Business | Trainer warsNike and Adidas are losing their lead in running shoesOn, Hoka and other challengers are catching up fastON running shoes on feetThe origin of On, a Swiss sportswear brand, is unusual. In 2010 Olivier Bernhard, a triathlete, stuck bits of garden hose to the bottom of his trainers for added cushioning. The idea worked so well that he and two friends decided to make a business out of it. Their shoes were a hit; last year the company made almost $2bn in sales. On November 12th it reported that its revenue in the quarter to September grew by 32%, year on year. On now has a market value of $17bn.The global sportswear industry has long been dominated by two companies: Nike and Adidas. Last year they accounted for 35% and 16%, respectively, of the $146bn in net sales generated by the 15 biggest sportswear brands, according to Morgan Stanley, an investment bank. But that is down from a combined 63% in 2018. Challengers are gaining ground, including established brands like New Balance and Asics as well as newer ones like On and Hoka. In China local firms such as Anta and Li-Ning are adding to the competition. The swoosh has been hit especially hard: over the past year its shares have plunged by 27% (see chart). What went wrong for sportswear’s reigning champions?The winners and losers of the sportswear trade are decided on one product: trainers (or sneakers, as they are known outside Britain). Footwear makes up the bulk of sales at most big sportswear firms: 68% at Nike and 58% at Adidas. And shoes are where these companies differentiate themselves. It is more difficult to produce a T-shirt that stands out, notes Adam Cochrane of Deutsche Bank.Sales of trainers have lately been outpacing the rest of the sportswear market. According to Sporting Goods Intelligence Europe, a research firm, sales of branded sports footwear rose by almost 50% from 2018 to 2023; the sportswear market as a whole grew by less than 20%. Running shoes in particular have done well. Jogging gained popularity during the pandemic when gyms were closed, and the habit has stuck for many. The New York and London marathons saw record participation this year, with roughly 55,000 running in each event. Running clubs have even become a place for young people to socialise and find love. The trend towards ever more casual fashion has further lifted demand, with running shoes no longer an odd sight around the office.Booming demand for trainers has given challengers an opening. Low barriers to entry have helped them seize it. Most sportswear groups outsource production to the same few suppliers in East Asia. Social media have made it easier to reach potential customers. It is relatively straightforward to establish a running brand, reckons Monique Pollard of Citigroup, another bank. Because running draws smaller audiences than, say, football, sponsorship deals are cheaper. “It’s not a massive money sport,” Ms Pollard explains.Challenger brands have used innovative designs to help them stand out. Hoka, part of Deckers Brands, sells running shoes with comically thick soles. On’s latest super-light marathon shoes are made by a robotic arm using a single piece of thermoplastic fibre. The centrepiece of On’s headquarters in Zurich is a research-and-development (R&D) centre where designers paste materials together into prototype trainers they call “monsters”. Analysts say that Nike, by contrast, has fallen behind on R&D, while Adidas has become too reliant on its range of fashion trainers. (Fans of its Samba model, part of that range, were dismayed earlier this year by a photograph of Rishi Sunak, the country’s prime minister at the time, sporting a pair. Mr Sunak later issued a “fulsome apology”.)Nike and Adidas have also made a mess of their distribution. In recent years the pair have cut ties with some big sports retailers in favour of selling through their own stores, websites and apps in an effort to claw back profits and gain a tighter grip on the customer experience. Nike’s direct-to-consumer sales accounted for 44% of its total in the 12 months to May, up from 32% in the same period five years earlier. It is a similar story at Adidas. The strategy, though, has not played out as hoped. “The retailers said: well if you’re not going to support us we’re going to fill our shelf space with the new up-and-coming brands,” explains Tom Astrella, an industry consultant. “The brand needs to be where the customer wants to shop,” explains Martin Hoffman, co-CEO of On.A marathon, not a sprintThe industry’s two frontrunners are trying to pick up their pace. Nike launched a range of new products at an event in Paris earlier this year, including the latest version of its popular Pegasus model, for which it fast-tracked development. In September it replaced its chief executive with a company veteran who has pledged to overhaul its strategy. Adidas is expected to sell the last of its Yeezy line, designed by Kanye West, by the close of 2024, after parting ways with the rapper following a series of antisemitic outbursts. Both Nike and Adidas are patching up their relationships with retailers, too.In the meantime, some of the challenger brands are pressing their advantage by expanding beyond performance-focused running shoes into fashion trainers and apparel, for which profit margins tend to be higher. On has produced a fashion collection with Loewe, a Spanish luxury brand, and recently launched an advertising campaign with Zendaya, an American actress. Such moves could further propel growth. But they could also be a costly distraction. In the history of sportswear, only two firms, Nike and Adidas, have managed to build successful fashion labels off the back of their running shoes. The challengers may yet lose their footing.
