How Footwear Companies Are Changing

[0:00] It's one of the most polarizing names in fashion. [0:03] Whether you love us or you hate us, you know who we are. [0:06] Their shift from trying to convince consumers that it was about comfort to, yeah, we know we're ugly, but that's why you should love us. [0:14] The margins are amongst the best, like Nike and On and Hoka. [0:18] They all want to have that premium footwear over $160 where they get that 60% margin. [0:24] Crocs gets it, you know, selling the product under $100, under $50. [0:28] Nike has the largest research and development budget, and Nike has the largest marketing budget. [0:33] Last time I checked, winning is winning. [0:37] As long as they use that effectively, it's very hard to compete against. [0:40] It doesn't mean that new brands can't emerge, doesn't mean that new brands can't take some share, [0:43] but it means that Nike should always be able to get it back. [0:45] And it's ceded market share to players, particularly in the running space, like On and Hoka. [0:50] Everybody wears these. [0:52] Yes, this is the Hoka Clifton 9. [0:54] It is the hottest running shoe of the summer. [0:57] They're my favorite shoes of all time, [0:58] and I only got them [0:59] a few months ago. [1:00] So this might be the new daily trainer. [1:03] CNBC visited On's headquarters in Zurich to get a behind-the-scenes look at the company [1:07] and how its new spray-on technology can make a pair of sneakers in just minutes. [1:25] Nike is the world's largest sportswear brand. [1:28] This year, the company is on a mission to get its stride back. [1:31] This week, the company posting its first earnings under new CEO Elliot Hill. [1:35] Nike beating on the top and bottom lines, but its sales fell 8%. [1:39] Analysts say it's the beginning of a long turnaround [1:41] for the company after what should have been an Olympic gold-earning summer. [1:48] Nike shocked the market. [1:50] Shares of Nike are in freefall after they missed on revenue last night [1:53] and cut their full-year earnings guidance. [1:55] The shares down 20% are on pace for their worst day ever. [1:59] The plunge wiped out $28 billion of Nike's market cap. [2:03] This stock has cut in half since the all-time high in November of 2021. [2:07] Like, what's happening? [2:08] Is competition eating their lunch? [2:10] I mean, that's pretty clear to me. [2:12] The company blamed its performance on everything from Macrochallenge, to Nike's new brand. [2:14] It turns out it's really hard to develop a boldly disruptive shoe on Zoom. [2:23] But experts say this was part of a years-long series of strategic errors. [2:27] When a $50 billion business sees a down 10% quarter, it's not an overnight occurrence. [2:32] Meanwhile, net sales of emerging competitors Hoka and On Running [2:36] have both increased over 30% in recent quarters. [2:39] Even established rivals like Adidas and Asics have seen growth while Nike has declined. [2:45] Nike has fallen behind. [2:46] And I think that's illustrative of the fact that they've had a bit of a lull when it comes to innovation. [2:52] If you don't have that, then the kind of scale that Nike has achieved isn't worth much if you don't have the growth. [2:58] Now all eyes are on Nike's new CEO, Elliot Hill, to turn the company around. [3:03] Company veteran Elliot Hill is going to come out of retirement like Tom Brady to take the helm. [3:08] So what happened? [3:09] And can Nike's new CEO get the iconic sportswear giant back on track? [3:19] In 1980, Nike's formula of marketing around elite athletes helped it become a global superpower. [3:25] So what makes Nike special? [3:26] Well, that's, I think, part of the magic of the marketing. [3:28] So much of retail is storytelling. [3:30] Nike dominates, or historically has dominated, storytelling. [3:34] We came back from the impossible, from being broken. [3:41] Storytelling resulted in strong sales. [3:44] By 2016, Nike reported annual revenues of $32 billion. [3:49] Nike co-founder and former chairman Phil Knight decided he wanted to shift the company's focus [3:54] towards digital growth before he stepped down as chairman in 2016. [3:58] In 2020, former Nike board member John Donahoe replaced Mark Parker as CEO of the company. [4:05] Joining me is John Donahoe. [4:06] He is the brand new CEO of Nike. [4:10] Thank you, Sarah. Thrilled to be here with you. [4:11] Nike, under Parker, they were hitting their stride when it came to design, resonating with the consumer. [4:18] The next wave of growth for Nike was going to be in digital. [4:21] Donahoe made sense because his background is as a tech. [4:24] Tech executive. [4:24] He