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Ecommerce on Tap is a world where Supply Chain meets storytelling. Join Aaron Alpeter each week as they offer insights into the backend of successful businesses. Brought to you by Sourcify and Izba Consulting!
Aaron Alpeter (00:06)
Hey everybody, welcome back to e commerce on tap. I'm your host, Aaron Alpeter.
As you know, this season we've been profiling footwear companies, and we are going to replay an episode that we did back in 2024. this episode is on on running. It was one of our best episodes at the time. But obviously, some of the numbers have changed since then. when we recorded this in 2024, they just crossed $2 billion in revenue. We're making big promises about margins and innovation. Since then, they've actually made the most of it. They passed $3 billion in sales last year, hit the margins they were targeting, and
Their light spray technology can now build a shoe in about three minutes, which is pretty fascinating. They actually even launched a co-created collection with Zendaya this spring. but honestly, the story that had struck with me isn't the growth. It's the supply chain crisis that almost killed the company, what it taught them about transparency and suppliers. I really hope you enjoy re-listening to this episode of E-Commerce on Tap.
Nathan Rensick (01:08)
a profitable publicly traded company that is performing so well in the public markets, which is really like the opposite of what we've covered kind of in the past with some of these publicly traded companies like Allbirds that is in the Footwear category as well that is really not performing. And so this story is just incredible. I mean, I don't think a lot of people realize On Footwear is worth over $7 billion and their trajectory and growth has just been incredible from a high level Aaron. Is there anything that
caught your eye as we did research On Footwear.
Aaron (01:42)
I agree with you. This is a company that made it, right? This is a startup that did everything right. It wasn't easy for them as we'll get into, but they didn't raise too much money. They were profitable. They were able to exit. And now they control their own destiny and it's a great thing there.
Nathan Rensick (01:58)
Yeah, it's amazing. But before we dive into that story, do you wanna give an overview of kind of the industry background of shoes and the history of shoes? When I think of the history of shoes, I honestly just think of the book, Shoe Dog by Phil Knight. I mean, that is just such an incredible story. And if anyone hasn't read that yet, I highly recommend that book. I mean, it's just an incredible understanding of Nike's history. And we're gonna give a similar history of On Footwear in this podcast. So if you like Shoe Dog, this episode is definitely gonna be for you.
Aaron (02:28)
Yeah, so let's start with the history of Footwear. So the best research that we have right now is that archeologists suspect that humans started covering their feet about 50,000 years ago. And this was mainly cold tundra sort of thing, but that's a long time, so we've been doing that. And the oldest known pair of shoes was found in a cave in Armenia, and we believe that those came from about 5500 BC. And so...
Humans have been covering their feet, have been wearing shoes for a very long time. And the design of shoes has really only changed substantially once. And that was when they differentiated between right shoes and left shoes. And that only happened about 600 years ago.
Nathan Rensick (03:11)
Wow, that's insane to think that like, you know, so there's been Footwear for like 7,000, maybe 8,000 years, which is like insane to just think about. But for some reason, no one separated their left and right foot with Footwear until like 600 years ago. So that was probably a pretty big innovation, like 600 years ago, if you think about it, that's pretty funny. But I guess in terms of today, like what does the market look like for Footwear today?
Aaron (03:39)
Yeah, you can, you can break up Footwear into a lot of different categories. Uh, you've got specialty outdoor luxury, casual and athletic. And so I'll kind of go through this a little bit more. Uh, so the specialty Footwear category, that's like safety shoes, orthopedics, things like that. That was estimated to have 2023 revenues of about 16 billion to 18 billion. And that's the smallest of those categories. Uh, next you get into outdoor Footwear. So think hiking shoes, it's about 22 billion to 25 billion.
Uh, luxury Footwear. So I think Louis Vuitton, the red soled heels, uh, and formal dress shoes. Those are both about $30 billion each. Uh, casual Footwear, which is going to be flat sneakers, things like that. That's about 70 billion. And then athletic Footwear, which is the biggest one that is running shoes, soccer cleats, all sorts of things. Uh, that's about 90 to a hundred billion dollars a year. And so.
In general, if you add up all those categories, the global Footwear industry is about $270 billion globally, and it's still growing pretty well. It's got about a 5% estimated compound annual growth rate, and it's expected to grow about 5% a year from 2024 to 2032. So yeah.
Nathan Rensick (04:50)
And I think when it comes to North America, you know, especially in the US, we love our Footwear. I mean, it's expected that the US generated revenue of $91.5 billion in just Footwear alone, which is pretty incredible. I mean, there's over 12,000 shoe stores in the US. And I think what's insane, but I mean, I myself own probably like 15 to 20 pairs of shoes. So I skew high in terms of number of shoes owned. But
the average person will buy 5.45 pairs of shoes in 2024. I want to pause on that statistic because like, what other categories where like, you know, your average shoe is probably like, I don't know, on the low end, you know, maybe 50 bucks on the high end. I have some shoes that I've probably spent like, I don't know, 120, $150 on. I don't really know of a category that's like this high price point where you're like continuously buying multiple, you know, pairs.
Aaron (05:46)
Yeah.
Nathan Rensick (05:46)
every year. It's like a pretty good category if you think about it.
Aaron (05:50)
Well, your feet don't change after a certain age, right? They're just kind of there. And then, but, you know, so in some cases, the shoes, yes, they wear out, but a lot of times it's like, Oh, they're dirty. They're different. I want to do something different. So it's, it's a very interesting piece. Like, I mean, I mean, I don't know if I go to Chipotle six times a year. Um, maybe I do, but you know, it's just, it's weird to think about the price point and all of these things are happening over and over again.
