On: How a 22-point margin gap decides which brands can afford to say no

Part one of Sebastien Willefert’s three-part Playbook series on brands and “knowing” looked at Nike, which pushed to own the checkout and the data and ended up with all the data and none of the desire. Part two looked at Lululemon, which lost the best sensing instrument in sportswear to a metric, one store fit-out at a time. Part three turns to On, the challenger that has gone further down the same road and has not broken, and asks why not.

The company that cut its own forecast on purpose 

On 11 Aug., 2026, On told the market its revenue would come in lower than planned, and that this was a decision rather than a disappointment. It had held back product from retailers who were discounting. In the same release it raised its gross margin guidance, from at least 64.5 percent to at least 65 percent. 

Shares fell as much as 22 percent in early trading in New York, the largest intraday decline since the company listed in September 2021, according to Bloomberg. 

A company cutting its sales forecast and raising its margin forecast in the same breath has decided which number it will not compromise. 

Episodes one and two of this series on data and knowing were built on filings and a decade of hindsight. At Nike and Lululemon, the bad news arrived late, large, and from outside. On’s arrived early, small, and self-inflicted. 

This episode is built on inference, because On has not “broken” and may not. A brand that misses its own guidance deliberately has a working alarm. Yet similarities with the two incumbents, Nike and Lululemon, are numerous: D2C push, margin focus, retail expansion worldwide.  

The question is not whether On’s plan is good, which I covered in this column some weeks ago. It is whether the listening survives it. 

The number that was supposed to settle this 

In Q2, 2026, On’s direct business reached CHF 388.4 million (€422.5m), up 34.3 percent at constant currency, and 45.7 percent of net sales. A second-quarter record. 

Collective wisdom would say that is “the danger zone.” Nike went direct and “broke” itself, having peaked at almost 44 percent of brand revenue in fiscal 2023 against 39 percent today. On is operating at roughly the mix where Nike peaked. 

But Lululemon is about ninety per cent direct and always has been, with wholesale at roughly a tenth of the business, and it “broke” anyway, inside its own stores. 

Ninety, thirty-nine, and forty-six percent direct business. Two of those three companies have lost most of their value in three years, and they are the highest and the lowest numbers on the list. The mix does not explain the outcomes, because it was never the mechanism. 

What actually broke 

To recap, what Nike removed was not wholesale revenue; it was the wholesale buyers, the people who could tell it what a city would take next season. What Lululemon removed was not floor space; it was the room where somebody watched you use the product. In both cases the replacement measured beautifully and knew nothing. The channel is not the instrument. The people in the channel are. 

Nike chose scale, On is choosing expertise 

The two companies selected their partners on opposite criteria, and the lists prove it. 

Consumer Direct Offense, announced on June 15, 2017, moved Nike toward roughly forty “differentiated” retail partners. Nike never published the list, but a selection of the forty was widely published: among them Foot Locker, Nordstrom, Dick’s Sporting Goods, JD Sports and Finish Line in physical retail; Amazon, Zalando and Tmall in digital. They qualified on reach, experience delivery, and in the digital cases a willingness to share data back. 

Not one of them is a specialist that watches you run. 

Then the removals. Nike ended first-party selling on Amazon in late 2019, closed Zappos, Dillard’s, Belk and others in Aug. 2020, and in March 2021 went further: DSW, Urban Outfitters, Shoe Show, Olympia Sports and Big 5. Nike kept Tmall and cut Olympia Sports, as reported by Retail Touch Points. 

Nike not only stopped listening. It defunded the listeners. Exclusive assortment is not a courtesy to the retailer. It is how a brand pays for the people who tell it what to make next. 

Running is where On began, which makes it the one channel where the brand’s authenticity is not just a claim. It is also the only channel in this industry where a member of staff can talk a customer out of a shoe. A brand that funds a channel capable of rejecting its own product is saying something no campaign can say. 

In June, at a summit in Paris attended by more than 200 run specialty partners, On spelled out that policy with three commitments:

● Product Primacy: meaning more launch exclusives and priority access for core specialty accounts.