was the CEO of ServiceNow. [4:27] He was the CEO of eBay. [4:29] So he came from Silicon Valley. [4:31] Under Donahoe, Nike began moving towards a more direct-to-consumer model, or DTC, by pushing sales directly from its own platforms and stores. [4:41] What Nike did is they decided, let's focus on DTC. [4:44] It's a higher margin business. [4:46] And of course, they want to keep the best releases for themselves. [4:50] And therefore, they pulled back from some of their longstanding partners. [4:53] Like Foot Locker, for example. [4:56] For a while, the plan seemed like it was working. [5:01] In September 2020, Nike reported digital sales growth of 82%, despite relatively flat revenue for the quarter compared to the previous year. [5:10] Because of COVID, we all went into lockdown and Nike digital online sales were booming. [5:16] They were ahead of the game when it comes to retailers selling online because they were first at it and they did extremely well. [5:23] Encouraged by the success, Nike began officially limiting ties with retail. [5:26] Like Dick's Sporting Goods and Foot Locker. [5:30] And cutting others out altogether. [5:32] This was a bold move. [5:34] As of June 2021, these wholesale partners still accounted for around 61% of Nike's sales. [5:41] But Donahoe seemed to double down on Nike's digital push. [5:44] In an earnings call, Donahoe said the consumer is digitally grounded and simply will not revert back. [5:51] Here's the problem. [5:52] Research shows that DTC doesn't always work the way businesses hope it will. [5:56] A 2024 study by B2B.com. [5:57] A study by BMO Capital Markets found that retailers who sell directly to consumers didn't actually see a relative increase in revenue, margins, or other profit markers. [6:07] Everyone thought, oh, if I eliminate the middle person, I eliminate the partner, I'll get their profits, I'll get their margins. [6:12] What we showed is it wasn't happening. [6:13] We realized, no, you don't eliminate the middle person. [6:15] You become the middle person. [6:16] And the middle person isn't necessarily a great place to be if you don't have their scale, if you don't have their expertise. [6:20] And so everyone had to absorb all the costs of running those operations. [6:24] We found those brands did not see a relative improvement in their sales. [6:27] They didn't see a relative improvement in their profits. [6:28] It just didn't happen. [6:30] What Nike thought was a sales boost from its new digital model may have just been fortunate timing as the world went into COVID lockdown and shopping went virtual. [6:39] In 2021, as lockdowns lifted and consumers started to seek out in-store experiences, Nike's digital growth started stalling. [6:46] Internally, the company was undergoing layoffs and cost-cutting measures that it said were focused on shifting resources and creating capacity to reinvest in our highest potential growth areas. [6:56] It does seem like a big deal. [6:57] It does appear, according to analysts, that Nike over-rotated toward the direct-to-consumer. [7:01] And then when it came back time for Americans and folks around the world to go shopping again after COVID, Nike just didn't have the same kind of priority and placement on the shelves. [7:09] And it didn't have those styles that were really resonating with consumers. [7:13] Nike had also pulled back on developing its running business during a time when a record number of athletes joined the sport during COVID. [7:20] It had a big impact. [7:21] Nike previously was really integrated into that running community and always speaking to that community. [7:26] And that gives you authority and credibility in the category. [7:30] They pulled back on that. [7:31] At the same time, Nike was also grappling with a slowdown in consumer spending in China. [7:36] There's no question Nike can blame some of it on macro, but it's the flatline growth in North America which is more suspect and harder to blame on the macro, especially when Adidas is growing its chief competitor because it has more innovative styles that people are really gravitating toward. [7:52] It became clear that Nike not firing on all cylinders on the innovative style. [7:54] It became clear that Nike not firing on all cylinders on the innovative style. [7:55] It became clear that Nike not firing on all cylinders on the innovative style. [7:56] It became clear that Nike not firing on all cylinders on the innovative style. [7:59] And it seeded market share to players, particularly in the running space like Ahn and Hoka. [8:04] Everybody wears these. [8:06] Yes, this is the Hoka Clifton nine. [8:08] It is the hottest running shoe