Premium Sportswear's Resilient Growth Amid Tariff Uncertainties

In a global trade environment marked by escalating tariffs and geopolitical volatility, premium sportswear brands like On Holding (ONON) and Adidas (ADS.DE) have demonstrated remarkable resilience. Their ability to navigate challenges while maintaining profitability and brand relevance offers critical insights for investors seeking exposure to high-margin, innovation-driven sectors. This article evaluates their strategic positioning, margin resilience, and brand-led demand dynamics in 2025, highlighting why these companies remain compelling long-term investments.

Strategic Positioning: Innovation and Diversification as Cornerstones

On Holding and Adidas have adopted distinct yet complementary strategies to counter U.S. tariff pressures. On, the Swiss premium footwear brand, has leveraged product innovation and supply chain agility to sustain growth. Its 2025 launches—Cloudsurfer 2 and Cloud 6—combine proprietary CloudTec® technology (82% energy return) with lifestyle appeal, driving a 99% surge in apparel sales and a 93% jump in accessories revenue. These innovations, coupled with a 43.4% year-over-year DTC growth in Q4 2024, underscore On's ability to command premium pricing ($150–$230 per pair) while expanding beyond core running footwear.

Adidas, meanwhile, has focused on localized production and AI-driven supply chain optimization. By shifting 66% of U.S.-bound footwear production to Vietnam and Indonesia and exploring nearshoring in Mexico and Brazil, the brand mitigates exposure to China's 150–200 basis points margin pressure. Its integration of blockchain for supply chain transparency and AI for demand forecasting has improved responsiveness to disruptions, enabling Adidas to maintain a 51.7% gross margin in Q2 2025—well above Nike's 44%.

Margin Resilience: Pricing Power and Operational Efficiency

Both companies have fortified their margins through disciplined cost management and pricing strategies. On's 61.5% gross margin in Q2 2025 (up 1.6 percentage points year-over-year) reflects reduced discounting, lower freight costs, and a 41.1% DTC sales share. Its Lightspray™ manufacturing technology, which minimizes waste and enhances sustainability, further supports margin stability.

Adidas, despite a $230 million tariff-related cost hit in H2 2025, achieved a 9.2% operating margin in Q2, driven by 14% currency-neutral revenue growth and operating leverage. The brand's focus on premium models like the Samba and Campus—which command higher margins—has offset cost pressures, while AI-driven logistics reduce inventory holding costs.

Brand-Led Demand: Lifestyle Marketing and Consumer Engagement

Premium sportswear is no longer just about performance—it's about lifestyle and identity. On's partnerships with figures like Roger Federer and Zendaya, alongside a $18.2 million 2023 marketing budget, have reinforced its premium positioning. Its 3.8% social media engagement rate (vs. 2.5% for Nike) and 350 flagship stores in high-traffic locations (e.g., Tokyo's Harajuku) create a direct emotional connection with consumers.

Adidas has similarly prioritized localized marketing, investing heavily in U.S. college sports and collaborations with American athletes. This strategy has driven a 12% Q2 2025 DTC revenue growth, with footwear and apparel categories outperforming. The brand's “global brand with a local mindset” approach ensures relevance in diverse markets, from Europe to Asia-Pacific.

Tariff Mitigation: Proactive Hedging and Scenario Planning

Both companies have embedded tariff resilience into their financial planning. On's 2025 guidance includes a 60.5–61.0% gross margin range, factoring in U.S. reciprocal tariffs. Its $924.3 million cash reserves provide flexibility to absorb short-term shocks. Adidas, meanwhile, has raised its full-year 2025 operating profit guidance to €1.7–1.8 billion, despite acknowledging a €200 million additional tariff cost in H2.

The U.S.-China tariff truce extension (until November 10, 2025) offers temporary relief, but both brands are preparing for long-term volatility. On's 38–40 week product iteration cycle—driven by 157,000+ annual customer inputs—ensures rapid adaptation to shifting demand and trade policies.

Investment Implications

For investors, On Holding and Adidas represent high-conviction plays in a sector poised for sustained growth. On's 28% constant currency revenue guidance for 2025, coupled with a 17.0–17.5% EBITDA margin target, suggests strong operational leverage. Its focus on sustainability (67% carbon-neutral products in 2025) aligns with Gen Z's eco-conscious preferences, a $35 billion market segment where On already holds a 14% share.

Adidas' 14.2 forward P/E ratio and 6.8% free cash flow yield make it an attractive value play, particularly as it navigates near-term tariff challenges. Its AI and blockchain-driven supply chain innovations position it to outperform peers in a post-pandemic world where agility is paramount.

Conclusion

The premium sportswear sector's resilience in 2025 underscores the power of brand equity, operational agility, and strategic innovation. On Holding and Adidas have not only weathered tariff headwinds but also transformed them into opportunities for differentiation. For investors, these companies exemplify how proactive supply chain management, pricing discipline, and consumer-centric strategies can drive long-term value creation—even in a volatile global trade environment. As the sector evolves, those who prioritize brands with robust margin resilience and a clear vision for the future will be well-positioned to capitalize on the next phase of growth.