On Holding – Recent $7.3bn IPO & Global Competitive
Positioning in Footwear – 29 September 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Volfango Bondi (VB)
Former General Manager, Europe at Puma SE
Agenda:
1. On Holding’s (NYSE: ONON) $7.3B valuation, regional footprint and market positioning across the
US, UK and Germany and lack of expansion across Europe
2. Category offerings across performance and athleisure, including potential to expand outside of
footwear
3. D2C approach to footwear sales, including the shift to digital channels and wholesale retailers such as
Amazon (NASDAQ: AMZN) from in-store
4. Supply chain disruptions and sportswear players sourcing in Vietnam
Contents
Q: Could you give an overview of the speciality running market? How has the landscape evolved through
your time in the industry?
3
Q: What’s the difference in building a functional shoe for running vs a shoe for athleisure and lifestyle,
where there is a big trend? Is there grey area between what’s classed as running vs lifestyle and athleisure? 4
Q: Could you give an overview of On Holding’s category offerings? What are its competitive advantages?
Q: Why do you think On is less successful in parts of Europe than in Germany? Why did a lot of its success
start in the US? Why would a brand try to supply to a market across the continent but not expand locally or
domestically with the easiest distribution? What dynamics are playing into the company’s domestic
weakness?
4
4
Q: How does a German company such as On market its products’ functionality and technology to consumers
in new territories? How might a marketing strategy differ for the US, North America and at home to convey a
5
product’s technology or overall comfort and feel?
Q: Is On marketing its running product technology and functionality through athlete partnerships, given
this is Nike’s strategy to market itself as a running brand? How do these relationships factor into marketing
strategies if a lot of people are wearing running shoes because it’s cool? Should On market its running shoe
as a more casual or athleisure product? How does marketing differ across the two dynamics?
5
Q: Could you elaborate on the D2C approach throughout Europe? You said many consumers like to touch a
product and be guided on the benefits, but many D2C brands such as On and Allbirds seek to establish
connections with consumers through digital channels. Could you discuss any D2C companies in Europe been
successful with the new approach of less physical footprint and increased focus on efficiency through digital
channels?
6
Q: What ability does On have to expand into categories outside of footwear? How competitive is the
company in athleisure physical wear, jackets, shirts and other similar categories?
6
Q: Why do so many companies struggle to be sufficient in adjacent categories in the sports and athleisure
market? Some athleisure companies in the US such as Lululemon Athletica are also thinking about footwear,
7
but many of these also struggle to enter the footwear market as you mentioned.
Q: What are the weaknesses of the sports running functionality of On’s product, given your doubts on the
company being a significant sportswear player? What can it do to expand its brand perception? How is it
perceived in Asia? Where’s the opportunity there for On? Nike and other domestic US brands enter Asia for
growth.
Q: We have discussed On’s quite quick recent success. Which comparable players started off strong but
started to flatline, given your concerns around sustainability of demand? Could this brand be on top today
and gone tomorrow? What are your thoughts on the company’s sustainability of demand in North America
and Germany and its ability to gain market share?
7
8
Q: How might On or other running apparel or footwear companies that start in Germany factor pricing into
this expansion strategy when entering new markets such as Asia or North America, where their brand
recognition is non-existent? How does pricing play into building the brand’s credibility? Are lower price
points offered or do they stay the same? Do brands add a premium because of the market?
8
Q: Could you comment on online wholesaler channels in the US such as Amazon, given your comments on
establishing the right partners to expand properly? Is the right approach for On digital or retailer? Is there a
big risk in wholesale being too exposed?
9
Q: How does sustainability factor into brand perception? On seems to be trying to market itself as a
sustainable lifestyle brand. How does it approach promoting sustainability in the US, given sustainability,
material sourcing and labour practices might be a bigger factor for consumers vs other global regions? Is
sustainability more important in North America than in Europe and APAC, thus impacting brand attraction
or in Europe than in North America and APAC?
9
Q: What are your thoughts on sportswear industry players such as Under Armour, Adidas, Nike or On
concentrating sourcing from Vietnam and a few other countries in that area? What are the risks? What other
10
options do these companies have to build out a reliable supply chain that is less at risk of imploding?
