Thanks to the Paris Olympics, 2024 has been dubbed the “Year of Sport.” Yet many of the sportswear giants have hit a wall this year. Nike is stumbling while On and Hoka have made their moves.
Is the consumer’s sportswear obsession finally over?” The question should be whether the obsession with popular, mass-market brands is fading. So, it would seem. Serious athletes and street-smart wannabes want something else. The former want a meaningful performance edge, and the latter want to wear indie brands that help them stand out from the crowd.
The global sportswear market reached $396 billion in retail sales and increased six percent year-over-year, according to McKinsey. But in North America, sportswear only inched up two percent to reach $158 billion. Despite an 11 percent global surge by Adidas, its North American sales retreated eight percent in the most recent quarter. Puma also reported mixed results, with revenues up two percent year-over-year, but footwear sales flat. Under Armour just reported revenues dropped by ten percent, and Columbia Sportswear revenues were down eight percent.
Nike Inc., including Nike brand and Converse, eked out a one percent increase in revenues for the year to $51.4 billion, but fourth quarter revenues of $12.6 billion were down two percent, including NIKE Direct revenues dropping eight percent, and its flagship footwear segment was off six percent in North America. “This quarter, we have been navigating several headwinds, which we now expect to have a more pronounced impact on Fiscal 25,” shared CFO Matthew Friend in the earnings call.
No Olympic Gold for Nike
The Paris Olympics gave Nike an opportunity to shine. It dressed Team USA track and field crew and hosted an immersive brand experience at Centre Pompidou in advance of the Olympics opening ceremony. It planned to cap its Olympics showcase by dropping a new ad campaign, “Winning Isn’t For Everyone,” featuring a voiceover by Willem Dafoe and featuring an all-star cast of Nike elite athletes, including LeBron James, Jakob Ingebrigtsen, Sha’Carri Richardson, Serena Williams, and soccer fan-favorite Kylian Mpbappe.
“The insights for the campaign came directly from Nike athletes, who were clear if you don’t want to win, you’ve already lost,” Nike stated and added the campaign, “speaks to the grit, determination and sacrifice athletes say is required to get to the top of their sport.”
Yet, despite strong creative execution and rousing accompaniment by Beethoven’s Ninth Symphony, the message sparked controversy, if not downright antagonism among many. “Am I a bad person?” Dafoe asks repeatedly, as he relates the personal qualities needed to win, at all costs. “I have no empathy. I don’t respect you. I think I’m better than everyone else. What’s mine is mine. What’s yours is mine.”
As bad as that sounds – no parent instills those values in their kids as they head out to the practice field – it gets worse. Ipsos reported it scored significantly below average in the U.K. and U.S. markets. It’s overly aggressive and uncompassionate tone promotes values at odds with Nike’s traditional inclusive and empathic narrative.
“Why sacrifice empathy over creativity when it’s not landing branding or impact?” asked Samira Brophy, senior creative excellence director at Ipsos. “Ipsos data shows that advertising which demonstrates creativity in combination with empathy has a 20 percent stronger performance than average.”
The best Nike can hope for out of the new ad campaign is that consumers ignore it. But given the company’s negative guidance for the first half of the fiscal year, it’s almost like the ad predicted failure.
Nike’s Lost It
With the undisputed market leader falling so hard and so fast, it led Just Style to ask, “Is the consumer’s sportswear obsession finally over?” The question should be whether the obsession with popular, mass-market brands is fading. So, it would seem. Serious athletes and street-smart wannabes want something else. The former want a meaningful performance edge, and the latter want to wear indie brands that help them stand out from the crowd.
Enter disruptive brands like On Running and Hoka, which are giving Nike and the rest of the pack a run for their money.
Nike’s Defense
Some argue that Nike brought on its own troubles. Its Consumer Direct Offense strategy, introduced in 2017 and accelerated in 2020, was intended to build up the direct-to-consumer side of the business, which included limiting distribution in wholesale accounts. The strategy effectively cut valued partners off at the knees, including many independent specialty sports stores and major retailers like DSW, Zappos, Dillard’s, Amazon and Foot Locker, which relied upon Nike for about 70 percent of sales in 2021.
Nike has since reversed that misguided decision, but the damage has been done. “This withdrawal opened the door for those retailers to partner more closely with other brands,” Global Data’s Neil Saunders said. “Although Nike is now rebuilding those relations, it is still suffering from the exposure it essentially gifted to other brands.”
It also brought on a class-action lawsuit for securities fraud filed on behalf of investors who bought Nike stock between March 19, 2021 and March 21, 2024. The suit claims the company misled investors about the results of the consumer-direct strategy and pointed the finger squarely at CEO John Donahoe and CFO Friend for deceiving investors.
There’s no question that Nike has burned its bridges, but that doesn’t explain why other major competitors also lost their step in the sports market. They could have benefited from Nike’s mistakes but didn’t while emerging indie brands have.
On Is Running at Full Speed
Based in the Swiss Alps, On was founded in 2010 by former triathlete and six-time Ironman champion Olivier Bernhard, with the help of fellow runners Caspar Coppetti and David Allemann. From the start, the founders established On as a disrupter brand with the goal to “revolutionize the sensation of running by empowering all to run on clouds.” Its patented CloudTec sole innovation delivers that running-on-the-cloud experience.