● Elevated Partnership: meaning an expanded team of technical representatives to train specialty floor staff and investment in local running communities. 

● Frictionless Operations: meaning better pre-booking, inventory visibility and restocking. 

The first of those arrived on Oct. 1, 2026, via the Cloudsurfer 3. The model was available initially exclusively at selected running specialty retailers. On’s own newsroom said  the pre-launch “reflects On’s ongoing commitment to the success of the specialist running retail channel and recognizes the vital role these retailers play at the heart of running culture.” A global launch across all channels, including on.com and On’s own brand stores, will follow but not until early 2027. 

A business that is 45.7 percent direct put sales via its own channel last, by roughly three months. That is not wholesale management. It is an inversion of the channel hierarchy, and because it was announced as policy in June and executed in October, it should not be considered  a one-off strategy either. 

Nike has reached the same conclusion. On April 7, 2026 it announced a nationwide partnership with the American franchise running retailer Fleet Feet across more than 285 stores, moving from select doors to the full footprint, and launched the Structure Plus through an exclusive run specialty retail period. Nike is buying back – with exclusive windows and a stability shoe – access to a channel it spent five years exiting.

Lululemon diversified, On doesn’t compromise

On is running its own playbook; A three-sided system of product innovation, distribution management and operations, underwritten by finance and narrated to the market. 

Price discipline is stated as policy. From On co-founder-come-co-CEO Caspar Coppetti: “Lowering prices has never been part of the playbook, and you do not expect that from us.” Inventory discipline is the enforcement mechanism. From fellow co-founder-come-co-CEO, David Allemann: “We choose not to build in-channel inventory that could compromise our full-price integrity.” The result: a gross margin of 65.4 percent, up from 61.5 percent. 

This is what the DTC-percentage debate keeps missing. Premium is not one of On’s safeguards. It is the budget that pays for all of them.

● Price discipline requires margin: A brand earning forty-five points of gross margin cannot refuse volume.

● Inventory discipline requires margin: Holding product rather than dumping it has to be financed.

● Channel segmentation requires margin: Exclusive assortment at full price is what pays the specialists. 

Set against Lululemon, the contrast is sharp. Lululemon’s growth came from footprint acceleration and category diversification: footwear, beauty, accessories, a Disney collaboration. On has more than 70 own stores, describes its openings as selective, and has launched football and golf with modest sales ambitions – run, sneaker and apparel are still expected to deliver the large majority of new sales to 2029.

The new categories are loudspeakers rather than growth engines. That is a materially different decision, and On deserves credit for it. 

Where On’s playbook could still go wrong 

1. On’s listening post was built for running  

From a performance laboratory in Zurich and more than 1,700 wear testers worldwide, to a deeply invested specialty run channel with an expanding team of tech representatives, and a flat organizational culture empowering employees and promoting values such as “Explorer” or “Athlete,” the real sensing instrument for On escapes me. What is visible is the attempt, which is more than either incumbent was making at this stage in their respective declines. 

The actual problem is aperture. Whatever On’s instrument is, it was built in the running category. In Q2, 2026, apparel grew 56.2 percent, training 40 percent, tennis apparel nearly tripled and Asia Pacific grew 54.7 percent, while eighteen to twenty-four-year-olds rose as a share of direct customers by the most since On began tracking it. Football and golf are the new pillars.  

Nike cut the listeners. Lululemon’s metric closed the room. On’s exposure is quieter. The instrument stays intact but becomes irrelevant, because the revenue has moved somewhere it cannot reach.  

2. On’s margin floor leaves no room to listen  

September’s investor day committed On to high-teens growth to at least CHF 5.6 billion (€6.1bn) by 2029, gross margin above 65 percent throughout, an adjusted EBITDA ambition above 22 percent and up to a billion dollars of buyback. 

Read the margin line as an instruction rather than a forecast.