Q: What is causing supply chain disruptions? Is there an opportunity for China to pick up some of the slack?
I know you said it takes 5-6 years for a company to change sourcing production, but why is everyone so
concentrated in the same Vietnam risk for footwear production?
11
On Holding – Recent $7.3bn IPO & Global Competitive
Positioning in Footwear
Transcription begins at 00:00:03 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled On Holding – Recent $7.3bn IPO & Global
Competitive Positioning in Footwear. I am Nyree Hinton and I’ll be facilitating today’s Interview with Mr Volf
Bondi, former General Manager, Europe at Puma.
Volf, before we get started today, can you please state I agree or I disagree to the following statement: You
understand the definition of material non-public information and agree not to disclose any such information,
or any other information which is confidential, during this Interview.
VB: I agree.
NH: Thank you. Could you give an introduction to your background?
VB: I have 30 years of experience in the sporting goods. I spent, I would say, 80% of my time in the
wholesales business with two major brands on my back. Experience was Nike with 18 years where I was
working for the Italian market as a Commercial Director, and I also had experience in the European
headquarters. Then at Puma with two major roles, Head of International Sales where I was heading up all the
major wholesale customers across the world with a focus on specific markets like emerging markets, Brazil,
Mexico, China, Japan, and the last experience in Puma was General Manager for western Europe owning
wholesale, and owned-and-operated business, basically monobrand or whatever you would like to call D2C
now. The last experience is in Intersport. I’m Managing Director for Intersport Italy and I’m heading up the
south European cluster because we are basically a European retailer with overall, I would say, almost EUR
11.5bn retail value per year and divided in three clusters, north, central and south, and I’m heading up the
south cluster, which is basically a combination of different countries like Spain, Portugal, France, Italy, Greece
and the Balkans.
[00:02:29]
Q: Could you give an overview of the speciality running market? How has the landscape evolved through your
time in the industry?
VB: Running gear used to be not a key category for us. Before the COVID, the pandemic was hitting Europe,
running used to be something around between 10% and 12% of our overall business. In south European
markets, lifestyle is the leading category. Things have been drastically changing during and after the
pandemic. We have seen a pretty strong boost of demand on sport categories. Running is one of the most
successful categories after the pandemic simply because we perceive that the consumer behaviour is slightly
different. They put sport as one of the spending priorities and running represents almost, I would say, close to
20% of our business as we speak, so it’s a growing category. To be honest with you, we also think that this
success is here to stay and running will continue to have a pretty strong success also in the next couple of years
because we see the demand increasing and the consumer getting in the running category with a pretty high
level of expectation and also with a pretty strong willingness to spend, to increase the spend in running. That’s
basically, in a nutshell, I would say, a very positive overview of the running category.
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[00:04:26]
Q: What’s the difference in building a functional shoe for running vs a shoe for athleisure and lifestyle, where
there is a big trend? Is there grey area between what’s classed as running vs lifestyle and athleisure?
VB: I think this is a very wise question because from my side, it’s very difficult to answer. You see a lot of
people now adopting running as a kind of leisure and way to dress and I guess during the conversation, we’re
going to speak about one brand which is a good, I would say, example of this. I think that the boost of running
category is also influenced by this kind of new consumer behaviour as well, which is you see a lot of people
wearing denim and wearing running shoes as well within the city centre. Hence, I cannot give you a very
precise answer to your question, but definitely, I would say the success of running is also influenced by this
kind of lifestyle adoption in the back.
[00:06:06]
Q: Could you give an overview of On Holding’s category offerings? What are its competitive advantages?