It went public as On Holdings on the New York Stock Exchange in 2021 and has been breaking records ever since. In 2021, On Holdings generated $837 million (CHF 725) in sales and in three short years, it shot to $2.1 billion (CHF 1,792), a 35 percent compound annual growth rate. And it just reported first-half revenues for 2024 were up 24 percent to $1.2 billion (CHF 1,076).
With a foothold in 60 countries, the Americas account for two-thirds of sales and just over 60 percent of revenues globally generated via wholesale distribution. However, in addition to its thriving ecommerce business – DTC was up 33 percent in the first half of 2024 compared with 20 percent for wholesale – it has begun to open branded stores. There are about 25 stores so far, including five in the U.S., and new stores were opened this year in Paris and Hong Kong. Plans are to expand in Chicago, Austin, and Portland, OR.
On has leaned into the running community to disrupt the major players through active word of mouth and influencer recommendations. “There is no better validation for our products than professional athletes trusting our shoes in the most demanding settings,” the company says with Olympians and world champion track and field, triathletes and tennis players, notably Roger Federer, embracing the brand. And in its stores, it offers “Try On” experiences and organizes “On Track Nights” events in which the local running community can test the brand.
The company’s latest innovation is what it calls LightSpray technology. LightSpray automates the manufacturing process into a single step using a one-piece upper that is then fused by a robotic arm to the sole, creating an ultra-lightweight shoe with significantly reduced carbon emissions and less waste.
On the company’s growth and innovations, co-founder and executive co-chairman Allemann said, these are an “outcome of our mantra – Dream On – a commitment to pursue the most daring dreams to achieve long-term, innovation-led success.”
Hoka on the Fast Track
Hoka was born right next door to On in the French Alps in 2009 by two mountain trail runners Nicolas Mermoud and Jean-Luc Diard. After finding the available brands lacking, they needed a shoe designed for rugged mountain adventures, so they set out to design a running shoe that made downhill running “feel like flying.” The company name was borrowed from New Zealand’s native Maori language and means “to fly over the earth.”
Design-wise, Hoka shoes are known for their “maximalist” widebody but lightweight style, thick midsole that adds cushioning and low heel-toe “rocker” profile that promotes a natural gait. Utah’s most award-winning 100-mile runner Karl “Speedgoat” Meltzer was the company’s first sponsored U.S. athlete. The branded Speedgoat model is available for men, women and children for $155 or less.
In 2012, Hoka was acquired by Deckers, which also owns the Ugg brand, for a reported $1.1 million when company sales were in the $3 million range. By fiscal 2018, Hoka sales reached $154 million, and it exploded to $1.8 billion in fiscal 2024, about a 50 percent CAGR over the six years.
In its most recent first quarter fiscal 2025, Hoka advanced 30 percent to $545.2 million. About 60 percent of Hoka’s sales are generated through wholesale channels and about 40 percent DTC. In addition to its ecommerce platform, Hoka has 26 branded retail stores, including 10 in the U.S. and one in Canada. In the first quarter, wholesale revenues grew 28 percent with DTC revenues up 33 percent.
Sensing opportunities as the leading brands lose traction with major retailers and independents, Deckers’ CFO Steven Fasching said in the latest earnings call, “FY 2025 is going to be a year of wholesale growth.” It is expanding wholesale distribution through Dick’s Sporting Goods, Foot Locker and JD Sports, along with Intersport in Europe, Top Sport in China and Sport Chek in Canada.
However, the wholesale growth strategy hinges on converting new customers to its DTC channels. “We know that when we bring in new customers through wholesale, we see them migrate to our DTC. This is part of our strategy; it’s about growth,” he continued.
Deckers’ CEO David Powers sees nothing but opportunity ahead for Hoka. It’s the strongest and fastest growing brand accounting for two-thirds of Deckers’ $825 million revenues in the first quarter. “Hoka continues to experience global gains through consumer acquisition and retention with particular strength among retained consumers in the first quarter. We believe this is a powerful reflection of Hoka consumer loyalty, reinforcing the long runway we see for this brand,” he said. And investor firm Raymond James agrees with that sentiment. “We believe [Hoka] is in the very early innings of growth.”
Move Over, Nike
It’s impossible to make an apples-to-apples comparison of Nike with upstarts On and Hoka. Nike brand generated $49.3 billion in fiscal 2024, including $33.4 billion in footwear, $13.8 billion in apparel and $2.1 billion in equipment and other. While On and Hoka dabble in apparel, footwear is where they shine. Together, they have yet to make much of a dent in Nike’s dominance.
However, Nike is starting to feel the pain and if they stay on the same course, it will be feeling more in the years to come. From January through the end of May 2024, Yipitdata reports that Nike’s footwear market share in Dick’s Sporting Goods dropped from 39 to 32 percent, while On’s and Hoka’s rose from eight percent each to 12 and 13 percent, respectively.
“On and Hoka are still capturing consumers’ interest, and they’re still taking market share away from Nike, and in that respect, I think Nike is still a company that is on the back foot… (and) feels slightly boring,” GlobalData’s Saunders shared with Reuters.
Boring is never a good way to describe a consumer brand. “Sports brands need to give consumers reasons to buy,” Saunders said, adding that the major brands, like Nike, “have not been innovating enough and this has negatively impacted their sales. Brands need to be bolder in giving consumers reasons to buy.”
Innovative boldness is just what we see from disrupter brands like On and Hoka and they don’t look to be dialing that back any time soon.