A company which has told the market that 65 percent is the floor for four years cannot discount in a downturn without breaking a public commitment. So softness has to be absorbed as volume instead of price. At 45.7 percent direct business, volume means unsold stock on its own balance sheet, in stores that cannot moderate their sell-in to themselves. A 65 percent floor plus 46 percent direct is a company that must absorb any demand shock as its own inventory. 

August was a supply decision taken in a healthy market, and On handled it well. The real test is a demand decision taken in an unhealthy one. 

What On’s plan does not contain is a counterweight. No channel mix target. No store count target. No category targets. Nothing with a number on it that would argue for the instrument when the margin line argues against it. 

The remaining issue: Knowing isn’t enough without the power to say no

Here is where this series has been slightly wrong about its own subject of “data and knowing:” Neither Nike nor Lululemon “went blind.” Nike’s retailers were telling it something. The marathon results were public. People inside knew the pipeline had thinned. And Lululemon’s most important objection was not unheard at all: Chip Wilson spent a year saying it in public. 

So the sequence of collapse was not that they stopped knowing and therefore made the wrong things; it is that nobody was left with the standing to stop a number. The instrument of knowing was dismantled by ordinary, reasonable decisions until there was nothing left to know with. 

A metric wins by default when nothing else has standing. That is what Wilson was actually fighting for: a board that could. Which exposes the real asymmetry. 

A metric needs no advocate. It works automatically, every quarter, in every fit-out and every assortment decision, with nobody in the room. A veto only works when somebody is awake and present and willing to spend something. 

You cannot fix a veto problem with a KPI, because a KPI is the other side of the fight. But you can fix a KPI with a veto right. 

Coppetti’s rule is that On will never make a “me-too” product and enters a category only where it can offer a real performance benefit. This is a founding principle, enforced by the founder himself. 

On has a second rule, in the commercial domain. As explained by Allemann during the August call: “We made the tough choice to prune over-distributed channels in EMEA and protect our full price integrity.” This second principle, used in August, came at a cost of 22 percent of the share price in a morning. 

Culture is the attempt to make a veto ambient rather than episodic, by giving a product manager standing to kill a me-too shoe without a founder in the room, by giving a sales manager standing to refuse an order.  

And that is where Lululemon’s culture, although stronger and more celebrated than On’s, turns out to have been the wrong kind. It distributed belonging. Educators embodied the brand, Ambassadors represented it, “Holders of the Flame” exemplified it, and none of them were ever asked to refuse the plan, as the founder had left the room. 

Culture that distributes belonging is decoration. Culture that distributes standing is an instrument. 

On’s exposure is therefore not a succession problem. It is a question of veto custody. Nike’s veto was suspended under a technology chief executive and restored when a thirty-two-year insider came out of retirement, which is why Nike is now paying to re-enter a channel it chose to leave. Lululemon’s left with its founder and nobody inherited it, so a metric filled the vacuum, because something always does. On’s sits with two founders who took the chair back on May 1, 2026, from a Chief Financial Officer who had held it under a year. 

Nike had a bench of originators to recall. On is fifteen years old and has no such bench. The question is not whether Allemann and Coppetti stay. It is whether “the rules” are ever written down in a form that outlives them. 

One last, uncomfortable, thought 

Premium is the strongest protection On has, and it is also the only genuine single point of failure. Nike and Lululemon each lost one instrument at a time, over years, which is precisely why nobody noticed the failings in time. On’s safeguards are correlated. They all draw on the same margin. They would not degrade in sequence. They would go together. 

Some of that discipline is a choice, and some of it is enforced by size. Lululemon at around two billion dollars of revenue looked very much like this too: premium, full price, community fed, admired. 

On’s discipline has not yet been tested by the thing that destroyed the other two, which is even greater success at scale. 

The 2029 plan is a plan to acquire exactly that test.

The Playbook with Sebastien Willefert

Strategic thinking for the sporting goods industry

An operator’s perspective on the industry’s most pressing strategic questions. Sebastien Willefert distills two decades of brand, commercial and marketing leadership into digestible, actionable insights. From growth strategy to community leverage, The Playbook translates experience into answers.

Read The Playbook →