VB: First of all, the On brand, I was extremely surprised that it got being the big success when they went
public because I believe there is a lot of emotional things going on. The value of the brand is definitely
overevaluated because if you look, the footprint they have across the globe, they mainly have two countries
where they are present, they are visible and they have some success. One in Europe is the German-speaking
market where at least in our overall ranking in running, they are up and down between number one and
number two running brands, so they are extremely successful in the German market and this was where
basically they were born a few years ago. The other country, they were looking at Germany with a lot of big
question marks because we don’t see the same kind of good results in other countries, and the other one is the
US, so they have a very limited footprint. They are very far away to become an international brand. That’s the
first sentence I would like to share with you. Why they are so successful in the German-speaking market, I
believe that they entered in the market with a very, I would say, strong technology point of view, very
distinctive look and feel, and this was the recipe of success in order to get some kind of shelf visibility, but the
real success going on was the adoption of the lifestyle consumer.
It’s very easy to see if you walk in very important German cities that there is this kind of consumer, I would say
between 30 and 40 years old, that is wearing denim with the On running shoes, and this was really the boom
of the On brand in the German market. We don’t see the same kind of trend in other countries for two reasons.
One, because the European market is very different country by country in terms of consumer behaviour and
also lifestyle trends. They have a very strong German footprint in terms of look and feel. I’ll give you one
example just to explain. If you work in the Italian market, you see On brand only in the area very close to the
border to Austria. If you go in big cities, in big trendy cities like Milan and Rome, you definitely don’t see On in
the right consumer fit. You could see this as a challenge/opportunity for the brand, but if you would like to
become a very strong international brand, you need to understand the different country/region needs. You
need to have a very strong organisation with a capability really to have this kind of international
understanding, and again, I have some question marks. Does the brand have these kinds of high-level
management and talented people within the company? That’s the other question mark. That’s basically, in a
nutshell, a very helicopter view regarding the On brand.
[00:10:47]
Q: Why do you think On is less successful in parts of Europe than in Germany? Why did a lot of its success
start in the US? Why would a brand try to supply to a market across the continent but not expand locally or
domestically with the easiest distribution? What dynamics are playing into the company’s domestic weakness?
VB: I will start from the US angle. US is a very strong running region historically and on top of this, the US
consumer from a running perspective, they are extremely open to adopt newness, like new brands and new
Private and confidential 4
technology or new shapes or something like this. Definitely, every running brand across the globe, they have a
very strong focus on the US market simply because I would say that if you are successful in US, it’s a very good
starting point in terms of overall revenues and also from an influencing standpoint. Regarding why they were
successful in Germany only, I think sometimes, you see things popping up with no explanation. Definitely if
you look regarding the colour palette of the On shoes and the shape of the shoes, it’s definitely dedicated more
to, I would say, a north European consumer. That’s definitely from a market expert comment I can give you,
which is a very, I would say, bullish comment, very difficult to explain.
The only question I have, and then we can also deep dive a little bit more on those kinds of centres, the
running brands which are extremely successful and taking big advantage of the running category success are
brands that, one, they are extremely well-accepted from consumers from a technical perspective, so they have
a very strong running history. Hence, they are a real authentic brand, like Asics, like Brooks, like New Balance,
and we see that the consumer behaviour, it’s very keen really to trust those brands going forward. The On
brand, I would say that if you speak with a panel of consumers in the German market, I’m pretty sure that
you’re going to get 60% of the panel explaining to you that their shoes are pretty cool and I don’t think that the
majority of the persons that are buying the On brand is because they go for a run, or they’re going to give you
an explanation that the technology, it’s much better compared to other brands. This is a pretty strong sentence
and strong statement because I believe that the success of a brand within the running category is definitely
mainly driven by the authority you have and the history you have in your back, and On has definitely still
proved themselves in the true running consumer.
[00:15:02]
Q: How does a German company such as On market its products’ functionality and technology to consumers
in new territories? How might a marketing strategy differ for the US, North America and at home to convey a
product’s technology or overall comfort and feel?
