For years, Nike, Inc. (NYSE:NKE)’s biggest advantage was simple: it was where performance, culture, and sport came together. That advantage is being tested. Newer brands such as On Holding AG (NYSE:ONON) have shown that consumers are willing to pay premium prices for performance footwear from companies that were barely on the radar a decade ago.
The timing is particularly interesting. On recently signed soccer superstar Kylian Mbappé after his roughly two-decade partnership with Nike, giving the Swiss brand a major platform as it prepares to enter soccer in 2027.
The question for investors, then, isn’t simply whether On is growing faster. It is whether Nike’s competitive advantage is still as powerful as it once was.
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Nike’s problem is bigger than On
Nike’s fiscal 2026 results show why the turnaround remains unfinished. Revenue was essentially flat at $46.4 billion, while Nike Direct revenue fell 6% for the year. The company is also still dealing with weak demand in Greater China and challenged sell-through in parts of its lifestyle business.
Nike’s performance business grew mid-single digits, and running has now delivered five consecutive quarters of double-digit growth. Management said Nike added roughly $1 billion to its running business during that period and gained five percentage points of running market share in Western Europe and North America.
That matters because running is exactly where brands such as On have been making their biggest gains.
Nike is therefore not standing still. It is shifting resources back toward sport, rebuilding wholesale relationships and reducing the emphasis on older lifestyle products that have become heavily promotional. The company expects these changes to continue through December 2026, with China and Converse taking longer to recover.
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On is doing something Nike cannot ignore
On’s appeal is easier to understand when looking beyond its headline growth. Its brand is built around performance, design and premium positioning, with running still at the center. It has gradually expanded into tennis, training, outdoor products and apparel, while trying to turn itself into a broader sportswear company.
That strategy is gaining traction. In Q2, On’s sales rose 21.6% in constant currency, while direct-to-consumer sales jumped 34.3%. Its gross margin reached 65.4%. That is quite healthy for an apparel/shoe company. Nike, on the other hand, reported a gross margin of 50.3% during the corresponding quarter. For the whole fiscal year that ended in June 2026, though, Nike’s gross margin was a far lower 43.2%.
More importantly, On doesn’t seem to be chasing growth at any price. Sales through wholesale partners were weaker in the Americas, but the company has been careful not to flood retailers with inventory or rely heavily on discounts. That matters for a premium brand like On, because pushing too much product through stores can boost sales in the short term while hurting the brand over time.
As mentioned earlier, On Holding AG is also trying to make the jump from a successful running brand into a broader sports platform. Mbappé gives it visibility in soccer, while its existing tennis business with Roger Federer provides another foothold.
Conclusion
Nike’s recent performance in running shows that the brand still has plenty of strength when it gets the product right. Nike now has to prove that it can translate that momentum into a broader recovery, especially as newer brands have started winning customers who might once have automatically chosen Nike.
On has shown that a younger company can build a premium sportswear brand without anything close to Nike’s scale. Its rapid growth, strong direct-to-consumer business, and expansion beyond running make it a competitor Nike cannot afford to ignore.
For Nike, Inc., the road back will come down to products, innovation, and getting its brand momentum back. For On, the challenge is different: can it expand into more sports and categories without losing what made the brand special in the first place? The answer could determine whether On remains a successful challenger or becomes a much bigger threat to Nike’s position in sportswear.
Market Sentiment
Market sentiment toward On Holding appears to be strengthening. The number of hedge funds holding the stock in Insider Monkey’s database increased from 52 at the end of Q1 to 54 at the end of Q2 2026. Meanwhile, the total value of their positions jumped from about $1.40 billion to $2.31 billion.
Nike saw the opposite trend. The number of hedge funds holding the stock fell from 71 to 56 over the same period, while the total value of their positions edged up from about $1.31 billion to $1.35 billion.
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This article is originally published at Insider Monkey.
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