On Holding Initiated at Buy by Guggenheim

By Inti Pacheco

On became one of the world's fastest-growing running shoes with its Swiss cheese-like soles and minimalist, tech-forward aesthetic. To outrun tariffs, though, it is standing still.

Facing down duties of up to 20%, the Swiss footwear brand didn't stockpile merchandise to get ahead of the levies, didn't negotiate with its factory partners to split the extra duties, and it hasn't asked retailers to help soften the blow.

Instead, On raised prices. In July, the price for several of its sneakers rose by $10, including on its popular, now-$170 Cloudtilt. Its chief executive, Martin Hoffmann, said tariffs weren't the only reason.

"As a premium brand, you have pricing power," Hoffmann said. "The consumer doesn't change with the tariffs."

On has been on a tear lately, and its moves to burnish its high-end appeal have a lot to do with it. As they are with food, cars and airfares, more affluent shoppers continue to flex their purchasing power, while lower-income Americans show signs of pulling back. Products and brands that cater to the wealthier set are profiting from the split-screen economy.

The company recently raised its annual forecast for the third time this year, even as other sneaker brands contend with inflation, tariffs and more cautious consumer sentiment. It now expects full-year sales to reach almost $3.7 billion, up 34% from 2024, and executives say they have no plans to offer discounts this holiday season. It also didn't hurt that the female winner of this month's New York Marathon, Hellen Obiri, broke the course record wearing Ons.

Investors, though, harbor doubts that On can withstand the economic challenges weighing on its rivals. Despite On's torrid growth, its stock is down about 30% compared with a year earlier. Sales of Hoka sneakers, another hot running-shoe brand, are growing slower this year. Analysts say some fear On could be next — especially if Nike's turnaround moves gain momentum.

Still, On has captured loyal and wealthier shoppers more nimbly than other companies, said Telsey Advisory analyst Cristina Fernandez. And it has pulled off sneaker designs that consumers are just as eager to wear to work and dinner out as they are for a 10-kilometer run. Its customers tend to buy more than one pair once they have tried them, she said.

The company is opening more than 20 stores a year — faster than competitors — and in cities where shoppers are ready to pay $170 for a hoodie or $120 for a shirt, such as Palo Alto, Calif., and Chengdu, China.

Monica Del Portillo used to wear Skechers. But she bought her first pair of On sneakers after her son-in-law suggested them for her heel pain. A week later, the pain was gone, she said, and she was hooked on the shoes' comfort.

"With this pair, I now own five," Del Portillo said this week, pointing to the new pair of On's Cloudtilt Moon shoes she had just bought for $200 at the company's flagship store on New York City's Fifth Avenue.

Nike and Hoka owner Deckers Brands have been more cautious in their outlooks, citing hesitant shoppers and rising tariff costs. Retailer JD Sports said this month that it was seeing more discounting among shoe brands, while Taiwanese footwear manufacturer Pou Sheng said order trends had been better for smaller brands than for its two biggest clients — Nike and Adidas. (Though On's annual sales have grown tremendously — from $286 million since 2019 to $2.6 billion in 2024 — they still represent less than 10% of Nike's revenue.)

On's Hoffmann says On's flagging share price doesn't reflect its powerful market position, and his company isn't benefiting so much from rivals' slowing or stalled growth. Rather, it is tapping a market that they haven't courted as much — the high-end shopper willing to pay more for performance and a sleek style.

"We gave people the alternative to wear a sneaker in a daily environment but still say, 'I care, I invest in my premium experience,' " Hoffmann said. "If the product becomes part of your identity, you also have the willingness to pay for it."

Founded in 2010, the Swiss sneaker maker initially focused on developing new cushioning technologies for running shoes. The brand took off after an investment and partnership with Swiss tennis champion Roger Federer, followed by an initial public offering in 2021. The shoes' distinctive midsoles — made of hollowed-out, springy pods or "clouds" — stood out on running-store shelves and brought in new customers.

"The way the product is positioned, the way it's so visually different, these things work together and become a real profit center for retailers, " said Dan Schade, On's general manager for the Americas.

The company is now trying to reach younger customers. Executives said they have made progress with young women — a group that brings with it a lot of purchasing power and loyalty — after launching a product line this year with actress Zendaya. They are hoping to build credibility and coolness among younger consumers through partnerships with retailers such as streetwear chain Kith, which caters more to young men.

"On is still very much underrepresented," Hoffmann said. The focus now is on, "what do we need to do to be there?"

Write to Inti Pacheco at inti.pacheco@wsj.com