VB: First of all, they were, again, focusing on the German market, trying to reach the consumer with a very
strong technical message, explaining to them that their technology was a pretty strong technology giving
benefit to the consumer, which was the around, and this was the starting point. I believe that if you would like
to step in other markets and be successful in other markets like the US, you even need to strengthen this
message because the US consumer is extremely, extremely focusing on technology benefits, so the more you
convince the consumer that your technology is providing you additional benefit, the more the consumer is
willing to buy your product. Again, I think that one of the parts of the success of On is the different point of
view they had compared the other very traditional brands, because the look and feel was slightly different, the
shape was different, the colouring was different and sometimes, the consumer, they appreciate someone
coming with a very different point of view. I can give you another brand example which is extremely successful
as well, which is Hoka One One and this is the real expression of something different, something that other
brands are trying to copy and paste with very poor success, and the consumer sometimes, they would like to go
for something new. To be honest with you, this is also the reason why Nike is struggling to step in the running
market and you’re going to see that potentially in the next future, they’re going to lose some visibility and
market share in the running category because it’s becoming, I would say, a real leisure brand in the consumer
eyes. Hence, the consumer sometimes is saying, “If you are leisure, you cannot really become an authentic
running brand,” and this is going to be, in our point of view, the kind of struggle and challenge that Nike will
have in the running.
[00:18:22]
Q: Is On marketing its running product technology and functionality through athlete partnerships, given this
is Nike’s strategy to market itself as a running brand? How do these relationships factor into marketing
strategies if a lot of people are wearing running shoes because it’s cool? Should On market its running shoe as
a more casual or athleisure product? How does marketing differ across the two dynamics?
Private and confidential 5
VB: I think that to have a very good recipe and a good result, you need to put a lot of different ingredients in
what you are cooking, and I believe that Nike is doing a brilliant job there to leverage an asset and showcase to
the consumer that the most important asset, they wear Nike. This is a very good starting point. They speak
about technology as well, but the reason why we believe that they’re going to have a pretty challenging future
in running is because the D2C strategy in performance category will be a challenge for Nike because the
consumer that is purchasing a lifestyle shoe, they already know what shoes to buy at what price, and it’s an
easy game for Nike really to divert this consumer behaviour straight to the D2C. In running, the consumer
behaviour is slightly different. They would like to touch and feel. They would like to see a pretty wide
assortment. They would like to see what competition is offering. They would like to test different products.
They would like to be driven by experts regarding what is good for them, and this is going against the D2C
strategy, so I think coming back to your question, you need to have all the recipe to be successful. Definitely,
you need together with credibility to outlets, which I think that On is very weak on this one. You have to
advertise and be credible with your technology, enhancing the benefit for the consumer. You have to balance
your distribution footprint between D2C and retailers that authenticate your brand as well. That’s definitely, I
would say, 90% of the recipe to be successful.
[00:21:23]
Q: Could you elaborate on the D2C approach throughout Europe? You said many consumers like to touch a
product and be guided on the benefits, but many D2C brands such as On and Allbirds seek to establish
connections with consumers through digital channels. Could you discuss any D2C companies in Europe been
successful with the new approach of less physical footprint and increased focus on efficiency through digital
channels?
VB: Within the running category, to be honest with you, every brand in running is trying at the minute to be
extremely shy to claim that D2C will be the future for them, and to be extremely straight, every true running
brand is definitely saying that D2C is not the big chunk of the business which is driving the growth. That’s the
answer to your question, so I would say that the benchmark regarding D2C is definitely Nike because it’s
overpushing the D2C artificially and by the way, it’s mainly driven by lifestyle consumer and lifestyle purchase.
To be honest with you, when I read last fiscal year balance and I see that 40% of the business is driven by Nike
sportswear, and if you add on Jordan, which is, by the way, a true lifestyle, at least from a consumer
perception standpoint, brand, which is 20% of the business, so basically, 60% of the Nike business is delivered
by leisure and I would be extremely worried going forward because the leisure trend is up and down. You need
really to manage your brand, maintaining a certain focus on a sport heritage, which is like your background,
and then you need to elaborate your lifestyle (audio distorts 23.56) strategy accordingly, but balancing your
business as well.
NH: It’s interesting that you’re sceptical of the promising nature of the D2C approach.
[00:24:06]
Q: What ability does On have to expand into categories outside of footwear? How competitive is the company
in athleisure physical wear, jackets, shirts and other similar categories?
