On Holding's Pricing Power and Strategic Resilience Amid Tariffs and Global Expansion

In a fragmented sportswear market dominated by giants like Nike and Adidas, On Holding AG (ONON) has carved out a unique niche through its premium pricing, direct-to-consumer (DTC) strategy, and agile regional diversification. As global tariffs and supply chain disruptions reshape the industry, the Swiss-based brand's ability to maintain profitability while expanding its footprint makes it a compelling long-term investment.

Premium Positioning: Justifying Price Increases in a Competitive Landscape

On Holding's success begins with its premium brand identity. The company's footwear, priced between $150 and $230, leverages cutting-edge technology like CloudTec® cushioning—offering 82% energy return and 35% lighter construction than industry averages. This innovation, combined with high-profile partnerships (e.g., Zendaya, Roger Federer), and sustainability initiatives (47% recycled materials in 2025), reinforces its value proposition. Unlike mass-market competitors, On's pricing strategy targets performance-conscious consumers willing to pay a premium for differentiation.

In Q1 2025, On's gross margin expanded to 59.9%, up from 59.7% in Q1 2024, despite rising tariffs. This resilience stems from disciplined pricing and a focus on high-margin DTC sales, which now account for 38.1% of revenue. By contrast, Nike's gross margin in 2025 is projected at 43%, while Adidas' hovers near 40%. On's ability to absorb cost pressures without sacrificing margins underscores its pricing power.

DTC Growth: A Catalyst for Margin Expansion and Customer Loyalty

On's DTC strategy has been a cornerstone of its growth. In Q1 2025, DTC sales surged 47.2% year-over-year, contributing to 41.1% of total revenue. This channel not only generates higher margins but also provides direct access to customer data, enabling hyper-personalized marketing and product development. For example, the company's AI-driven e-commerce platform tailors recommendations based on user behavior, driving repeat purchases.

The DTC model also insulates On from wholesale channel volatility. While Nike and Adidas rely on third-party retailers for 60–70% of sales, On's direct engagement with consumers fosters brand loyalty and reduces dependency on external partners. This is particularly critical in a market where tariffs and inflation are forcing brands to rethink distribution.

Regional Diversification: Mitigating Risks and Capturing Growth

On's geographic expansion has been a masterclass in strategic resilience. The Asia-Pacific region, now a key growth driver, saw a 130.1% year-over-year sales increase in Q1 2025. This success is attributed to localized campaigns and a focus on high-growth markets like China and India, where rising disposable incomes and urbanization are fueling demand for premium activewear.

Meanwhile, the U.S. market—where tariffs on Vietnamese imports rose to 20% in 2025—has been navigated through supply chain diversification. On is shifting production to lower-cost hubs like India and Mexico while leveraging automation to offset labor costs. This agility contrasts with legacy brands like Nike, which face steeper challenges due to their reliance on traditional manufacturing ecosystems.

Tariff Mitigation: Balancing Cost Pressures with Pricing Power

The 2025 U.S. tariff hikes on Vietnamese imports posed a significant threat to On's margins, with potential headwinds of 150–200 basis points. However, the company's premium positioning allowed it to absorb these costs through strategic price increases and operational efficiency. For instance, a $10 price hike on lifestyle-focused products in 2025 was offset by strong demand, demonstrating the elasticity of its customer base.

On's financial strength further bolsters its resilience. With CHF 924.3 million in cash reserves as of 2024 and a gross margin of 60.6%, the company has the flexibility to invest in R&D and marketing without compromising profitability. This contrasts with smaller competitors, which lack the capital to navigate macroeconomic headwinds.

Investment Thesis: A Long-Term Play in a High-Growth Sector

On Holding's strategic pillars—premium pricing, DTC expansion, and regional diversification—position it as a standout in the $298 billion global sportswear market. The company's 2025 full-year guidance (CHF 2.91 billion in net sales) reflects confidence in its ability to outperform industry peers. Analysts project a 28% constant currency growth rate, with DTC sales expected to grow at a 28% CAGR.

For investors, On represents a rare combination of innovation, brand equity, and financial discipline. While short-term risks like currency fluctuations and U.S. tariffs persist, the company's agility and focus on high-margin growth areas mitigate these concerns.

Conclusion: A Resilient Brand for the Future

In a market where legacy brands struggle with margin compression and shifting consumer preferences, On Holding's premium positioning and DTC-driven model offer a blueprint for sustainable growth. Its ability to innovate, adapt to tariffs, and capture emerging markets makes it a compelling long-term investment. For those seeking exposure to the premium sportswear sector, On's strategic resilience and financial strength provide a strong case for inclusion in a diversified portfolio.