of the summer. [8:11] Inventory piled up as consumers started to pull back and turn to other brands. [8:15] The core problem at the end of the day is that the North American consumer started seeing Nike as being a little bit cheapened because there was such an excess of product. [8:23] And this goes back to the idea of when you have too much. [8:25] You become less interesting. [8:26] You become less popular. [8:27] They become less cool. [8:28] If there's no line outside of a club, most people aren't walking in. [8:31] Experts say the lesson learned is for retailers to remember what they do best. [8:35] Something Nike may have lost sight of in its effort to become a tech operation. [8:39] The technology company is not what makes you special. [8:42] The mantra of tech is disrupt. [8:44] Everyone wants to disrupt. [8:46] If you're doing a really great job, sometimes disrupting yourself is a bad thing. [8:50] And so figuring out how to evolve rather than break, I think, is really important. [8:55] In early 2024, Nike started quietly returning to wholesale partners. [8:59] You're also leaning into wholesale, which is a bit of a change from Nike. [9:03] It's been all about direct-to-consumer, sell on your website, sell in your stores. [9:07] And now there's a shift. [9:08] Why? [9:09] Coming out of COVID, it was quite clear consumers were also leaning back into physical retail. [9:13] And we recognized that in our movement toward digital, we had over-rotated away from wholesale a little more than we intended. [9:20] So we've corrected that. [9:22] We're investing heavily with our retail partners. [9:25] Our relationship with Nike seems to have improved substantially. [9:28] Nike needs them more than Nike thought. [9:30] That's very important. [9:31] It ain't just all DTC. [9:34] In September 2024, the company announced Elliott Hill would take over for Donahoe as CEO. [9:40] Elliott Hill is someone that Wall Street doesn't know well. [9:42] But internally at Nike, what I hear is he's known very well and very popular. [9:48] This is a guy that started as an intern at Nike and has now worked his way all the way up to become CEO. [9:53] He's a 32-year veteran. [9:54] He also came up through the sales channel. [9:56] So there are great expectations that he will know what produces a hit and will help turn around the innovation problem that Nike has suffered under John Donahoe. [10:05] In its most recent earnings call, Hill said the company will focus on clearing out excess inventory and reinvesting in sports marketing. [10:12] We lost our obsession with sport. [10:15] Moving forward, we will lead with sport and put the athlete at the center of every decision. [10:21] The brand health is still there. [10:23] This is a brand that's lost its way and can be resurrected. [10:26] But it will take time. [10:27] This is not a story that six months from now we're going to be cheering about. [10:31] This is going to be an 18-month-plus show me how you're going to compete with all the smaller brands that have come from behind and the customers fallen in love with. [10:41] They need to reinvigorate. [10:42] They need to remind people that Nike is special. [10:45] And so I think if I'm Elliott right now, I think what I'm doing is I'm going back to my product people and I'm saying, I don't know what you've been working on in the past. [10:51] Maybe you have something new. [10:52] Maybe you don't. [10:52] Let's see. [10:53] What is this innovation pipeline? [10:54] And as soon as we can start telling people we have good product, then we will... [10:58] We will put really good marketing. [10:59] Why does Nike win? [11:01] Well, Nike has the largest research and development budget and Nike has the largest marketing budget. [11:05] Last time I checked, winning is winning. [11:09] As long as they use that effectively, it's very hard to compete against. [11:12] It doesn't mean that new brands can't emerge. [11:14] Doesn't mean that new brands can't take some share. [11:15] But it means that Nike should always be able to get it back as long as they have the right on the ball. [11:19] The fact that you guys say ain't rocking unless you're crocking is absolutely disgusting. [11:36] I just tried these shoes on. [11:39] I'm in love. [11:40] I'm in love. [11:41] Comfort. [11:41] Nostalgic. [11:43] Kind of fun. [11:44] They're just heinous. [11:45] It's one of the most polarizing names in fashion. [11:48] Whether you love us or you hate us, you know who we are. [11:51] We are on an ongoing basis faced with skepticism from investors is entirely unjustified [11:58] because that's not reflected in the financial performance of the business. [12:01] Good