How On Holding Grew Gross Margin From 54% to 63%

On Holding, the Swiss running brand behind On and the Cloud franchise, went public in 2021 already carrying gross margins in the high fifties. By fiscal 2025 it was reporting 62.8%. That is a level almost no footwear company touches. What makes it worth studying is not the number itself but how the company got there: no headline price increase (the 20-F never names pricing as a gross margin driver across any of the six years covered here), and a Securities and Exchange Commission filing that names the two levers in plain language. On files a Form 20-F rather than a 10-K because it is a foreign private issuer reporting under IFRS in Swiss francs (CHF). Below, gross margin means gross profit divided by net sales, straight from those filings.

What a 60%-plus gross margin means for a shoe company

Most people assume premium footwear brands all print similar margins. They do not. The spread between the best and the rest is enormous, and it decides how much oxygen a brand has for marketing, retail, and product development.

Here is where On sat against its peers in fiscal 2024, the last year with clean cross-company comparables.

Sixteen points of gross margin over Nike is not a rounding difference. On a business the size of On's, every point is worth tens of millions of Swiss francs that either drops toward profit or funds growth. When I talk to founders running premium brands, the mistake I see most often is treating gross margin as a fixed property of the category. It is not. Two brands selling a shoe at the same retail price can run margins fifteen points apart, and the difference is almost never the material cost. It is the channel the sale runs through and the cost of getting the product to the customer. The same split shows up in every footwear brand's unit economics.

The trajectory, and the deliberate dip in 2022

The clean version of the story is a straight line from 54% to 63%. The real version is more useful, because it includes a decision most operators will eventually have to make themselves.

Notice fiscal 2022. Margin fell from 59.4% to 56.0% even as net sales grew 68.7%. That was not a supply chain accident. The FY2022 20-F attributes the decline to "the strategic decision to use airfreight to ensure key product availabilities." Vietnam factory closures in late 2021 threatened On's ability to keep product on shelves through a period of very strong demand, so management flew shoes in rather than wait for ocean freight. Air freight runs roughly five times the cost of ocean freight. They paid about 340 basis points of gross margin for it.

That is the single most instructive moment in the whole record. Management bought revenue with margin, on purpose, and said so in a public filing. When we have watched operators face the same choice, the ones who freeze do the most damage. Running out of your hero product in your best quarter costs you the customer and the repeat purchase, which is far more expensive than the freight. On made the expensive-looking call and it was the right one, because the margin came back the moment the constraint lifted.

Lever one: freight, and why it hides inside cost of sales

The first lever the 20-F names is freight. Once the Vietnam constraint eased, On reversed the airfreight spend and the margin snapped back. The FY2023 filing is explicit: "The increase in gross profit margin is attributable to the ceasing of exceptional airfreight usage and overall reduced freight rates in 2023, when compared to the comparable period in 2022."

Two things were happening at once. On stopped the emergency air freight, and the broader ocean freight market normalized. Container spot rates had spiked to roughly $10,000 per forty-foot container in late 2021 and fell close to $1,500 by mid-2023 before rebuilding partway on Red Sea disruption. A brand importing from Asia sits on top of that curve whether it plans to or not.

The catch for operators is where freight lives in the accounts. On's 20-F defines cost of sales as the purchase cost of finished goods plus "in-bound freight expenses, custom duty and non-refundable taxes incurred in delivering the goods." Freight is inside cost of sales, not a separate line. So a swing in freight moves gross margin directly, and you cannot see it unless you break it out yourself. The pattern I keep seeing is brands that treat freight as an untouchable pass-through cost and never put it on its own line. On's record is the argument against that: freight was the biggest single swing factor in its gross margin over six years, worth more than 300 basis points in a single year. If it moves your margin that much, it deserves its own row in your management P&L and a person who owns it.

Lever two: the direct-to-consumer channel shift

The second lever is channel mix, and it is the more durable of the two. Every filing since the IPO ties gross margin to the share of sales running through On's own DTC channel. The FY2024 20-F puts it plainly: "The increase in gross profit margin was mainly driven by higher DTC sales as a percentage of net sales and reduced freight costs during fiscal year 2024."

The mechanics are simple. When On sells through a wholesaler, the wholesaler keeps the retail markup. When On sells the same shoe on its own site or in its own store, On keeps that markup. DTC does not lower the cost to make the shoe. It raises the price On records for the sale. Here is the shift.