VB: I think that we have a very good example in our business of one brand which became extremely successful
in the sporting goods arena with apparel and now, they are trying to step in footwear, and believe me, that if
you are born in one business unit, to expand your brand in other categories, flesh out the business unit, it’s
quite challenging. Under Armour is a very good example of this. At least in the not-domestic market, they are
definitely the benchmark in apparel and they do a phenomenal job. We see them as a very high potential
brand in terms of growth internationally, but from a footwear perspective, it’s a big struggle, and they are
trying to copy and paste. I don’t know if they don’t have the right internal resources or there is also a heritage
component within the company, which you need at one point of time to buy, and stepping in On discussion,
where they are visible, like Germany, consumers perceive them as a running/lifestyle company or, let’s put in
Private and confidential 6
this way, a running company which you can adopt for lifestyle. If you would like to step in other categories,
you need to do baby steps in order to avoid any big mistakes. I would say that that’s an easy sentence from my
side. In their shoes, I would definitely make a step in tennis, and I don’t need to explain to you why. You can
move in another category with carefully leveraging, and having a slightly different point of view and differ
from competition. I think that they can do it, but to become a credible apparel brand, it’s a long run, and by
the way, it’s going to be a bumpy road and you need to be extremely, extremely careful because otherwise, you
can dilute your brand position, and damage your brand position and the gain of trust you had in running
during the last 10 years.
[00:27:21]
Q: Why do so many companies struggle to be sufficient in adjacent categories in the sports and athleisure
market? Some athleisure companies in the US such as Lululemon Athletica are also thinking about footwear,
but many of these also struggle to enter the footwear market as you mentioned.
VB: First of all, I start with a big statement. If you would like to become one of the leading sports brands
across the globe, you need to have a very strong footwear opinion. That’s something that we keep saying to the
Under Armour guys as well and we have seen some improvement in the last couple of years, but still, we don’t
see them in the right sport that they could start competing with the big brands. Why so difficult? Everything
starts from product creation to supply chain, from sourcing, from internal company know-how. It’s a
completely different business compared to apparel, and by the way, I can make the same comment in the other
way around, like a very strong footwear company, that they struggle really to become a credible apparel
company as well. One, you need to buy the know-how, you need really to have the right creativity, the right
point of view, the right brand footprint to step in that new footwear or in apparel, you need to have the right
supply chain, so it’s a lot of different know-how, different compared apparel which you need to build from
scratch and it’s not an easy job.
[00:29:43]
Q: What are the weaknesses of the sports running functionality of On’s product, given your doubts on the
company being a significant sportswear player? What can it do to expand its brand perception? How is it
perceived in Asia? Where’s the opportunity there for On? Nike and other domestic US brands enter Asia for
growth.
VB: You can see it from different angles. First of all, you became public a few weeks ago and all the market
went ballistic with this new brand going public. They have a lot of challenges because, again, if you would like
to become an international brand, you need really to put everything in the pipeline, understand the different
consumer needs and the different market needs, you need to have this kind of know-how in-house, you need
to make the right decision from a distribution standpoint. Just to give you one example, even in Europe, why
they are successful in Germany and they are not able to export this kind of success, because they are making
likely some stupid decision from a distribution standpoint. For example, you step in the Italian market and
you choose a distributor, actually, the distributor is a retailer as well. You make some question about the
decision. If you would like to become successful in other markets, you need really to plan and make the right
decision, which is a long-term decision, and this seems to be a decision made by an entrepreneur which, by the
way, is trying to add business on in a rough way without any kind of long-term approach.
Coming to the real question, becoming successful in Asia, this is a very difficult market. I think that if you look
at the last quarter Nike result, you can start to see that Greater China is not any more a boost of the revenues.
Consumers, I would say there is a little bit of overexpectation in Asia that has been certified. I would say that
you need to be extremely careful to step in the Asian market because it’s not any more an easy run like it used
to be 10 years ago where there was a lot of demand, a lot of space in the market. I believe that if you start
saying that, “We don’t any business in China. Tomorrow, we will become a very important running brand in
the Chinese market,” I would say, “Good luck,” because you need to find the right set-up for the company over
Private and confidential 7
there. You need to understand the Asian consumer needs, which are different compared Europe and the US.