for this one and the 11 for this one. [12:03] Croc's annual revenue was $1.2 billion back in 2014. [12:07] About a decade later, the brand is raking in nearly three times that. [12:11] A lot of it is thanks to personalization. [12:13] Making the company one of the best marketing stories in retail. [12:16] You can see Crocs will customize some of its shoes on the shelves to [12:20] inspire some of that creativity amongst its shoppers. [12:22] Each of these gibbets cost $5 and the metal ones cost $7. [12:28] The margins are amongst the best. [12:30] To this day, they are amongst the best. [12:32] We've seen this from like Nike and On and Hoka. [12:35] They all want to have that premium footwear over $160 where they get that big fat, you know, 60% [12:43] margin. [12:43] Crocs gets it, you know, selling the product under $100, under $50. [12:48] But reciprocal tariffs announced by President Trump on April 2, 2025, [12:52] could threaten that competitive advantage by placing a nearly 50% [12:55] duty on Vietnam, where the company imports much of its goods. [12:59] So how did Crocs make a cultural resurgence? [13:02] And could the imposed tariffs threaten its business? [13:11] These are gibbets. [13:12] They're charms that go inside the holes on top of the Crocs. [13:15] In 2024, the company said they brought in $271 million worth of [13:20] sales from these alone. [13:21] That's about 8% of the company's total sales in 2024, [13:25] and a key driver in one of the biggest comebacks in retail. [13:28] But the idea didn't come from Crocs. [13:30] A couple in Boulder, Colorado, created them back in 2005. [13:34] The product experienced rapid growth, seeing its revenue jump from $200,000 to $2 million [13:39] per month from February to August of 2006. [13:43] Crocs acquired the company for $20 million that same year. [13:46] Could you have ever imagined that gibbets would become as successful [13:49] as they are today? [13:50] No, not at all. [13:52] So when I first joined the company in 2014, the gibbets business actually declined. [13:58] So between 2006, when the company purchased it, which was before my tenure, [14:03] it actually grew to, I think, a peak of about $80 million, and then declined fairly rapidly [14:09] because they weren't putting innovation or imagination into it. [14:13] But then we reimagined gibbets. [14:15] We used referencing social media listening to look at what icons [14:19] or items would be trending. [14:21] Leaning into personalization has paid off. [14:23] Any time we have like a segment or a business, like a sub-segment of a business, [14:28] anything that sort of like hits that double-digit 10% marker, it becomes meaningful. [14:33] Do you have any insight into how many of your shoppers are [14:36] buying gibbets to go along with the Crocs? [14:38] Yeah, we think about three-quarters of our consumers are actually [14:42] buying gibbets according to our own proprietary surveys. [14:45] It's one of the highest margin pieces of the business, if not the highest. [14:48] Actual, absolute docks. [14:49] Dollar value of it is so small. [14:52] But the point is that it's not building a business off of that. [14:55] But as an add-on, depending how many you buy, [14:58] it can increase the transaction size by 10, 15, 20%. [15:04] I think I found the one. [15:05] It's 3D. [15:06] It'll be popping out of the shoe. [15:08] See how that looks on there. [15:09] If you buy Crocs, you may be really comfortable, [15:13] but you're giving up some ego or social value. [15:15] And for years, this example went well and people would laugh. [15:19] And then a couple of years ago, one of my students raised his hand and was like, [15:23] actually, you're wrong. [15:24] Crocs are cool now. [15:25] As it went through the financial crisis, 2008, it really hit some speed bumps [15:30] around having too much inventory, around demand dropping off extremely rapidly, [15:35] really because they weren't marketing or promoting the product appropriately to extend its reach. [15:40] In the decade that followed, there were multiple years where the company wasn't profitable. [15:45] Reece was appointed as CEO in 2017 and spearheaded the Crocs turnaround story. [15:50] They went back to basics in terms of, [15:52] they had this unwieldy product portfolio of 250 products or more, [15:56] and they went back to their original clog and basically used it as a canvas for self-expression. [16:01] The biggest thing I saw from a messaging perspective was their shift from [16:06] trying to convince consumers that it was about comfort and function to basically saying, [16:12] yeah, we know we're ugly, but that's why you