Nathan Rensick (06:15)
Yeah, yeah, it is pretty nuts to think about that statistic. I'm curious, for those listening in, tweet at Aaron and I and tell us how many pairs of shoes you own. I just wanna hear the average for our listeners. That's a really neat statistic that we could dive into. But the main players on the market are the better known brands, right? Nike, Adidas, Asics, Puma, among others. And...
you know, the athletic shoe market, I think, is really top of mind for most of those main players. I mean, there is kind of the luxury side and casuals to the side that we discussed the numbers of, but it's not nearly, you know, as big as the athletic market. And so I guess with this backdrop, On is obviously focused on athletic Footwear. What kind of is the founding story and kind of lay the land for us as we dive into this story?
Aaron (07:12)
Yeah, so on was officially started in 2010. And just as a summary, it's again, an athletic shoe and now they're doing some performance sports sportswear. They are in about 6000 stores and over 60 countries. And they there were three Swiss guys that founded the company, you've got Olivier Bernhard David Allemann, and Caspar Coppetti. And I'll just kind of walk through each of those in a little bit of detail. So Olivier Bernhard, he was really the inventor and
He was born in rural Switzerland and really disconnected from city life. He jokes about how there were more mountain goats than people and where he lived. Uh, he spent some time in the U S he was a foreign exchange student in Wisconsin and he's been a long distance runner virtually his entire life. And he graduated from high school and.
became a professional athlete, was a Ironman and a duathlon competitor in the 80s and 90s. He won six Ironman races. He held the title of duathlon world champion three times. And he doesn't have a formal education. So he's, he's got a sports career and that's kind of what he is. And so, uh, you know, he was competitive. He was sponsored by Nike. He was doing all these sorts of things. Uh, but as he was getting older and about 2006, he knew that he was going to retire. His, he wasn't going to be able to compete at that level that he had been.
And so he was trying to find a way to turn his love for sports into, into a business and he initially founded a company that was more of a sports coaching company and he had over a hundred athletes that were linked to it. And that's really how he made his living. But on the side, he was really like toying around and thinking about shoes.
Nathan Rensick (08:49)
Yeah, I mean, it's pretty incredible to hear his success as an athlete. I mean, he definitely was, you know, leading triathlons and winning Iron Mans for quite some time. I mean, it's pretty incredible because I think in general, like if we dive into athletic Footwear as a category, I mean, a lot of the founders of these brands, you know, started with like success as an athlete themselves and targeted that pain point. And so I think that's how, uh, Olivier your
you know, found this idea for on Footwear. I mean, he had a lot of time during triathlons to think about things and, you know, realize that when you're training, you're using a lot of different types of athletic Footwear, but you know, when you're racing, you're primarily using flats. And so he was thinking like, is there something that is soft and hard at the same time? And that was kind of the genesis for the first shoe that they came out with. And there was times when he was injured that he began to look for a way to make running, you know,
quote unquote less painful experience. I mean, I've ran a few half marathons and I can tell you not only during the race was I feeling pain, but after I couldn't walk for like three days. So I mean, I don't know quite sure how you can make running a quote unquote less painful experience. But you know, he was really looking to offer on the market something that provided, you know, a balance between absorbing shocks, but also
allowing him to push and perform, right? And so he started tinkering with shoes and shoe designs as an effort to kind of find the perfect shoe and one that could provide that lightweight springboard upon impact to the ground that would help him run faster, but also cushion his step to prevent injury. And I think that's a key, right? Because if I recall like from the shoe dog story, right? You know, there was kind of a similar Genesis when they were expanding into the running category.
with their kind of waffle shaped sole. And I think it's really interesting because, they separately had this kind of similar thesis around running shoes for making it performance driven, but also kind of cushy enough to, I don't know if you're allowed in the running world to say, bounce off the pavement, but to kind of give you that support and cushion to try to make running less painful.
And it's interesting too, because he was originally sponsored professionally by Nike. And so he had visited the Portland office to share his idea and they politely declined, right? He does think that the prototype that he showed Nike was hideous. I would love to kind of see an image or something of that prototype just to see what it looked like, but I mean, on shoes definitely have a unique look. What are they really known for?
Aaron (11:37)
Yeah, one second. I want to grab a pair.
And so I should have had this ahead of time, but for those of you on YouTube, you can kind of see what they look like. These are my friend Paul's shoes. So I self-identify as a runner. I used to be a runner in high school and college and still think of myself as that, but I'm about, well, I'm much heavier than I used to be. But yeah, I mean, it was, they really have this unique look and the whole concept of the shoe is to provide some cushioning so that when you're landing,
You have kind of a pillow that's absorbing the impact. And then when you are pulling off that cushioning deactivates. And so it actually becomes rigid and helps propel you forward and push you forward. And the way that Olivier had kind of messed with us is he played with this himself. He actually took a shoe, cut up a piece of garden hose and basically snaked it along the bottom of it to try to mimic that. And this was his proprietary technology. They're kind of known for this.
They ended up calling it Cloud Tech. And that's really the insight that gave birth to On Footwear.
Nathan Rensick (12:45)
Yeah, I mean, it's a pretty crazy story because, you know, he basically made this prototype at home and tried to sell this concept to a big shoe brand like Nike and he was, you know, sponsored professionally by Nike. And so I can only imagine him like in that meeting, trying to propose this like, you know, kind of garden hose-esque type of design that he made on the bottom of a sole of a shoe and propose that to Nike. But, you know, I think it's interesting
How did On go from getting rejected from these major athletic shoe brands like Nike to becoming this brand? I mean, did he go out and just start it himself? Did he kind of reach out to friends? How did that actually come to be the On Footwear that we know of today?
