcoming Cloudpoom Max and Zendaya-collaboration lines aim to extend the brand's technological narrative into apparel, fostering cross-category loyalty.

This innovation-driven approach has enabled On to command premium pricing, even in a crowded market. Co-Founder David Olyavan emphasized in 2024 that the brand's "premium positioning" is a key differentiator, allowing it to compete with established giants while maintaining a 33.2% constant-currency sales growth rate. The apparel segment's 86.9% sales increase in Q3 2025 further underscores the effectiveness of this strategy.

Strategic Alignment with Market Trends

The global premium athletic apparel market is projected to grow at a 8.5% CAGR from 2025 to 2030, reaching USD 174.32 billion by 2030. On's apparel strategy is meticulously aligned with this trajectory. The athleisure trend, which accounts for 68.8% of the premium sportswear market, is a natural fit for On's product design philosophy of blending performance with everyday wearability. Additionally, the company's focus on sustainability-via initiatives like the Onward™ resale platform and Cyclon™ recycling program- resonates with eco-conscious consumers, a demographic expected to drive 9.2% CAGR growth in the Asia-Pacific region.

Financial Resilience and Future Outlook

On's low debt-to-equity ratio of 0.36 provides ample flexibility to fund R&D, marketing, and retail expansion. Despite high operating expenses, these investments are justified by the need to sustain brand equity and fend off competition. The company's 2025 sales target of CHF 2.94 billion hinges on apparel's continued outperformance, with management projecting a 40.6% year-over-year sales increase in Q4 2024.

Conclusion: A Compelling Case for Stock Outperformance

On Holding AG's apparel diversification is not merely a revenue diversifier but a strategic lever for margin expansion, brand differentiation, and market alignment. With a 46.7% growth rate in 2024 and a 65.7% gross margin in Q3 2025, the segment exemplifies how non-footwear revenue can drive long-term value. As the premium athletic apparel market expands, On's D2C model, technological innovation, and sustainability focus position it to outperform peers and deliver robust shareholder returns.