should love us, [16:15] because that's what makes us one of a kind and unique. [16:17] Part of the Crocs comeback story centers on its ability to drive demand through limited drops [16:22] and releases. They partner with brands like Pixar and make custom designs like this one from Monsters, Inc. [16:28] Some customers absolutely love it and can't wait to get it. And then some number of customers, [16:33] this is officially the ugliest croc they've ever seen. That strategy is particularly effective [16:38] because it's not just about limited availability. It's also about driving conversation. [16:42] The company also began an influencer-led social campaign and collaborated frequently with [16:47] celebrities. We have some of the most successful ones we've ever done, or [16:52] we did a lot of the best-selling ones. We did a lot of the most popular ones. [16:54] And it wasn't about the amount we sold, but the amount of interest that we had, [16:57] they sold out very, very quickly. [16:59] The turnaround efforts really took hold in 2021, coupled with pandemic lockdowns creating demand [17:04] for comfortable footwear inside the home. Plus, the shoes became a favorite amongst [17:08] frontline workers that could easily slip off and sanitize their footwear. [17:12] The share price soared as the company grew its revenue by nearly a billion dollars between 2020 [17:17] and 2021. It's been on an upward trajectory ever since. But since 2021, the stock has been [17:22] experiencing some volatility. [17:28] Between 2021 and 2024, Vietnam accounted for more than half of Crocs' production. [17:34] President Trump imposed 46% tariffs on imports from the country. These increased costs would [17:39] likely need to get passed on to the consumer in order to mitigate impacts to the company's [17:43] margins. Another threat to Crocs right now actually has nothing to do with the Crocs [17:48] business itself. It comes from a $2.5 billion acquisition of casual footwear brand Hey Dude [17:54] in 2022. [17:55] When they acquired the brand, [17:57] it was having a moment. Then comes along like all the disruption, supply chain and all these [18:03] other things. Inflation is going up and the brand awareness is not universally high like it is for [18:08] Crocs. In 2025, Crocs has been hit with several class action lawsuits related to previous [18:14] distribution practices of Hey Dude. The lawsuits allege that the company was consciously misleading [18:19] investors with Hey Dude's initial revenue growth by overstocking its products with third party [18:24] wholesalers. [18:26] You have to prove that they knew that demand [18:28] was there, that the company had a lot of potential. [18:32] They are part of the biz, and they have to express their opinion. [18:36] They are not part of the trust. [18:38] They are not part of the client base. [18:40] They are part of the company's portfolio. [18:42] There is not much on the other side of the coin that was not going to be good. [18:45] I would say they'll go down that path, but I don't know that there's a real merit and a real threat [18:50] to the company from that. [18:52] I'm not going to comment on specific allegations in the lawsuit. I would say that [18:56] Regardless of intention, over the past few years, there was more HeyDude product in stock amongst wholesalers than there was demand. [19:03] Some distributors were discounting the product, which defied some pricing agreements put in place. [19:08] Crocs wanted to take back control of the brand, so they ended a lot of these distributor relationships. [19:13] But that slashed its sales. [19:15] In 2024, the company was also fined nearly $2 million by the FTC for suppressing negative reviews on its website and failing to properly refund customers. [19:24] Here's a look at the HeyDude brand revenue since 2022. [19:27] Do you worry about kind of the future of the HeyDude's business and the thorn that it has presented itself over the past few years? [19:35] I don't worry about that at all, actually. [19:36] We have a rejuvenated and new management team that we put into HeyDude. [19:40] We came out of the back end of last year, Q3 and Q4, we saw some really very strong positive signs around the HeyDude business. [19:47] Sales of HeyDude were flat for the last quarter of 2024, but down more than 13% overall for the year. [19:53] Crocs were down by about 15% overall. [19:53] Crocs were down by about 15% overall for the year. [19:53] Crocs were down by about 15% overall for the year. [19:53] Crocs were down by about 15% overall for the year. [19:54] Crocs were down by about 15% overall for the year. [19:54] Crocs on the other hand was up