Aaron (13:34)
Yeah, he had this idea and he was using those prototypes and was just recognizing like, Hey, there's, there's something here. And they moved past just, you know, gluing on different parts of a cut up garden hose and they actually had something that looked legit. Um, but Olivier had a, a friend, uh, Caspar, one of the co-founders who had a background in sales and marketing. And he reached out and was looking for advice on how to, how to bring this to market. And, uh,
Olivier was originally from a small town in Switzerland as well. He was a ski racer before he switched to snowboarding, but he didn't like training and especially the running part of the training. And so he had initially said that, Hey, this, this idea isn't going to work. Whatever. I'll give you some pointers from a friend. Um, but he tried to help them. Uh, but Olivier ends up giving him a pair of these prototype shoes. And Caspar said, wow, these look really, really weird. Uh, and then he, he started to, uh, wear them and said, these feel really weird.
And, you know, just started kind of running with them and just being useful. And so, you know, it was really one of those things where he tried to help out a friend with some advice and then didn't think much of it, but got a free pair of shoes out of it and just went for it. Well, Caspar had a friend and a colleague who they'd worked together at a couple of different places for, for many years. And his friend was, his friend was David Allemann. They both worked together at McKinsey and they were both at a branding agency. And they knew that they wanted to start something.
They wanted to be entrepreneurs, but they didn't have any good ideas. And so they were working at this branding agency. They were working on five or six different ideas to try to figure out if there's something that might work and just nothing was sitting there. And they tell a story that the two of them were on a hike in a national park in Switzerland. And they were just talking about ideas and business and things like that. And Caspar remembered this weird looking shoe that his friend Olivier had given him and was trying to sell.
David said, how about a running shoe company? What if we did that? And they said, running shoe company, that's dumb. You can get Nike, you got Adidas, all these sorts of things. And they started to, to talk about this. And for two hours on this hike, they came up with a lot of the core tenants about what would later become on running and what they would focus on. The focus of the product, the focus on the actual athlete, how they wanted to be different, those sorts of things. And so they came back, felt really good about the idea. Caspar then connected David and Olivier and the three of them started to talk about this in 2009.
and then decided that they were all going to quit their jobs and start the business in 2010. And they each put in about $150,000 of their own assets into the business. And that's how they got started. And interestingly enough, when they talked to experts, they said, that's nowhere near enough. You're going to need about $5 million to start a shoe company. But they said, well, we've got 150. We'll start with that.
Nathan Rensick (16:18)
Yeah, it's a pretty incredible story in terms of how they connected the dots, you know, brought this group of three friends together. And I think it's interesting too how they settled on the name on. I mean, Caspar and David kind of came from a branding background and it seems like they went through like 800 names is what they said. And their best working version was Paws, which they thought was a dumb idea. But one day Caspar was...
you know, walk in and saw a TV production truck called On Productions, and he thought the name was catchy and it was still available in the athletic running space. And so, you know, their kind of thesis was when you put a pair of Ons on, it feels like you're switched on. And so, you know, it was a really cool kind of neat name. And, you know, if you'll notice all of their shoes are cloud something, all their technology is cloud something.
And that came from, you know, their test when they did a test race in Zurich, they had about 200 pairs of shoes and a German woman came back after and said, you know, wow, these feel like you're running on air clouds and Nike already had air, so they called their tech cloud tech. So kind of neat how they came up with that, but what was their launch like? So they kind of decide to go quote unquote, you know, all in with this in 2009. They launched in 2010.
I mean, what was that like?
Aaron (17:42)
Yeah. So companies founded in January of 2010 and first product to market in like June, July. And so they, they were able to take a prototype to market. They initially bought 10,000 sneakers. And so that's a very quick and impressive turnaround from that end. Cause they, they didn't come from this world. They didn't know anything about this. And so the, their first manufacturer was, was in China, which is what they did. But right from the start, the company got a successful kind of cult-like following among runners, especially elite, elite runners.
And that much like the athletic brewing episode that we talked about last week, their biggest barrier was trial because they knew that once people try the shoe, they would want one regardless of what the price tag was. And their core focus early on was about helping prevent injury and improve running performance. And Olivier as a former professional athlete knew lots of other professional athletes. And so he would reach out to his friends and his friends reached out to his friends. And so the, the elite running community started to see these shoes and started to slowly make, uh, make about the,
get connected with them. And a good example of how this came to pass is there is a marathoner, a very famous, her name is, is Tegla Loroupe. And she's from Kenya and is one of those accomplished female runners in the world. She's run, won the New York marathon twice and has held multiple American records at different distances. And she has always struggled with injury. And she heard through this network that there were these miracle shoes from Switzerland. And she got a pair. And.
was doing a fundraiser and was running from Germany down to the Vatican. And, uh, it's like her thing where she's got 20 other people who are going with her. They're running about 50 to 60 miles a day. They're raising awareness, like going to go meet with the Pope. And she wore a pair of on cloud surfers, which was a prototype, one of these early ones, and she was the only person who was able to run every day. And so she reached out and let them know and said, Oh wow, this is, this is something there. And so.
This was like the beginning word of mouthpiece and they got onesies and twosies as it's going through, but really got that endorsement from these elite athletes. And eventually they would go on and they would sign smaller deals with pro athletes and things like that. And one interesting note is that every time they signed a deal, like an endorsement deal, they stipulated that athlete had to spend time in their R&D facility improving the product because they weren't satisfied with where it was.