You need more importantly, which was a big struggle, to find the right retail partner which is going to be able
to open for you the monobrand and believe me, there is not a lot of space in the malls over there. Hence, I
would be extremely careful really I don’t think, that China would be the booster of the company.
[00:33:37]
Q: We have discussed On’s quite quick recent success. Which comparable players started off strong but started
to flatline, given your concerns around sustainability of demand? Could this brand be on top today and gone
tomorrow? What are your thoughts on the company’s sustainability of demand in North America and
Germany and its ability to gain market share?
VB: If I would be responsible for On brand tomorrow, I would say that I would focus, (1), to maintain a certain
success in the winning markets like the US and Germany. That’s where I would fix the, “Don’t lose your
credibility over there and your business.” (2) I would try to become a more international brand, getting in
other countries in a very sustainable approach, with owned-and-operated business or very credible distributor,
which is very difficult. I would prefer really to have the brand operating directly in different countries. You
need to start from in the same way that you had been starting in Germany. At first, gaining credibility and
talking with the true running consumer, and step by step, just developing your distribution. I would test the
Asian market in a very limited way because that could be a backfire to you if you go too big in the Asian market
with too high a level expectation right now, so basically, I would really try to find a credible partner in China
that will be able to give me in the most important cities a spot for my brand, focusing on 10 cities only. Then, I
would try really to learn out of this because, again, I would step in the Chinese market with a very, I would say,
shy way without going and building too much expectations. That’s what I would do. I think that your question
was also if we need to compare On success, which other brand? This was for which other brand you should
compare it to. That is the question that you made as well?
NH: Would you compare On with Saucony, Asics or another brand that may have done well, but started to fall
out of favour as the years went on? On stays around but is not prevalent in taking market share from other
players.
VB: I think the easy comparison would be with Hoka One One, with a difference, because Hoka, it’s a true,
credible running brand that decided to step in different countries, starting from the authenticator. Basically,
the distribution which authenticated their running brand. It took 3-5 years really to become an authentic
running brand. They were patient enough without making mistakes and now, I see them a very strong
opportunity going forward. You start to see also some limited lifestyle adoption, which they are trying to
control by the way, and I think this is a very positive sign also because they recognise that they don’t want to
go too much in the lifestyle way, but I think that the comparison between On and Hoka is that they step in the
market with a distinctive point of view and different technology. Even if it’s, I would say, a technology which
doesn’t make any difference from a functional perspective, at the end of the day, it’s more important really to
communicate in a credible way to the customer, and we have a lot of examples of brands. At the end of the day,
the success of Asics is not because they have very strong technology. It’s because in the last 40 years, they built
credibility towards themselves in running. If you speak to the consumer, they don’t buy Asics because the Gel
technology is better than the Air technology. It’s simply because they’re not saying that it’s a running brand,
and they were able really to spend their marketing dollars in a proper way to establish themselves and to step
in the consumer mindset in this way.
[00:39:37]
Q: How might On or other running apparel or footwear companies that start in Germany factor pricing into
this expansion strategy when entering new markets such as Asia or North America, where their brand
recognition is non-existent? How does pricing play into building the brand’s credibility? Are lower price points
Private and confidential 8
offered or do they stay the same? Do brands add a premium because of the market?
VB: You cannot have a global pricing strategy. Sometimes, it’s very difficult to have a European pricing
strategy because the market price dynamics are different. I would say that we have seen in the last 10 years
Europe becoming more, I would say, aligned on this one. Very different compared US. Forget that a EUR 140
price point shoes could be extremely successful in Europe, but if you step in the US, translating in US dollars
USD 150, you could have a lot of problems, so you need to really understand how the consumer pricing policy
is affecting the consumer purchase. Nike is a good example. They stepped in Europe with a EUR 150 price
point, which, by the way, is USD 100 in US because there are the different pricing sweet spot that you need to
maintain in order to be successful and effective to the consumer. Asia is another market where you need to be
extremely careful understanding how is the price dynamic, how competition is pricing themselves and where
you would like really to step in terms of price point, because at the end of the day, it’s a way to really talk to the
consumer as well. The good example is Under Armour. Again, in footwear, we keep complaining with them
because in these (audio distorts 42.02) disruption times where every retailer is desperately looking for
alternatives, Under Armour is a potential alternative in footwear because they are starting, as I told you
before, to have the right product in the product pipeline, but from a pricing perspective, they are all over the
place in Europe. They are basically pricing themselves at the same level of Nike, which is a no-go if you liked
really to gain visibility in the footwear world and try to become visible to the consumer eye.