about 9%. [19:56] Probably the single biggest thing that everybody wants to know is, [20:00] you are actually making investments and you're actually taking the hard earned money from the Crocs brand and [20:05] then you're infusing it and investing it into HeyDude. [20:09] Right now the jury's out on that. [20:15] But while the future of HeyDude remains a question, Crocs is focusing on global growth for its flagship brand. [20:20] Internationally, South Korea and China have the most physical [20:23] correction of their good for the Le exposure of this future hotline. [20:23] Crocs stores, but still trail the U.S. by a significant margin. [20:28] Less than half of the Crocs brand revenue currently comes from outside of North [20:32] America. Over the next sort of three to five years, if you're looking out for the [20:35] growth horizon for Crocs, that business, you'll see some low single digit growth in [20:40] the U.S. and the Americas, North America, and that's the smaller part of future [20:45] growth. Investors generally, they like the reliable, meaty part of growth to be the [20:51] biggest part of growth. [20:52] We call this this part of the of the story, the balance of uncertainty. [20:56] What Crocs did very adeptly from a growth perspective in terms of acquiring new [21:01] customers was by targeting these explorers, these trendsetters, and that's also part of [21:07] that international strategy for Crocs is how do they find the leaders in those other [21:12] countries to make themselves fashionable and trendy? [21:17] What are some of the financial misconceptions that you believe investors might be [21:21] getting wrong? [21:22] I think it's boom and bust. [21:23] What they're missing is the classic clog is really a blank canvas for expression. [21:29] We're very confident we keep it relevant to a broad base of consumers. [21:32] We can continue to sell millions of pairs of shoes every year. [21:49] Here in Zurich, a Swiss sneaker company is taking on Nike. [21:53] We couldn't be happier for where we are as a brand after 15 years, and it all started [21:58] quite simple, actually. [21:59] The brand On sells premium priced athletic wear and is quickly gaining ground on legacy [22:04] competitors. [22:05] The way the shoe looks. [22:06] Is like nothing else on the shelf. [22:09] I think that the problem with Nike is on hold it. [22:11] I'm not kidding. This is the first true challenger to Nike. [22:15] Since going public in 2021, the company's net sales have grown in 11 out of the past 13 [22:20] quarters and on stock price has soared ahead of its competitors. [22:24] In its most recent earnings report, the company posted net sales of over $865 million for [22:30] the quarter. [22:31] This company is growing like a weed. [22:33] We all know about the running shoes, which everybody's gaga for, and they're just [22:36] expanding the brand. [22:37] At the same time, On's biggest competitor, Nike, has faced stalling growth. [22:42] As of March 2025, Nike posted a sales decline in two of its last four quarters. [22:47] Adidas has also faced challenges in recent years and has ended its controversial partnership [22:52] with Kanye West. [22:53] But On is also under pressure as tariffs proposed by the White House threaten to raise [22:58] prices. In 2024, the U.S. [23:01] accounted for almost 60% of On's revenue. [23:06] Nike's biggest threat is if Nike spends 1% of their sales on marketing and On spends [23:25] 1% of their sales on marketing. [23:27] That's the difference of billions of dollars. [23:29] So you're going toe to toe with someone that has a much bigger megaphone. [23:33] So how did On go from a startup to becoming one of the biggest global challengers in the [23:37] sportswear? And can the company maintain its rapid growth despite pressure from tariffs [23:42] and competitors? [23:43] CNBC visited On's headquarters in Zurich to get a behind the scenes look at the company [23:52] and how its new spray-on technology can make a pair of sneakers in just minutes. [23:58] It allows us to produce an upper material in a completely automated way. [24:04] Mark Maurer is one of On's co-CEOs. [24:07] You have one single material that is approximately one mile long. [24:12] Which is being sprayed around the last. [24:15] One shoe is made in just three minutes, a fraction of the time it takes to create a [24:20] traditional running sneaker. [24:21] A traditional product is usually touched by approximately 200 hands. [24:27] And it's going through various, various steps. [24:30] And it consists of many, many different individual parts, which is very, very different. [24:35] The technique is still in its