Nathan Rensick (20:07)
Yeah, I mean, I think it's pretty incredible how they utilize the running network and kind of dove into this niche. And at the time, I mean, I think running today has grown a lot. You know, there's so many half marathons and 5 Ks and 10 Ks, you know, across the country, but you know, flashback 20 years ago or 10 years ago, there, there wasn't, you know, quite as many. And so they really dove into this niche high performance category. And I think they took a really strong approach with product development to loop in these athletes to make sure.
that they could continue to improve the shoe. But their first three or four years were extremely difficult, right? I mean, they had product integrity issues, they had manufacturing issues, forecasting issues, and tough sales cycles. I mean, flashing back, it is really impressive that they were able to go from kind of this concept to full production in under six months. And their first order, 10,000 units, my estimate is that probably cost them like,
I don't know, around $25 or so, maybe a little more, maybe a little less, but, you know, they're putting in, uh, at least a quarter million dollars into that first production run, which was over half the capital that they had to, to fund the business. And so, you know, this I think is one of the interesting notes because when you're launching one of these brands, you know, you are taking a bet with inventory and you know, the way that production works is, you know, the more units you manufacture, the lower your price. And so.
you know, as they continue to place bigger orders, their margin grew, but it's hard from a cashflow and forecasting standpoint to understand, well, how many units should I order for this first PO? So I think that's really impressive of them to kind of take this quarter million dollar or so bet right off the bat for 10,000 pairs of shoes. But, you know, it worked out and it shows, they were doing a lot to get in front of buyers.
What was their focus kind of at first to get in front of buyers? You know, what was it? Hey, let's go to big box. Was it, you know, let's go to special, let's see retail. What was that strategy?
Aaron (22:13)
Yes, they definitely focused on specialty retail stores and they wanted to make sure that customers were going to be able to try the product. It's a weird looking shoe, right? If you're just looking around and you're like, I don't know if I'm going to try that, but you need to go someplace where people are going to try it on. They're going to walk around in the store. So they really focused on those sorts of things. This was, I think, markedly different than what most companies would do.
especially in that era where they would try to launch a DTC site or do something today, but they wanted to make sure that they had sales professionals in those stores so they could educate those professionals, who then educate the customers about their technology. And they eventually expand into big box retailers and DTC and wholesale, but their focus was really on the special retailers. And their initial go-to-market was kind of interesting because what they did, let's suppose, you know, Nathan, you're a
you own a running shoe store, they would just send you a free pair of shoes. And the hope is that you would wear them and you would love them. Because most of these shoe store owners were former professional athletes or just lovers of the sport. And so the thought was, I'll give you a free pair of shoes, I'll invest the 50 bucks or whatever. And you're gonna just love this as much as we do, you're gonna try it, and you're gonna stock it and that's how we do it. But they realized pretty quickly that
It was weird. There was no context. As soon as showed up and the owners actually wouldn't run to them because they thought that they were going to get injured, even though they paid nothing for these shoes.
Nathan Rensick (23:40)
Yeah, it's, it's pretty, it's an interesting strategy. I mean, I don't know if that would quite work today, but you know, you do, do you hear stories like I remember with our podcast on Vuori right? The Vuori buyer got a gift bag from the Vuori founder of, you know, Vuori athleisure wear and was just rocking it around the office. And that's when the athleisure buyer saw his coworker wearing Vuori and he's like, Oh, what's that? That looks comfortable.
And so that's how that connection happened. But I think with on running specifically, they really had to get people to run with them, to run in these shoes, right? Because otherwise you take a first look and you're like, all right, what is this? I don't really wanna test this out. And that really is what happened. I mean, they flew from Switzerland to New York to meet with a buyer from a company called Jack Rabbit.
And the buyer just looked at the shoe and laughed at them, right? He refused to even put them on because they were so weird looking. And, you know, this kind of made them realize that they had to adapt their strategy. And so they completely changed to really just going on runs with these potential buyers. So they would call a prospective account from their office in Zurich and say, Hey, I'll be in, you know, this city this week. Would you like to go for a run?
And most of these buyers in this category, they were runners, right? Because that was the product that they were buying for these stores that they were representing. And so they would say, okay, it is Wednesday morning work. Oh, by the way, what shoe size are you? And they'd bring the shoe with them and they go on a run with these buyers. And so I think that's a great strategy because not only do you get the buyer to test the product and see it for themselves, but you also get to build a relationship with that buyer as you go on a run with them. So.
I think this is unique and a great way to expand their retail presence. And so, you know, they went from like basically zero stores to over 5,000 stores in 2018. And they estimate that each founder had run with six to 800 of these different stores, which is pretty incredible if you just think about that. I mean, that was really kind of their main go to market strategy with these specialty running stores.
Aaron (25:55)
Yeah, it's an expensive run, right? Cause they're, they're booking a flight, they're booking a hotel and they're just there because someone said, oh yeah, sure. But you know, there's something about trialing the product and using the product and literally the ground game. And I think that, you know, this is kind of around the time of social media was coming out, but even if we were to do this today, if you had a radically different shoe, imagine what the CAC would look like if you were only reliant on people experiencing it.
you know, online, physical goods online is just inherently difficult. So taking a smaller approach and literally doing things that wouldn't scale, even though they, they got a lot of runs in that I think is a great lesson from a, from a founder point of view.
Nathan Rensick (26:38)
Yeah, yeah. I mean, I think it's kind of crazy too, because I guess what were the main lessons for these founders here? Let's kind of dive into that because, you know, at one point their supply chain almost killed them in their second season. I mean, let's kind of walk through this whole process that they had to expand this retail footprint.