DTC share went from 24.9% of sales in 2019 to 41.8% in 2025. That is roughly 1,700 basis points of weight moving from the lower-margin channel to the higher-margin one, and On did it without abandoning wholesale. Wholesale kept growing in absolute terms the whole way. The lesson for operators is that you do not need to flip to DTC-only to capture the margin. Moving from a quarter of sales to two-fifths, over several years, is enough to reset your blended gross margin. One nuance worth holding onto: DTC lifts gross margin but carries its own operating cost in stores, sites, and customer acquisition, so the operating-margin benefit is smaller than the gross-margin headline. This works cleanly at a premium price point, where the DTC markup is large enough to absorb that acquisition cost. It is much harder at a thin price point.

What the 20-F does not tell you, and what to do about it

On's filings are unusually candid about the drivers, but they stop at the qualitative level. Two things are missing, and both are instructive for how you should run your own numbers.

First, there is no separate freight figure. It is aggregated into cost of sales. Management tells you freight moved margin but never how many basis points in a given year. Second, there is no separate DTC gross margin versus wholesale gross margin. The company says DTC is structurally higher and leaves it there. If a company at this scale, with a full audit and an investor relations team, does not disaggregate these, that is a signal about how hard it is, not a licence to skip it. In your own management accounts you should do what the public filing does not: freight as its own line, and gross margin split by DTC and wholesale. When founders tell me they cannot explain a margin swing, it is almost always because these two things are blended into one number they cannot pull apart. Splitting freight and channel margin out of a blended cost of sales, so you can actually explain the swing, is exactly what our fractional CFO team does for importing brands.

The forward risk On flags is worth watching too. Its FY2025 margin of 62.8% came despite US tariff pressure on Vietnam-sourced goods, and On reports in Swiss francs while sourcing largely in US dollars, so foreign exchange can move margin with no operational change at all. The FY2025 20-F attributes that year's gain to "ongoing operational efficiencies and improvements, particularly in freight, and a favorable foreign exchange impact." In other words, the last leg up had an FX tailwind inside it, which is a reminder that not every basis point is repeatable.

On Holding did not find a cheaper way to make a shoe. It found a more profitable way to sell one and a disciplined way to ship one. Channel mix and freight are levers almost every importing brand controls, and the 20-F is a six-year receipt for pulling them.

Sources and methodology

On Holding's gross margin figures come straight from its SEC Form 20-F filings. On Holding AG (ticker ONON, CIK 1858985) is a foreign private issuer that reports under IFRS in Swiss francs, so it files a Form 20-F rather than a 10-K. Gross margin here is gross profit divided by net sales, computed from each filing's own consolidated income statement. The FY2024 20-F supplies FY2024, FY2023, and FY2022 income-statement and channel figures.

The FY2025 update is the most recent filing. The FY2025 20-F, filed in March 2026, reports net sales of CHF 3,014.0 million, gross profit of CHF 1,893.6 million, a 62.8% gross margin, and a DTC share of 41.8%. Its Item 5 MD&A attributes the year's gain to operational efficiencies "particularly in freight" and a favorable foreign exchange impact.

The two-lever attribution is verbatim from the filings, not inferred. The FY2024 MD&A cites "higher DTC sales as a percentage of net sales and reduced freight costs." The FY2023 20-F MD&A cites "the ceasing of exceptional airfreight usage and overall reduced freight rates in 2023," and describes the 2022 airfreight move as "a strategic decision to employ airfreight to ensure key product availability." One caveat worth noting: the FY2021 20-F attributes a separate +510 basis-point gain that year to in-house sourcing cost fallaway and customs savings from the Vietnam–EU Free Trade Agreement, a one-time structural shift that does not appear in the FY2022–FY2025 recovery window this post studies. The two-lever framing (DTC mix and freight) applies cleanly to that post-2022 period.

Peer gross margins come from each company's own filings and results releases. Nike, Skechers, and Adidas figures are from their annual reports and results statements; Deckers is from its fiscal-2024 results release. Periods differ (Nike's fiscal year ends in May, Deckers' in March), which is noted in the benchmark table.

Freight-rate context is from published container-rate indices. The ocean freight spot-rate cycle referenced (roughly $10,000 per forty-foot container at the late-2021 peak, near $1,500 at the mid-2023 trough) reflects widely reported Drewry World Container Index levels over that period.

On the data presentation. The three quantitative views in this post (the peer-margin benchmark, the FY2019-FY2025 margin-and-channel trajectory, and the DTC/wholesale split) are rendered as inline data tables sourced directly from the filings above. Every figure is auditable against the cited 20-F line items.

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