early stages, only producing a limited number of shoes in [24:39] one style. [24:40] The model doesn't have any laces. [24:42] And it sells for $330. [24:45] What we want to be able to do is to bring it from a couple of thousand pairs to millions [24:50] of pairs. [24:52] But analysts say what has propelled the brand is the unique design of its main running shoe [24:56] line, which feature large hollow pads in the sole that provide extra cushioning. [25:01] My absolute rider dyes are the Enclad Monsters. [25:04] They're my favorite shoes of all time, and I only got them a few months ago. [25:07] So this might be the new daily trader. [25:10] When you look back into 2010. [25:12] My shoes looked more or less the same. [25:14] So basically, you could almost not compare what an Essex is or a Brooks is or a Socon [25:19] is. [25:20] We thought about how can we stand out. [25:21] But on shoes weren't always taken seriously as high end performance products. [25:26] When they first started, they were basically giving the product to anybody that would take [25:30] it. [25:31] The first generation of running shoes that was intended to be a performance shoe was [25:35] not received as such. [25:36] And the feedback that we heard from retailers as well as consumers was that it was more [25:40] of a lifestyle shoe. [25:41] It was comfortable. [25:42] You could wear it for daily use, but it was not highly rated for serious runs. [25:47] To elevate its brand image, Ahn doubled down on performance and company-owned stores. [25:53] The strategy to engage both serious athletes and casual wearers seems to have paid off. [25:58] In 2024, Olympic medalist Helen O'Berry won the Boston Marathon in the then-unreleased [26:04] Light Spray shoes. [26:05] I think the main thing that they really understood was they went for the aesthetic of the shoe. [26:10] That is what drove the initial success. [26:11] The trajectory of them getting the shoes. [26:12] The trajectory of them getting to a billion dollars versus Nike. [26:15] They did it in one-eighth the time of Nike. [26:18] So Nike's better wake up and realize that Ahn is a performance shoe that has also taken [26:23] on a fashion element. [26:25] Analysts say another factor driving sales is that Ahn's products are geared towards [26:28] wealthy shoppers. [26:29] A typical pair of its running shoes sells for $150 or more. [26:34] They're not interested in ever having a low-end price point and ever being in low-end retail. [26:40] So they're well situated there. [26:41] Because people are willing to pay more for a pair of running shoes, because they add [26:45] more use cases for them and they see it more as an everyday shoe. [26:49] The company has also been able to attract new customers through partnerships with athletes [26:52] like Roger Federer, as well as celebrities like Zendaya and FKA Twigs. [26:56] It has also partnered with luxury brands like Luave. [27:00] We're often playing in a more premium space, almost a little bit in a space where Nike [27:05] stops but luxury is not yet. [27:07] I think that's a good way to put it. [27:11] I think that's a good way to put it. [27:12] I think that's a good way to put it. [27:13] I think that's a good way to put it. [27:14] I think that's a good way to put it. [27:15] During COVID lockdowns, recreational running increased and athleisure boomed. [27:19] Athletic shoe usage just picked up dramatically. [27:22] We were at home, we were doing more sports, going out for walks more. [27:25] We weren't dressing formal for about two years, right? [27:28] It was luck as well as design that got them that huge scale. [27:33] Around the launch of An's IPO, Nike also aggressively scaled back retail partnerships with Macy's, [27:39] Foot Locker and Dick's Sporting Goods. [27:41] It does appear, according to analysts, that Nike overrode the market. [27:42] It does appear, according to analysts, that Nike overrode the market. [27:43] It does appear, according to analysts, that Nike overrode the market. [27:44] It does appear, according to analysts, that Nike overrotated toward the direct to consumer, [27:46] and then when it came back time for Americans and folks around the world to go shopping [27:50] again, after COVID Nike just didn't have the same kind of priority and placement on [27:53] the shelves and it didn't have the styles that were really resonating with consumers. [27:58] So for the first time, retailers were actually going out there and looking for emerging high [28:03] growth brands to take that space and An was right there for them. [28:06] So it happened to be very serendipitous for them to be able to get that retail space, [28:11] prime