Aaron (26:58)
Yeah, we talked about how difficult it was to get meetings and how difficult it was to get sales and those sorts of things. And so that's really the context. And so they're in 2011, or I guess end of 2010, beginning of 2011, and they had secured a couple key accounts that they've been working on. And they these accounts that said, all right, we will buy this amount and we need a February 2011 ship date. And the reason for that is.
Running has seasons, even though people run year round, most people buy shoes and get fit and those sorts of things once it starts to get nice. Once it gets less nice, you don't wanna buy running shoes or things like that. So there's a very specific window they have to do that. And so they had ordered about 30,000 pairs to be produced from their factory. And they sent their head of R&D, who was actually an intern at the time, to China. And he spent Christmas Eve and New Year's in the factory overseeing production.
And he comes back from China, lands in Switzerland and just says, Hey, yep, everything's good with thumbs up. Uh, but the day that he lands, they get a call from the factory, uh, call from China that says, Hey, this factory has gone bankrupt. We're really sorry about that, but it's, it's bankrupt and all of your unfinished products are still in the factory and the police have locked the factory down, you can't come in and out and oh, by the way, it's three weeks before Chinese new year. And so they're just like, are you kidding me? Like this is the worst thing possible. They've, they've outlaid all their cash and the raw materials.
that factories bankrupt, so there's no way they're going to get that back. They've got a short window where they have to fill these orders. Otherwise these retailers are going to be like, hey, you know what? Your supply chain is a mess. I'm not going to even have a shot. So they knew that the company was going to die in just their second season. And so they went into crisis mode and they had a partner in China that found a way to break into the factory and they basically snuck in and threw all the unfinished product.
into the back of a truck in order to get it out. And they said later that about 30% of it just ended up being really dirty or really damaged. And so, you know, like, did they break the law or they just been scrappy? Like, eh, who knows? But that was like problem number one is they had their product. But then problem number two is they had to find another factory who was willing to assemble these shoes and it was going right into Chinese New Year. And so they beg bartered and I was gonna say steal, but they just did that.
But they convinced another factory to keep workers for an extra four or five days so they could assemble everything and to do that they paid 3x the normal wages just so they could get it done. So that was problem number two they solved. Then they're like, okay, we have products now. We've missed the shipping window that we were looking for. There are no other vessels that are leaving and so we need to send it via air. And so they did all of this stuff just to get there and they end up wiping out most of their profit for the year just to meet these orders.
And so I'm curious with you, Nathan, I mean, being the factory guy, what sort of lessons do you think they learned and they internalized for their next factory?
Nathan Rensick (29:54)
Yeah, I mean, number one, this is just like an insane story that basically almost killed their business. I mean, it goes to show like you could be, you know, doing everything right on the front end and then on the back end, you're like, Oh, what my factory is bankrupt and they have all of my product. Like that's just insane. And especially the timing of this to a Chinese new year. But I think, look, you know, as you scale and grow up as an e-commerce brand, you really need to understand your factory's balance sheet, right? Because.
you've got to think about their business from a cashflow standpoint, right? So when you place a production or a POPO with a factory, they need to then go get the raw material. And a lot of times too, they're storing up raw material for you. So they might have that on their balance sheet. They might have a dwindling cash levels because they continue to have to cycle through this raw material to produce your finished good. They have labor costs, they have electricity costs. They have a lot of costs that go into producing. In this case,
one pair of on shoes. And so I think the biggest takeaway is to understand your factory's balance sheet and try to have transparency with that. I mean, it seems kind of crazy to me that like their quote unquote, you know, R&D guy was out there and didn't realize like, hey, this factory's on the brink of bankruptcy, but you know, maybe factories are known for covering up things very well. And so I think, you know, really always as you grow, try to understand your factory's balance sheet.
And it sounds like too, I mean, you know, I'm not quite sure if On was the biggest customer at this factory at the time or not, but you know, it obviously caused huge challenges for them and basically almost killed their business. So my biggest takeaway would be to understand, you know, the financials of your factory and really try to become transparent with them when it comes to forecasting as well, right? Because, you know, if you fluctuate your order volume, whatever it may be, that could have drastic effects.
on what the factory is planning to order from a raw material standpoint, and they might've already ordered that, right? So you've really gotta be transparent when it comes to your forecasting as well.
Aaron (31:58)
Yeah, well said. I completely agree. I think sometimes we forget that our suppliers, our vendors have businesses themselves, they have all those sorts of things. And so you have to trust, but you also want to verify. And so that's an important piece, but kind of all of these issues that we talked about ended up almost killing the company, they, you know, they actually ran out of money at some point. How did that happen?
Nathan Rensick (32:21)
Yeah, I mean, it goes back to forecasting, right? Because they were initially way too ambitious in their growth targets. So even though they grew 80% in their second year, they had budgeted 150%. So they were off by like, you know, a lot when it came to forecasting. And they had planned on raising more money to fund a production run in August, but they ran out of money in May. So, you know, the challenge of forecasting really caused them to run out of money and, you know, they were unsure if they were gonna make payrolls. So...
the co-founders had to step in and put the rest of their savings into the business. And so, you know, it looked like Caspar was saying that his bank account looked like he had just graduated college despite having worked for 10 years. And, you know, it was a pretty hard and crazy time for them. And it just goes to show that managing your forecast and cash flow is one of, if not the most important part.
of a business like On footwear, right? Because they misjudge their forecast that completely killed and really enabled or forced them to almost go under, right? And so it's kind of crazy to see and think about how important forecasting and cashflow is.
Aaron (33:39)
Yeah. And I think this was such a pivotal moment because I think every, every business at some point is going to go through some sort of existential crisis, whether it is a loss of a big customer, a loss of a key employee, a cash crunch like this, a factory that died. And you know, it's like these moments that you figure out, okay, are you, are you hanging up the towel or are you moving forward?
