The gross margin ceiling of sportswear is being redefined by a Swiss running brand. On delivered record Q1 sales, with direct-to-consumer (DTC) channels and apparel categories acting as twin growth engines. Yet sluggish performance in the Americas signals the risk of regional imbalance in global expansion.
DTC Channels Reshape Profit Structure
On's significant gross margin improvement in the quarter was primarily driven by the rising share of DTC channels. By bypassing wholesalers and reaching consumers directly, the brand not only shortens the supply chain but also retains terminal pricing power. For fabric suppliers and contract manufacturers, this signals stronger brand control over quality and delivery—more concentrated orders, smaller batch sizes, and faster replenishment cycles.
Apparel growth outpaced footwear, becoming the second pillar of margin improvement. Apparel typically commands higher brand premiums, and material innovation (e.g., recycled fibers, lightweight windproof fabrics) easily translates into price support. On's increased investment in apparel essentially leverages 'material stories' to lift average selling prices.
The Americas Temperature Gap and Supply Chain Lessons
Despite robust global revenue, On's Americas performance fell short of expectations. This region is both the largest sportswear consumer pool and a hotspot for inventory overhang. Slower growth in the Americas may indicate a mismatch between brand distribution pace and end-consumer sell-through.
From a textile supply chain perspective, regional sales divergence directly impacts order structures:
- Fabric mills should guard against over-concentration of orders on a single brand or region
- Contract manufacturers need to set up quick-response production lines for both Americas and European markets
- Dyeing and finishing processes must retain flexible capacity to accommodate different replenishment rhythms across regions
Operational Impact on Procurement and OEM
On's DTC success is pushing upstream supply chain upgrades. The deeper a brand's reliance on DTC channels, the higher the demand for 'small-batch, quick-turn' capabilities. The traditional 'large-volume, long-lead-time' OEM model is gradually being replaced by 'multi-batch, short-lead-time, high-quality-control' rules.
For Fabric Suppliers - Prioritize high-value functional fabrics (lightweight, quick-dry, recycled) that command stronger premiums in DTC apparel lines - Build flexible capacity reserves, keeping 20%-30% for last-minute 'quick-response' orders - Monitor demand differences between Americas (cost and speed) and Europe (sustainability certifications)
For Contract Manufacturers - Strengthen digital production scheduling for end-to-end visibility, a prerequisite for winning DTC brand orders - Move quality inspection to fabric incoming stage to prevent high return rates in DTC channels - Consider setting up distribution hubs or forward warehouses near target sales regions to shorten DTC order fulfillment cycles
On's case shows that when brands shift profit focus from wholesale to DTC, supply chain responsiveness and flexibility directly determine gross margin ceilings. For the textile industry, this is not just a brand strategy iteration but a deep transformation from 'make-to-order' to 'respond-on-demand'.