On Running posted a record gross margin of 59.5% in Q1 2025, a figure that carries significant implications for the textile supply chain. For upstream fabric and yarn suppliers, this is not just a financial milestone but a signal of shifting procurement priorities and category dynamics.
Category Shift and Margin Implications
The 2-percentage-point year-over-year improvement in gross margin reflects On's ability to command premium pricing through product mix optimization. From a textile perspective, higher margins typically correlate with increased use of high-value materials such as lightweight engineered meshes, recycled polyester blends, and seamless knitted structures.
Direct-to-consumer (DTC) sales strength is a key driver. Higher DTC penetration gives On greater control over design, material selection, and pricing, which in turn demands faster turnaround, smaller minimum order quantities, and higher customization from suppliers. This creates a challenge for mills accustomed to large, standardized runs.
Apparel sales grew over 30% year-over-year, significantly outpacing footwear. This expansion directly boosts demand for functional fabrics—moisture-wicking knits, lightweight windproof wovens, and stretch composites. For fabric mills, this represents an opportunity to diversify into higher-margin athletic apparel textiles.
Regional Divergence and Supply Chain Rebalancing
While global revenue grew, the Americas segment underperformed relative to Europe and Asia-Pacific. This suggests a cooling in North American athletic consumption, a cautionary signal for textile exporters heavily reliant on that region.
On is deepening its European sourcing footprint, given faster growth in its home region. Suppliers with European production bases or strong logistics links to the EU may benefit from premium orders, while those dependent on North American volumes need to accelerate product upgrades or diversify client bases.
In Asia-Pacific, particularly China, On's retail expansion and marketing investments are creating localized supply chain needs. Fabric mills with rapid sampling capabilities and certifications such as GRS (Global Recycled Standard) or OEKO-TEX are well-positioned to capture this emerging demand.
Practical Guidance for Textile Suppliers
On's margin improvement signals a shift in value distribution toward the brand, but the pressure on suppliers intensifies. The criteria become stricter: higher quality, shorter lead times, and verifiable sustainability.
For Fabric Suppliers - Develop lightweight, high-stretch, recycled-blend functional fabrics for premium pricing - Build small-batch, quick-response production lines to match DTC brands' ordering patterns - Prioritize GRS and OEKO-TEX certifications as brand ESG audits move from optional to mandatory
For Garment Manufacturers - Upgrade sewing capabilities for high-end techniques such as seamless bonding and laser cutting - Balance capacity between Americas and Europe orders to avoid over-concentration on one market - Engage with brand's Asia-Pacific headquarters to pilot localized sourcing initiatives
On's Q1 results are not an isolated event but a reflection of broader profit structure reshaping in athletic apparel. Textile suppliers that simultaneously advance material innovation, regional responsiveness, and sustainability compliance will gain a competitive edge in this evolving landscape.