[00:42:45]
Q: Could you comment on online wholesaler channels in the US such as Amazon, given your comments on
establishing the right partners to expand properly? Is the right approach for On digital or retailer? Is there a
big risk in wholesale being too exposed?
VB: Distribution practices and policies is the most difficult job you can get in a sporting goods company, and
again, I don’t see a very strong difference between online and offline. It’s a question of everything starts from
how you would like to position the brand in the market. If you believe that running is the first step for your
brand and you would like to authenticate your running technology and running marketing message to the
consumer, you need to move accordingly from a distribution perspective, avoiding the big transactional
retailer from an offline perspective and online perspective which are far away from authenticating yourself as a
true running company. Amazon is one of them. I would say that in the US market, I can give you one example.
JCPenney is not yet the wholesales partner where you would like to start to present your product and your
brand. You need really to start with the authenticators which are the destinations for the true running
consumer, and again, you can find the different options from an offline and online perspective as well, and
before to become big, you need to become beautiful. That’s basically, in a nutshell the kind of statement I can
share with you, and again, if you are looking for growth at any cost, you can get it, but it’s not a very long-term
and sustainable approach for a brand because otherwise, you can pay the bill at one point of time and this is
going to be a very painful bill.
[00:45:30]
Q: How does sustainability factor into brand perception? On seems to be trying to market itself as a
sustainable lifestyle brand. How does it approach promoting sustainability in the US, given sustainability,
material sourcing and labour practices might be a bigger factor for consumers vs other global regions? Is
sustainability more important in North America than in Europe and APAC, thus impacting brand attraction or
in Europe than in North America and APAC?
VB: Definitely, sustainability is a very important message across the globe. I don’t see really a big difference
between different regions like Asia or US or Europe. The young generation is definitely more sensitive on this
kind of topic, and definitely every brand is having a bigger deck on this one because everybody would like to
speak about sustainability very openly with every consumer, but everybody is extremely concerned really to
step in this kind of marketing message because you open yourself to different potential prices, because the
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material and sourcing of sustainability is not yet there. Every brand, and believe me, there are big brands like
Nike that are putting a lot of money in terms of research, in terms of buying technology, buying know-how, but
you don’t see them still extremely proud and extremely vocal to speak about sustainability simply because they
have this big shadow in the back because if you start communicating sustainability, you have to be 110%
bulletproof. Hence, everybody is focusing and investing a lot of money in order to anticipate other
competitors, but still, there is a very, I would say, blurry situation on the sustainability.
The only brand that they made ahead of everybody else a very strong sustainable message to the consumer,
but this was starting already, I would say, 10 years ago, is Patagonia in outdoor, and again, you have seen they
were the first one starting in a very bold way speaking about recycling products. They have different kinds of
sustainable, strong messages to the consumer and I’m pretty sure that in the US market, if you ask broadly the
different consumers, “If you think about sport, who is the brand that is popping up to you which is related to
sustainability?” I’m pretty sure that there will be very, very few brands are popping up. Hence, I think On is
having the same problem that everybody else will have. We see some big brands that, at one point of time, they
will start to communicate (audio cuts out 49.24) message because (audio cuts 49.27) from supply chain, and
production and material sourcing, and I think the fight here is between Nike and Adidas, and I believe that in
the near 12 months, in the next 12 months, you’re going to see something popping up.
[00:49:53]
Q: What are your thoughts on sportswear industry players such as Under Armour, Adidas, Nike or On
concentrating sourcing from Vietnam and a few other countries in that area? What are the risks? What other
options do these companies have to build out a reliable supply chain that is less at risk of imploding?