And I think that it really comes down to, at the end of the day, like, do you trust your team and are you close to, do you have partners that you can rely on? And to their credit, they had a good relationship. There were three of them that said, look, we're all in on this one. If it ends up failing, it ends up failing. It's going to suck, but we'll go back and do something different. And I just, I think it's, it's like these culture defining moments that are very difficult when you're going through them.
but are so important as you look backwards and just see that we are this company because we went through this really hard time. In the case of On, they made some very quick changes. They actually became profitable only three and a half years after their launch. The reason was is they toned down their growth ambitions and they adjusted their spending accordingly. They said, look, we're happy growing at 70% a year. We don't need to grow at 150% a year. Let's make sure that we'd be willing to leave some money on the table versus
burning too hot and potentially losing everything.
Nathan Rensick (35:02)
Yeah, yeah, I mean, it kind of goes to show, right? Like anyone can grow just depending on how much you spend, but to grow profitably is a completely different dynamic. And so I think the founders kind of switched gears here to realize, hey, we need to create a sustainable long-term brand. We don't wanna just continue to grow unprofitably. And so I think that was a huge mindset shift for the founders and they caught a big break, right? I mean...
who was the professional athlete that reached out to them and basically became a huge partner and catalyst for their growth.
Aaron (35:36)
Yeah, if you've seen any of the advertising, you know, the answer is Roger Federer. And Roger is like a well-known, well-documented sneaker head. He's got over 250 sneakers and he was an active user of On. And so it's an interesting thing where, because of how they came to market in this elite athlete network,
Elite runners know elite tennis players. And that just kind of works. So he was a fan to begin with and he had initially posted an Instagram that he was wearing a pair of on shoes as he was going to play in a major. He just talked about how much he liked about them. And so the company decided to send them a care package as a bit of a thank you. And Roger reached out again and said, Hey, you know, do you think we could get dinner? And of course, when Roger Federer invites you out, you don't say no. Right. And so they, they met up and.
they started talking and Roger said, Hey, I really like you guys. I like what you're doing with, with the company. I like the product. I think it's cool that you're a Swiss shoe company. There's really not any of those. I'd like to figure out a way to work together. And the initial angle was like, Oh, you know, like I'll, let's do a celebrity endorsements, figure that out. And they didn't have that kind of money. I mean, Roger Federer makes tons of money from tons of companies. And the conversation changes and said, look, we don't really do that big athlete splash thing or really more about
the athlete and kind of growing organically that way. And so they ended up in probably the best sales coup ever is they convinced Roger Federer, instead of giving on giving him money, to have him give on money. And so he invested in undisclosed amount to get about 3% of the total company. And at the date of the IPO, it was worth about 200 million. So I'd say regardless of what he put in, he did pretty well on that one. But their conversation really evolved and developed into
Hey, you know, not only is he going to be a brand ambassador, but you can talk about these things, but what if we did a tennis shoe? And if there is any athlete out there that can help you design the best tennis shoe, it's Roger Federer. And so he was very involved in the product design and the development, and they created a special branded tennis shoe called the Roger. And the, the impact both on the running and on the tennis was almost immediate. And there was a 77% increase in sales year over year.
Nathan Rensick (37:48)
It's insane. I mean, it's just pretty incredible to see what a kind of celebrity athlete can do for a brand. I mean, in the book Shoe Dog, it's very similar to Michael Jordan and Nike and how they just grew tremendously in the basketball category through that partnership with Michael Jordan. And I think here with On, they grew tremendously in tennis right? I mean, this was a huge catalyst for their growth. And even today, people know Roger for his On Footwear.
you know, how he, how he rocks them and continues to win matches, you know, using, using these, these great shoes. And so I think it's just kind of incredible to see that dynamic of celebrity partnerships. And this was obviously a lot different than an endorsement deal. And it was a win-win. I mean, what do you think about this strategy, right? Because on one hand, you have brands that go out and pay for influencers or go out and kind of pay for these celebrity endorsements and then on kind of flipped the script a little bit and said, Hey,
We don't really do that. We don't really have the capital to pay you what you typically charge. How about you invest in our company?
Aaron (38:54)
It worked out well. It doesn't work out for everybody anywhere. I mean, On was established. They were a couple of like over $100 million in revenue at that point. So they were a viable company on their own. It wasn't as if this was their first go to market idea. But at the same time, it's a very rare thing where you've got a celebrity who is already endorsing the product for free and is already a fan for free and wants to be as committed in developing the product and shaping the business.
as he was. And so this was really, you know, three or four things aligning all at once that made it just really the perfect match for him. And it opened up a lot of other doors too. And because of the success that they've had with Roger and the deal and the approach, they have about 15 or so other projects with different other athletes that are working on things for the Olympics or, you know, specific shoes or things for those specific athletes. And so it's an interesting kind of rinse and repeat model for him.
Nathan Rensick (39:47)
Yeah, I mean, I think too, it enables them to really focus on the product. You know, I think they're building for these specific athlete partnerships that continue to push their R&D efforts and everyday people see it too, right? I mean, their shoes are worn by regular people that aren't, you know, professional athletes and professional runners. But if we look at an overview standpoint and kind of really understand the company milestones here, I mean, it's, it's a pretty incredible trajectory, right? Because.
We don't know too much about the revenue prior to 2019, but they've claimed that every year they've grown around 70, 80%, which is just awesome to see. So 2009.
Aaron (40:30)
I tried to find some information, but those Swiss bank accounts, those are pretty locked up and they don't share a whole lot.
