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The Chinese market is essential for On’s long-term success

Published 27 August 2021 in Finance • 4 min read

Maintaining Swiss sports shoe group On’s lofty $7-8bn valuation depends on faultless infrastructure and perfect execution in China, predicts Howard Yu, head of IMD’s Center for Future Readiness.

Swiss media has been full of reports about On’s planned Wall St debut, with valuations for the still small company reaching $7-8bn – but only top-flight brand building and ecommerce skills will allow for growth, said Howard Yu.

“That valuation is really high. There’s an opportunity, but also a warning down the road”, said Yu, who is also the LEGO Professor of Management and Innovation.

Justifying the price – an official range for the share sale has not yet been revealed – will depend on massive sales growth, particularly in the huge Chinese market.

“They will have to grow really big in China. Their priority must be to develop faultless local infrastructure and recruit powerful local celebrities and ambassadors for the brand”, Yu predicted.

Swiss tennis star Roger Federer is already on board, both as symbol and shareholder. But Yu cautioned that, while Federer generated significant name recognition, tennis remained a niche sport in China, limiting his local impact.

“Federer is a gentleman, tennis maintains a certain glamour, and Switzerland has something of a mythical image. But to win in China, you’ve got to engage the whole population.”

That means gaining key influencers and opinion leaders, and developing strong digital sales and distribution capability. “Roger Federer is certainly an asset. But without full scale digital capability, it’s useless”, Yu warned.


Roger Federer X On
On partnership with Roger Federer

Expanding sales in China requires using the local equivalents of Amazon and Instagram to engage consumers and popularize the special features of On products. Customers also need to be made aware of product personalisation potential and guaranteed fast shipment times, he said. Such attributes were particularly important for the young, trendy and digitally savvy Chinese buyers most interested in running shoes and athletic gear, said Yu.

On would also have to “cut through the noise” of other labels in the crowded and highly brand-conscious Chinese market. That would require expensive flagship stores, possibly along the lines of the Nike Labs, pioneered by the US group to engage customers.  While the IPO would raise essential funds for investment, “this is hard work”, Yu noted.

“On looks very solid, but has a rather traditional business model for production and distribution. But in China people like to be able to customise ‘their’ product on the company’s website. That’s a key part of the buying experience. And they want to order and pay online on their smartphones and without having to download an app”, he added.

Yu’s remarks recalled comments about speed and efficiency made by Jane Sun, chief executive of Group, China’s leading online travel platform. Ms Sun stressed the necessity of offering Chinese customers a vast range of services, all deliverable in minutes on a smartphone.

Some analysts have questioned the ability of On, which has fewer than 900 employees, to compete successfully in the long term against giants like Nike and Adidas. The US and German sports shoe and apparel makers have years of international experience and using sports stars to boost their products.

On, by contrast, has only recently turned profitable, while sales, though skyrocketing, remain modest compared with the giants. Revenues for the first half of this year leapt 85% to CHF 315.5 million ($344m), generating net profits of CHF 3.8m.  

On’s lofty potential stock market valuation compares to the more modest $2-3bn of trendy eyewear brand Wasby Parker, which specialises in selling directly to consumers, or the $1.7bn of sports shoe maker Allbirds. Gap, a brand seen widely as in decline, but which still generates about $16bn of annual sales, was worth about $11bn. “What justifies On’s premium”, Yu asked. 


Howard Yu - IMD Professor

Howard Yu

LEGO® Professor of Management and Innovation as well as the director of IMD’s signature program, Advanced Management Program (AMP)

Howard Yu is the LEGO® Professor of Management and Innovation as well as the director of IMD’s signature program, Advanced Management Program (AMP). He is the author of the award-winning book LEAP: How to Thrive in a World Where Everything Can Be Copied.

Howard Yu is the Strategic Resilience in a Disrupted World program director.


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