Why Nike Doesn't Like Roger Federer

This is Zendaya. She has won two Emmys, one Golden globe, and has more than 180 million  followers on Instagram. She’s the face of a new generation of hollywood icons.

And brands  are lining up for a chance to work with her. But instead of signing with the usual  suspects like Nike, Adidas or Puma, Zendaya went with a different  brand. Zendaya signed with On.

So the question needs to be  asked: What the hell is On? To understand the new player  on the sportswear market, we need to look at another brand ambassador.  Because Zendaya is not the first one to choose On over Nike.

And it might have  something to do with her latest movie. A part of the company On is owned by: Roger  Federer. He has won 20 Grand Slams wearing the Nike swoosh.

Befriended Nike co-founder Phil  Knight. And they sold a lot of shoes together. One of Nike’s marketing directors even  said that Nike could have done for Federer what they did for Jordan. 

It was the perfect relationship. But then something happened.  Federer and Nike broke up.

It was one of the most controversial sports  marketing decisions ever. Suddenly, even the New York Times was writing  about an athlete leaving a brand. Many commentators said that Federer was making  a mistake.

Leaving the almighty Nike marketing machine. That could have helped him build  his brand even after the end of his career, when there would be no images of him  lifting trophies anymore. And indeed, Federer never won another  Grand Slam after leaving Nike.

But he did something maybe even  bigger. He created the fastest-growing shoe brand in history - a new competitor for Nike. Welcome to Athletic Interest and  how Roger Federer is building a billion-dollar shoe company called On.

It took Nike 8 years to hit 1 billion in sales after going public. On  did it in less than 18 months. They emerged in different decades  and under different circumstances, but it’s hard to not see the  similarities between the two companies.

The focus on innovation. Performance-driven. Strong branding.

It seems that “On” does the same thing that  Nike did. But better. Or at least faster.

And Nike wouldn’t be the first market  leader to fall. Think of Nokia, Kodak or Blockbuster Video. There is  no subscription to staying number 1.

But let’s start at the beginning. There is an old, rusty waffle iron displayed at the company museum at Nike’s World  Headquarters in Oregon. More than 50 years ago, Nike Co-Founder Bill Bowerman used  it to create the Waffle Trainer, the shoe that launched a  billion-dollar athletic empire.

If there is ever going to be an On Running  museum, it will probably display a garden hose. In 2005, On Founder Olivier Bernhard got  a call from an engineer asking for his shoes. Bernhard was a well-known athlete  in Switzerland: A six-time Ironman winner and known for being a performance junkie who  loves tinkering and pushing to find an edge.

The engineer said: "I'll put something on  them, and you go run". Intrigued by the call, he mailed off a pair of his Nikes and got them  back with cut-up garden hose pieces on the bottom. The shoes looked so ugly that he waited  until midnight to go for a test run.

But real beauty comes from the inside. And the  shoes made him feel like “running on clouds”. Sounds a little bit too perfect  for a brand origin story, but ok.

Bernhard continued working on the shoe. He  spent the next three years building on the engineer's work — cutting hoses and gluing  them on shoes to invent a springy sole. And the next step?

Making more than just a pair for himself.  But going from prototype to production. As a Nike-Athlete the logical step for him was to approach Nike.

He pitched his  idea - and Nike rejected it. Looking back, Bernhard admits that if he was  in Nike's position, he would have laughed at his garden hose design. But he believed in  his idea.

He had put in so much work already. So Bernhard presented the  prototype to his friends, David Allemann and Caspar Coppetti. Alleman  described the shoes as Frankensteins.

But they saw the potential of the  product once they ran in it. So in 2010, they formed the company On-running  in Zurich and launched the Cloudracer. The shoe quickly developed a somewhat cult-like following  among runners.

Once people tried the shoes, they were hooked. And willing to pay a  higher price to get their hands on a pair. In the next few years, On became the  biggest shoe brand in Switzerland and even sold more running shoes than  Adidas in their homeland Germany.

They kept expanding to other countries,  developed more models and started signing the first On sponsored athletes  - all while sales kept growing. In September 2021, On went public and just 18  months later hit the 1 Billion $ mark in sales. No other footwear company has grown so  quickly in such a short span of time.

So what is the secret behind the rapid  success of On? We broke their recipe down into three reasons - and a rock. It’s because of this guy!

Okay not only because of this guy. But it’s a great anecdote. Because Dwayne the Rock Johnson saved On Millions of Dollars.

By wearing On-Shoes in the  Promo-Intro for the Superbowl in 2020. Everything else he wore was black, but the shoes were white. It seemed like  it was staged.

But Bernhard emphasised: “We don’t have a deal with him. We assume that  Dwayne Johnson bought the On-Shoes himself. ” The Super Bowl has the most valuable advertising  spots in the world - and On got one for free.

The clip got millions of views and suddenly  people started talking about the shoes. The really weird part: The rock  is not only not paid by On, he is on contract with Under  Armour with his own signature line. “On” couldn’t have wished for better marketing.

Apparently, this was just a lucky shot.  But “On” also has a well-prepared strategy: With three main focus points. (1.

Efficiency) With every shoe sold - On makes more money than Nike or Adidas. They have a better margin.  Because they often skip the middlemen - like Footlocker.