Nathan Rensick (40:36)
hehe
Yeah, yeah, but 2009, they're exploring the idea. 2010, the company's founded in Switzerland by the founder Trio. 2011 was when they almost died. The factory went bankrupt. They had lofty ambitions. They misjudged a lot of their forecasting, but they also expanded in the US and continued to partner with large retailers. 2012, it's estimated they did $4.7 million. This is when the Cloud Racer was launched with that.
proprietary cushioning technology. And they also launched their D2C site. So they only sold 50 pairs in the first month, but hey, that's something. And they also expanded in Japan that year. 2013, they get to 8.4 million in revenue. They win a ISPO award with the CloudRacer product. And the company raises a undisclosed angel round. 2014, their estimated revenue is 15 million. They become profitable.
Their shoes are worn by the Olympic silver medalists in the Rio Olympics. 2017, it's estimated 87 million in revenue with a series A round by Stripes as its only investor. So that was kind of a pretty incredible round put together by Stripes and they saw, great, great growth trajectory there. 2019, 275 million in revenue. So this is when Roger Federer becomes an investor and this face of the brand.
2020, 483 million in revenue. And even though the pandemic was really hard on I think every brand, athletic Footwear obviously is linked to health. And so they grew a lot through COVID. So 2021 is when they IPO, they do 796 million in revenue that year. They raised 746 million in their IPO. So that's an incredible year to IPO during COVID to grow like
like to those revenue numbers, it's just amazing. 2022, 1.32 billion in revenue, 6,000 stores distributed in 60 countries. The largest market that they have is America. That gets 40% of their business and they have more than a thousand employees, which is incredible. 2023, 2.04 billion in revenue. And 2024, they're continuing to grow. They're expanding in the apparel industry.
and producing kind of more whole outfits. They expanded into China as a country for sales, not just production, and they're continuing to grow and boost industry leading EBITDA margins of about 13% on par with Nike. So, I mean, Aaron, you hear that growth trajectory. To me, those numbers are just insane and incredible. There's not many brands that we've covered on e-commerce on tap that...
have just grown like that and continue to be profitable and hit these milestones. I mean, what's your takeaway there here in this timeline?
Aaron (43:41)
I mean, it really, first off, it's over the course of 14 years, right? So this isn't a flash in the pan. This happened in 18 months and look at us, but this is also a story where it seems like everybody won, right? The founders are still involved with the degree they want to. They've, you know, retired to somewhat where they're just on the board, but they're not doing active stuff, but they've made a lot of money. They built a company that is profitable and controls its own destiny. It's growing year over year. The investors.
that put venture money in did very, very well. The investors that put money in from an IPO perspective are doing well. And so this is one of the rare opportunities where it seems like everything should have worked the way it did and they just were phenomenally successful.
Nathan Rensick (44:23)
Yeah, it's incredible. What stood out to you about their supply chain? Let's touch on that a bit, or maybe the supply chain of Footwear in general.
Aaron (44:32)
Yeah, so the basic business model is that you have a contract manufacturer who produces a shoe that was designed by a brand who then sells to a reseller, who then sells to consumer. And there's usually about an 8x markup from the factory cost to what the consumer pays. And so there's a lot of margin in here for a lot of different parties. And the Footwear industry has always been considered to be extremely labor intensive. And so you see production gravitate toward traditionally lower labor cost regions.
And so the majority of the Footwear is, surprise, produced in China, then followed by Vietnam, India, and Indonesia. And it's estimated that about 10 to 15 million people are employed directly by the Footwear industry, and about 20 to 30 million total are employed globally as well. So the indirectly piece would be suppliers, truck drivers, things like that. So for...
For On, their US production is being produced by a factory in Vietnam. The main shoe company is Phu Tho Gym Brothers. This is the same company that's producing for some luxury brands like Ralph Lauren and Michael Kors, which I thought was interesting because I thought it would have been like there's an athletic shoe company. It looks like there's just shoe companies and then they have different finishes and things like that. Have you been into a shoe company or a shoe factory? Have you seen how it's done?
Nathan Rensick (45:52)
Yeah, yeah. I mean,
the biggest factory I've ever been to in my life was actually in Vietnam. They had 10,000 employees. It was like a mini city. I mean, it was insane. And it was a shoe factory that produced primarily for Clark's. So it was a huge facility. I mean, it was literally like a mini city. I mean, it was like crazy. But yeah, 10,000 people in this factory. Just insane production lines.
vertically integrated, I mean, they did everything. It was incredible to see.
Aaron (46:22)
Did the production change from like style to style? Or is it kind of like, oh, we're doing a dress shoe here. Then we do an athletic shoe and then something different.
Nathan Rensick (46:31)
Yeah, I mean, they mostly focused on like casual and dress shoes with Clark. So, you know, that was kind of their main focus and that's how most of their facilities operated. But yeah, I would think that they kind of sectioned it off by production line, depending on design and the materials used. But I mean, it's an incredible process because you think about it, like your shoe really encompasses a lot of different materials and, you know, different finishes as well. Right. So it's not like.
you know, a shirt where you're primarily using kind of one finish, raw material that's blended with, you know, polyester and some other fabrics, but you know, your shoe has a lot of different finishes.
Aaron (47:13)
Yeah, that's interesting. What sorts of things are factories doing to innovate these days? I mean, we know that shoes haven't changed a whole lot. They changed one time 600 years ago. How about manufacturing?
