There isn't another running shoe or athletic wear brand that could come close to challenging Nike(NYSE: NKE) right now. Its lead is so large that its trailing 12-month sales are more than pretty much all of its competitors' combined.
But it wouldn't be the first giant that became a dinosaur. I wouldn't worry about it yet, but I would take a look at some younger companies that are making their mark and standing out even against titans like Nike.
On Holding(NYSE: ONON) is a relatively new company that's making a huge splash on the athletic scene, and instead of taking a page from Nike's playbook, it's writing its own.
Dreaming on
On is a Swiss-based athleticwear company that gained attention for its On Cloud Technology running shoes, which feature a distinctive sole. Its footwear, which comes with a premium price tag, has gained traction among an upscale clientele, and the company is growing by leaps and bounds.
Sales increased 27.8% in the 2024 second quarter, and management is guiding for a 30% increase for the full year. It's coming from a mix of strong direct-to-consumer channels and wholesale distribution deals, as well as digital and physical store channels.
It has a high rate of full-price sales, which is a benefit of being a premium brand. Combined with lower freight costs, it led to gross margin expansion from 59.5% last year to 59.9% this year. Net income increased more than 800%, and net margin swelled from 0.7% to 5.4%.
On recently released a promotional campaign called "Dream Together," featuring some of its celebrity endorsers. Unlike Nike, it features a slew of athletes you might not know about and few prominent names. In fact, most of its athletes didn't even medal in the Olympics; out of 65, only one won gold, another won silver, and four more won bronze. On is targeting the serious athlete, the work, and the spirit of sport.
Part of the campaign is a lifestyle collaboration with actress Zendaya, which tells you that On is looking to expand its target market beyond athletes. Bringing in non-athletes brings home its message of "together," whether someone's an athlete or not.
On's campaign has a markedly different feel than the typical Nike one. It's less about winning, and just generally more toned down. That's something that can resonate with both the affluent market it targets, which often doesn't want flashy, and a mass consumer who's looking for quality shoes instead of hype.
Nike just isn't doing it
Nike is still, by far, the brand to beat in this game, and its message speaks to the millions of customers who prefer its footwear over all others. But sales have been falling, and management expects it to get worse before it gets better. Revenue dropped 2% from last year in its fiscal 2024's fourth quarter (ended May 31), and management is expecting 2025 first-quarter revenue to decline 10%.
There are all sorts of reasons why Nike hasn't been performing well, such as a loss of focus on the consumer or a diluted message. It's trying to figure out clearer messaging, like On's, but since it targets a larger demographic, that's no simple feat.
Nike CEO John Donahoe is pinning a lot of it on a slowdown in innovation. That's what allowed companies like On, which bring something new to the table, to excel. Donahoe committed to getting back to Nike's history of innovation, which is what typically draws in customers. He noted that it's been investing in the performance collection, and it grew by double digits in the fourth quarter.
Part of what hampers a company like Nike is its size, and it's rolling out new operational processes to respond to consumer demand more quickly.
Can On run past Nike?
I wouldn't make any predictions about On knocking Nike off its perch any time soon. Nike took in $51.4 billion in revenue over the past 12 months, while On took in $2.3 billion. On isn't trying to reach the same mass consumer that Nike does, either. It's just playing its own game and stealing some of Nike's market share.
But that doesn't mean Nike is the better buy. On is an excellent stock candidate for the growth-minded investor. It has a clear brand and message and targets a resilient client base, and it's just in its early innings. It stands out for its premium and tech-based products, and it has a long growth runway. On looks like it has the advantage in this contest.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