We explain that in more detail in our  video “What It Actually Costs to Make A Sneaker? ”. The retailer usually gets 50% of the sales,  meaning less margin for the shoe brand.

But On focuses on selling directly to the consumer.  Through online and flagship stores. This type of revenue is more than half of their total  revenue.

(On 57,2% / Nike 43,7% / Adidas 39%) On is incredibly selective with their retail  presence. They only open stores in premium shopping locations in major cities such as  New York, London, and Shanghai. This is where most consumers can afford expensive shoes.

Which  is also the first sign of their Brand Positioning. (Brand) Think of Switzerland. And Swiss Brands.

Now it’s  probably no surprise that the team at On is going for a premium brand position.  High quality for high value markets. And On is well aware of the positive  image that ‘Swiss Engineering’ has.

They even put it on their shoes,  together with a little Swiss flag. And sometimes they adapt strategies  from fellow Swiss brands. For example, keeping supply low to create scarcity.

Like  Rolex does with their watches. Just recently, On even stopped shipping their products to about 200  retailers because they were not “premium” enough. The Swiss DNA was set in stone when they  signed their most important deal yet: Roger Federer.

Another former Nike athlete.  But he is not only a brand ambassador for On. Federer currently owns 3% of the company,  and is also a contributing product designer and representative for the brand.

Being an  investor and not just a brand ambassador underlines that this collaboration is  meaningful and not just a publicity stunt. And it looks like it’s working. Since  Federer joined, On has quadrupled its sales.

Thanks to their premium brand, “On”  can ask for higher prices. But their unique selling point is probably their innovation. (Innovation) In 2010, On patented a cushioning technology developed at the Federal  Institute of Technology in Zurich.

As a runner, your are looking for the smoothest, shortest  contact with the ground to perform at your best. Tests showed that On's shoes allow a  runner to touch down later in their stride and lift off earlier, creating a feeling  of gliding, or running on clouds. That’s where the technology got its name: CloudTec.

In 2011, a study found that runners wearing On were able to run at lower pulse rates and  had lower blood lactate levels than with their normal running shoes. Essentially, the On  shoes were helping them to run more efficiently. The innovations don’t end here.

Like a subscription model for shoes:  the CloudNeo. You can’t buy this shoe. Just rent it.

And when the shoe gets old, you  can send it back and receive a brand new one. Subscription models are great for keeping  customers and getting regular feedback. And: since the customer doesn't  own the shoe and returns it, and because the materials can be  recycled, it’s also very sustainable.

So On has a solid strategy, a strong brand  and an innovative product. But to attack Nike, one last thing was missing. If On really wants to attack the footwear giants they need to go  global.

And for going global it’s not enough to accidentally be at the Super Bowl once. So “On” needed money. Money to expand.

If you want to get money quickly, you need  to sell shares. So On decided to go public. The IPO in 2021 was On’s next step to  get to the top of the footwear market.

They sold shares for nearly 750  million dollars. “On” was now officially worth 6 billion dollars. If  you were one of those first investors, you are probably happy in 2024.

Because  the stock kept growing since then. So should Nike be worried? —-------------------- First of all, Nike has a 40-year lead.

Nike went public in 1980. And they  had more than a couple of good ideas and years. So let’s put On’s success into perspective: These are the valuations of  Nike and other footwear brands.

The number of employees. Here - the revenues. Nike’s total revenue in 2022 was more than 45 (46.

7) Billion $ which is nearly  40 times the amount of On's revenue. Before the IPO, On was - globally - not more than  a niche product. But so was Nike in the beginning.

During the early days of the swoosh, running  wasn't nearly as popular as it is today. In the 1960s and early 70s, when Nike was just  starting, going for a run wasn’t even a real thing yet. So people were able to run, but  it was nothing you’d do in your freetime.

It was for serious athletes or "nerds"  who were passionate about fitness. It wasn't mainstream. But the Rise of Nike  happened alongside the rise of running.

Running became more and more popular and Nike's  business got more and more potential customers. And also On’s Rise came with a new rise  of Running. Global statistics show that there was a 65% increase in running during the  pandemic.

There are 20 million “new” runners in 2022 compared to early 2020  in America. So the pandemic more than doubled the amount of people  running - and buying running shoes. On started like Nike - as a running brand founded by athletes.

But they also  try to grow into new markets. For example tennis. Which by the way was the  first new sport that Nike expanded into as well.

On launched the Roger Collection in 2021. It  seemed like the perfect recipe for success on paper but it failed to live up to  expectations. The signature CloudTec, didn’t provide enough lateral stability for the  360-degree movement in tennis.

So they worked closely with Federer to design a professional  tennis shoe from scratch. Its bottom-light construction and stiff foams are perfect for  someone who can glide gracefully across a court like Federer but might not maintain balance  as well for someone who slides into shots. In Co-CEO Marc Maurer’s own  words, ‘It turns out creating a professional tennis shoe is extremely hard’.

One big reason why Nike and Adidas have been so successful is that they have been able to  diversify into all kinds of sports. So far, On is still trying to burst out of the running  bubble - and find their Michael Jordan moment. Could this be where Zendaya comes  in?

After all, the most money is not made with running, basketball or  tennis products - but with sportswear. So who knows, maybe a few years from now, we will make another video about a new  number one in the athletic apparel game.