On, The $1 Billion Swiss Running-Shoe Company, Declares Cyclon Its Sustainability Incubator

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On, The  Billion Swiss Running-Shoe Company, Declares Cyclon Its Sustainability Incubator

After advancing 9.5% from 2019 to 2021, the athletic footwear market ran out of steam in 2022. Industry revenues declined 6.1%, and unit sales dropped 8% in the U.S., according to the McKinsey 2023 Sporting Goods report.

Produced in association with the World Federation of Sporting Goods Industry, the report’s subtitle sums up the current state of the industry: “The need for resilience in a world in disarray.”

And it may get worse before it gets better. Consumers’ intent to purchase footwear fell continuously throughout 2022, and for 2023, they signal reduced spending, with half of those surveyed expecting to buy fewer items and about 20% planning to trade down to less expensive brands.

Against this backdrop, On’s fiscal 2022 performance is remarkable with revenues up nearly 70% year-over-year. Founded in 2020 in Switzerland, On is the upstart running-shoe brand passionately embraced by the runner community.

Revenues reached $1.3 billion and adjusted EBITDA was up 71% to $181.4 million, and the company predicts revenues will grow nearly 50% in 2023 to reach $1.9 billion. The company went public in September 2021.

Technology-Driven Innovation

Distributed in over 60 countries through retail partners and DTC online, On’s claim to fame is its innovative CloudTec design that promises runners the feeling of “running on clouds,” combined with its rock-solid commitment to sustainability and the circular economy.

The secret is in the sole of the shoes, which have an open-pod, zero-gravity EVA foam construction made from carbon-capture emissions. The outer sole cushions each landing, and a springboard inner sole helps propel the wearer forward with each stride.

Originally designed by former triathlete and six-time Ironman champion Olivier Bernhard, with fellow runners Caspar Coppetti, David Allemann and a team of engineers, the shoes take a runner’s performance to the next level, but also are a perfect fit for anyone who wants to move in comfort and style.

The company uses the same technology-driven, innovative approach that powers its design to sustainability. Its environmental mission is “to make high-performance products with the lowest possible footprint, engineered for circularity, and with preferred materials, manufacturing methods and distribution models.”

For example, its latest Cloudsurfer model’s upper is made from 100% recycled materials, and its specialized dyeing technique saves 90% of the water used in traditional dyeing methods.

Running As A Service

Now the company is moving forward with an even more innovative approach to circularity: its Cyclon program introduces a circular subscription-based distribution model for high-performance running shoes and t-shirts, all made from castor beans.

Its tagline is “Run. Recycle. Repeat.” because it is the “running shoe you’ll never really own.”

The Cyclon subscription concept came from the recognition that its customers wear out their running shoes, unlike so many other sneaker brands that don’t have to stand up to such heavy use.

“Our customers typically use our products for six months or so, then return to us for another pair and throw out their old ones even though the material is still good and could be recycled. It just seemed so wasteful,” shared co-founder Coppetti.

“We looked at different ways to incentive people to give the products back when they’re done running and hit on the subscription model. We weren’t the first to design a circular shoe, but the first to do it at scale. Cyclon is our circular experiment at scale.”

The Cyclon subscription model positions running as a service. Subscribers pay $30 per month and can get a fresh pair of running shoes whenever needed, sending the old ones back to be recycled. At the price, a six-month subscription works out to total the average industry price for a high-performance running shoe.

The heaviest runners may need a new pair every four months, and others may take longer, but the idea is subscribers never really own the shoes; they are simply paying for the privilege and doing their part for the environment.

So far, the company has signed up several thousands of runners in the program, with more men than women picking it up.

“The problem with the circular business model is that consumers aren’t used to giving things back, but we found when we first introduced the program, we couldn’t keep up with the demand. And to date, we’ve gotten close to 80% of shoes back through our first cycle,” he added.

New Learnings Power Innovation

Still in its experimental phase, the Cyclon program has delivered added benefits by providing new insights into its customers’ needs and behavior.

“Under our traditional business model, we ship boxes of shoes and never really know who wears them and never hear back. Cyclon gives us learning around customer engagement and helps us develop brand loyalty and manage churn,” he continued.

It identified two primary use cases among Cyclon subscribers. One group is convenience-driven, wanting to get a new pair of shoes whenever needed. And this group of runners is tied to their shoes.

“They want the same product, same model over and over again. If it works for them, they are very reluctant to change,” he shared.

The other group of Cyclon customers is motivated by its sustainability promise and the drive to reduce their footprint on the planet. These customers are inspired not just by the subscription offer but also by the material the shoes are made from: castor beans.

“Back in the 70s, when the oil crisis hit, people were searching for alternatives to digging oil out of the ground, and they discovered castor beans. It grows in arid areas where nothing much else will grows, and it provides the carbon-source material we can use to make any material in our shoes,” he said.

And it can also be woven into fibers suitable for clothing with its newly released Cyclon t-shirt the company’s first experiment in activewear made from castor beans.

Right now, the Cloudneo shoe offered through the Cyclon program is only available in white, though it comes will all the performance-enhancing features of its other Cloud models.

“Dyeing is a chemical process so at this stage, we are limited to white now, but in three years time, we may have found a way to recycle color in an environmentally sound way,” he said, adding, “That’s why Cyclon is an experiment. We are learning so much, and its spawned another 30 projects or so across the organization.”

Challenge To The Industry

The On company is taking the challenge to create a sustainable future beyond the company to the athletic industry overall. The McKinsey report reveals that many industry players have made bold promises but are lagging in meeting ambitious carbon-neutral promises and defining their role in the circular economy.

On is out in front leading the way for others to follow. “The tasks we face as a company and an industry are daunting. We can continue going the way we’ve always gone, but it’s very wasteful and takes a lot of resources. About 90% of the products in our space are made from petrol.

“We recognize solutions already exist, like what we are doing with recycling and castor beans. Our industry can create solutions, but none will work, if we don’t bring the consumers along. And frankly, that is the hardest part,” Coppetti concluded.

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