VB: This is a very big topic, which, by the way, is one of the biggest concerns from a retail perspective we have
and we discuss almost every day regarding this kind of disruption. We expect very challenging 2022. A lot of
people, they’re saying that the concern will be concentrated in Q1 and Q2 only. I don’t believe it. I think that
the Vietnam disruption will affect all the year. The big trend we see is a big lack of product as we speak now
because as a retailer, we already foresee a big Q1 delay, which is not confirmed 100% from all the brands, but
there is a lot of talk with the brands regarding this potential delay of roughly, minimum, two months of
delivery. Hence, we see a big shortage of product in the market and we are trying really to go broader to ask for
product availability of full winter product in order to potential fill the gap, which is going to be a mission
impossible, but at least we’re going to manage the potential disruption. I think that every brand will be
affected because the Vietnam footwear production, which is equal high-level quality footwear, it’s difficult to
replace. If you would like to change that sourcing strategy, usually, it takes 5-6 years. This is an answer to your
question, so it’s not going to be possible to divert the production from one day to the other one. I think that a
lot of brands, they are looking not at this kind of disruption for the 2022 only, but they would like really to, I
would say, balance a little bit the risk of stepping in other production facilities in different, other countries.
I think that European and, by the way, American sourcing at one point of time could be an option as well
because don’t forget, these kinds of higher costs that we see also is a reality. Freights are three times or four
times higher vs before the pandemic. Materials are increasing. Whole store cost, labour cost is increasing as
well in Asia, so a lot of companies, I believe that they are looking at different, other options, I would say, with a
different open-mind approach. Local sourcing could be something, a good option, but again, it’s going to take
a while before you’re going to be able to produce in a different country because it’s not an easy game. You need
to find a factory, the right partner, the right labour, high-level labour know-how, but in a nutshell, what I
would like to say to you, everybody is in the same situation. There are very few brands which they’re going to
have less effect and the potential, I would say, opportunity out of them. Under Armour is one of them because,
again, very low footprint in footwear. Hence, very low risk. Apparel sourcing, quite heavy in Latin America,
and we are looking at those brands because whatever product you’re going to find during this very important
Q1 lack of product situation, the better it’s going to be, and again, the brand that will take this advantage will
be in the good starting point when, by the end of 2022, the supply chain disruption will be over.
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[00:55:17]
Q: What is causing supply chain disruptions? Is there an opportunity for China to pick up some of the slack? I
know you said it takes 5-6 years for a company to change sourcing production, but why is everyone so
concentrated in the same Vietnam risk for footwear production?
VB: It’s a very simple answer. Vietnam in the last 10 years became, I would say, a centre of excellence for
high-end footwear product, and a lot of Chinese know-how moved in Vietnam for labour cost reasons 10 years
ago, even more, and everybody was taking the advantage of this one. Every brand was following this new
production trend and nobody was really foreseeing a situation like the pandemic creating this kind of problem
in Vietnam, and now, suddenly, everybody is shouting and screaming, but they don’t have any kind of B plan.
That’s the sourcing trend. If you recall, 30 years ago, it was Taiwan and then everything moved in China, and
after China, we have seen this Vietnam trend. In apparel, we have this Myanmar trend as well for cost reasons
and the labour costs are very low, so I would say every supply chain decision was driven by lowering the cost
and being competitive in the market. I think in the future, the cost of product will be not so important like in
the past, so the cost of product won’t be the major reason to make decisions. I think that people, they will start
really balancing the risk, having different productions in different countries and accepting also higher cost for
lowering the risk of being in another situation like we will have in the next year.
[00:58:03]
NH: We’re just about out of time, so we will end the Interview there. Let me close by saying thank you, Volf,
for your time today. We were able to cover an extensive amount of material, so appreciate that, and thank you
clients for joining Third Bridge Forum’s Interview. If you would like to speak to Volf in a private call or
meeting, please let your relationship manager know. Have a good one.
VB: Thank you.
Transcription ends at 00:58:20 of the recorded material
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