retail space. [28:12] that the number one competitor had voluntarily just dropped [28:16] and left for them to gain. [28:17] Meanwhile, On continued [28:19] to post quarterly revenue beats, boosting its stock. [28:22] Decker's owned Hoka also surged while Nike declined. [28:26] Nike has since kind of acknowledged that mistake [28:29] through their actions [28:30] and are just trying to go back to that channel. [28:32] On effectively acknowledges [28:33] that that was a big break for them. [28:35] The issue now though, [28:36] as it relates to sort of the broader competitive space, [28:38] is that they've already been given that oxygen. [28:40] Nike still owns 40% of the global sports footwear market, [28:44] followed by Adidas. [28:46] On makes up a little less than 3% of global market share, [28:50] but that share has increased eightfold since 2019. [28:53] Anyone who says they're not worried [28:54] about slipping of market share is lying to you, me, or both. [28:57] People care about market share, [28:59] but that doesn't mean that they're worried [29:01] they're not gonna get it back. [29:02] Nike has a new CEO, [29:04] has been tasked with a turnarounds plan at that company. [29:08] There's an expectation, at least among investors, [29:09] that at some point it starts to grow. [29:11] Again, what does that mean for On? [29:13] It doesn't change what we do. [29:15] So we focus on our products, on innovation. [29:18] Nike is also returning to retail stores. [29:21] And in April 2025, [29:22] Adidas posted revenue growth of 13% [29:25] compared to the same quarter last year. [29:28] CNBC reached out to Nike and Adidas for comment, [29:31] which did not respond by the time the story went online. [29:38] For On, apparel could be the next growth frontier. [29:41] Nike and Adidas make up over a quarter of their revenue [29:44] from T-shirts, shorts, [29:45] and other apparel items. [29:47] Currently, On's clothing offerings [29:49] make up a little over 4% of its business. [29:52] On also plans to double its store count [29:54] from 53 to 100 in the coming years. [29:57] Currently, the company has 11 stores in the US. [30:01] But could those expansion plans be impacted by tariffs? [30:05] On designs its products here in Switzerland. [30:08] But like other major brands, including Nike, [30:10] most of its products are manufactured [30:12] in Vietnam and Indonesia, [30:14] where labor is considerably cheaper [30:16] than in Europe or the US. [30:18] In April, President Trump announced tariffs [30:21] on both countries. [30:22] I will sign a historic executive order [30:25] instituting reciprocal tariffs [30:28] on countries throughout the world. [30:30] Both of these have been suspended, [30:32] and it's unclear if they will remain in place. [30:35] Any additional cost could be a significant headwind [30:37] for the sportswear industry. [30:39] Sportswear giant Adidas now saying [30:41] the tariffs would result in price hikes [30:43] for all of its US products. [30:44] People thought if we go to Vietnam, we're safe. [30:47] And it was just dead ball. [30:49] One of Trump's goals is to move production domestically. [30:53] But experts say that is highly unlikely, [30:55] especially for sneakers, a high-cost, labor-intensive item. [30:59] Then there's the question just, what does labor cost? [31:01] And invariably, labor in the US is, I imagine, [31:04] in most places, gonna cost more [31:06] than it is in a lot of other places. [31:08] Andrew, we are not going to make sneakers in the US. [31:11] You can't move your supply chains overnight. [31:13] We just don't really have the ability. [31:15] We don't have the labor force. [31:16] We don't have the capability. [31:17] We don't have the materials to start up this industry [31:22] at scale in the United States. [31:24] Ahn has not shared whether it plans [31:26] to move production due to tariffs, [31:28] but says the cost may be passed on to the consumer. [31:31] And if that happens, in the end, [31:32] I think we will try to bring the best possible offering [31:36] to our consumers. [31:37] Ahn is a premium brand. [31:38] Ahn has pricing power in the market. [31:40] And so most likely what you will see in the industry [31:44] is that tariffs will just be passed on [31:45] to the consumers over time. [31:47] Analysts say Ahn may be well-positioned [31:49] to withstand the impact of tariffs. [31:52] And the brand's success hinges on maintaining its edge. [31:55] They're already thinking about becoming [31:56] a 10 billion franc brand. [31:58] And what's beyond that? [31:59] This is, I think, still kind of early innings [32:01] for the brand at this point.