Nathan Rensick (47:24)
Yeah, I mean, what's really caught the eye of a lot of these factories is 3D printing to innovate faster, to prototype faster, to offer better personalization. I mean, when I think of personalization, I always think of like Nike ID. You know, that was like one of my favorite things to do as a teenager is just go on and like customize colorways and put on different, you know, text on these Nikes. That was super fun to do. So you know, 3D printing is really top of mind for the industry.
Aaron (47:39)
Yeah.
Nathan Rensick (47:53)
definitely to prototype faster and customize more. But there's also been a lot of innovation in materials and production techniques. So that's been pretty cool to see. And there's a lot of different documentaries and videos around this in terms of the innovation and materials that have gone into Footwear. And I think that stems into what On has done with the strides they've taken in sustainability. Do you wanna touch on what they're doing there?
Aaron (48:17)
Yeah, so like many other industries, there's been a lot of demand for sustainable and ethically-sourced Footwear. I know Allbirds recently came out and they've got what I think they're claiming to be as a carbon neutral or carbon negative shoe, which is pretty difficult. These demands are stronger in Europe and in places like Spain and Italy as opposed to the US, but it is growing here as well.
And so what they've done is they've pioneered this technology that they're calling clean cloud technology. And the idea is that you use emissions that you're already creating, either in the manufacturing process, in their case, they are taking carbon from a steel mill, and you basically convert that carbon.
you convert that carbon into a liquid, which then is turned into the foam, which can be used for the support in the shoe. And what they have pointed out is that, you know, roughly 99% of what you buy in a shoe is petroleum based. And you, you know, you think of it as like shoes, leather, but no, most of this is coming from oil. And so they look, this is essentially making a carbon capture shoe and it's required them to create a whole new process. They.
We're able to do it on a small scale in the lab initially, but then they've worked with other partners to make it so you can get a decent amount of the resin to make the foam. And the shoes are still like $10,000 a pair right now, so they're not commercially viable, but they're making strides there. And with their scale and what they're doing, they're hoping that by making this technology more available, this could be a way to help impact the impacts of climate change.
Nathan Rensick (49:56)
Yeah, yeah. I mean, I think, you know, taking a sustainable approach to production is top of mind for every shoe company. And I think consumers want this, right? They want to buy products that are made in sustainable ways with sustainable materials. So it's definitely top of mind for everyone in the industry. And then also, you know, On is experimenting with a subscription service for their shoes, allowing customers to return them to reduce waste, which is kind of neat. So if you're an On subscriber, you could, you know, just return your shoes, which is pretty cool.
But I mean, ON has performed really well since their IPO. I mean, in just 11 years, the company went from zero to a $7 billion valuation. They raised 746 million in its 2021 IPO on the New York Stock Exchange. And I think the main reason for this was to be able to compete with the major brands out there, like Nike and Adidas, right? And as Olivier said, the IPO is like a big ATM machine, which I thought was a pretty funny quote.
Um, but if you think about it, you know, a lot of these publicly traded companies have a lot more financial resources than, than private ones. So it makes a lot of sense. Um, but I mean, in two years since their IPO, the company has doubled its revenue and continues to perform. So it's just a huge success story. I mean, as I think about on their founding story and how they've performed, it is just incredible to recap and see, you know, the, the whole
founding Genesis idea, everything about on really is just pretty incredible. I mean, Aaron, what are your kind of your main takeaways here from this story?
Aaron (51:32)
Yeah, I think it's really easy to look at this and be like, Oh, they made it right. You know, they, they had this idea, they launched it. They've all made a bunch of money and the company's on its way. And I think that that's true, but it's also true that there's still a long way to go for on. They're only a 10th of the size of Nike and that, you know, they are coming after Nike who owns that running market. And so I think it'll be interesting to see how this battle plays out.
Are they going to grow the market for everybody and get more people into running? Because of technology is Nike going to fight back? Is Nike going to go out of their mind and just, you know, buy them outright? So there's some interesting things that could happen that I'm excited to watch.
Nathan Rensick (52:13)
Yeah, yeah, I mean, I love this story. This was an incredible episode of Ecommerce on Tap brought to you by Sourcify and Izba. But I mean, if you know the on story and brand, let Aaron know what you thought of this recap. I mean, tag us on LinkedIn. Let us know what you think of this episode of Ecommerce on Tap on Twitter. We always enjoy hearing people's thoughts and Aaron, what's kind of one question that you would like to leave our listeners with
you know, get them to ask us a question on social media.
Aaron (52:47)
What are your favorite companies that we haven't talked about yet? I think that we were planning the next season. We've got quite a few interesting ones, but, uh, as, as I've, I think one of the funnest things I've had so far as we've been doing this is just the organic experiences I'll have when I meet people in different cities or at conferences. And they're just talking about like, Hey, I loved X, Y, and Z. Can you do my company? And, uh, you know, initially we thought that maybe people wouldn't want us to profile a company cause we're tearing apart, but, uh, I think that there's this interesting aspect here of.
You know, there's so many great stories that are being done out there. And especially from an operational perspective, I love to see how they're actually coming to pass and happening. And so would love to know which companies we should do next.
Nathan Rensick (53:29)
Yeah, yeah, that's a great question. I'm also curious what a listener's favorite episode was. I mean, I know for me, my favorite was Liquid Death just because I love that brand, I love that story. And I think we recapped it incredibly well. So if you haven't heard the Liquid Death story, definitely check that one out. I think it was two or three episodes ago and it was just an amazing story of how they kind of turned canned water into a billion plus dollar brand.
It's been an awesome season of Ecommerce on Tap. Thank you everyone again for listening and tuning in. Please like, comment, subscribe, let us know what you think. And thank you again for listening in to this episode of Ecommerce on Tap brought to you by Sourcify and Izba.