Premium Brands Should Sometimes Refuse Wholesale Growth
Executive summary
On Holding's second-quarter results were easy to read as a growth warning. The premium sportswear company reduced its full-year sales ambition to the low-20% range at constant currency after choosing not to push as much product into promotional wholesale markets. That restraint helped produce a result that looks contradictory: net sales still rose 21.6% at constant currency, direct-to-consumer sales grew 34.3%, and gross margin expanded from 61.5% to 65.4%.
The mainstream interpretation is that a fast-growing brand should maximize distribution while demand is strong. The alternative is that some wholesale revenue destroys more value than it creates. When sell-in runs ahead of sell-through, inventory accumulates, retailers discount, consumers learn to wait, and the brand eventually funds the cleanup through allowances, returns or lower future orders.
On's quarter does not prove that constraining wholesale is always correct. Inventory remains an important test, and direct growth can become expensive if customer acquisition, stores and fulfillment absorb the channel margin. But the result supports a broader thesis: premium brands should manage wholesale as a scarce channel for price discovery and customer access, not as the automatic destination for every available unit.
Market context
Wholesale gives a growing brand reach without requiring it to own every customer relationship, store lease and fulfillment touchpoint. Retail partners contribute local demand knowledge, physical trial, customer traffic and working capital. For an emerging premium brand, the channel can turn recognition into scale faster than a direct-only model.
The weakness appears when shipment becomes the objective. A brand records wholesale revenue when it sells into the channel, while the retailer still has to sell through to the customer. The timing gap can flatter growth. If the product later needs promotion, the economic cost arrives through markdown support, returns, damaged retailer relationships or weaker orders in the next season.
Premium positioning makes the problem sharper. A discount is not merely a lower price on one transaction. It teaches the market how to value the product. Frequent promotions can expand the addressable audience in the short run while reducing urgency and full-price willingness among the customers the brand most wants to retain.
On's August 11 release provides a live test. The company reported second-quarter net sales of CHF850.3 million, up 21.6% at constant currency. Direct-to-consumer revenue reached CHF388.4 million and 45.7% of total sales. Direct growth of 34.3% at constant currency materially outpaced wholesale growth of 12.7%. Gross margin rose 390 basis points to 65.4%, while adjusted EBITDA reached CHF168.1 million, or 19.8% of sales.
Chart-ready table: On's channel mix and margin shift
| Metric | Q2 2025 | Q2 2026 | Change |
|---|---|---|---|
| Net sales | CHF749.2m | CHF850.3m | +21.6% constant currency |
| DTC net sales | CHF307.9m | CHF388.4m | +34.3% constant currency |
| DTC share of net sales | 41.1% | 45.7% | +4.6 percentage points |
| Wholesale net sales | CHF441.3m | CHF461.9m | +12.7% constant currency |
| Gross profit margin | 61.5% | 65.4% | +3.9 percentage points |
| Adjusted EBITDA | CHF123.4m | CHF168.1m | +36.2% reported |
| Adjusted EBITDA margin | 16.5% | 19.8% | +3.3 percentage points |
Source: On Holding, Q2 2026 results, August 11, 2026. Period: quarters ended June 30, 2025 and June 30, 2026. Units: Swiss francs, percentages and percentage points. DTC and wholesale constant-currency growth rates are company-reported; shares and percentage-point changes are calculated from disclosed values. Limitations: channel mix does not identify customer acquisition cost, store-level profitability or downstream wholesale sell-through. Currency effects make reported revenue growth differ from constant-currency growth.
Findings
Finding 1
Wholesale sell-in is not the same as consumer demand.
A brand can create a strong quarter by delivering inventory that becomes a weak season for its retail partners. The accounting event and the consumer event happen at different points. This is why wholesale quality must be assessed through sell-through, weeks of supply, reorder behavior and markdown rate rather than shipments alone.
On said it was deliberately cautious about sell-in where promotional activity was elevated. That decision likely reduced near-term revenue. It also protected the option to sell future units at full price. The economic logic is comparable to declining a low-quality customer contract in software: the foregone booking is visible immediately, while the avoided service cost and pricing damage emerge later.
The approach only works if consumer pull is real. On's direct channel offers supporting evidence because DTC grew faster than wholesale and approached half of revenue. Apparel grew 56.2% at constant currency, suggesting the company was expanding beyond a single footwear purchase rather than relying entirely on broader store distribution. Gross-margin expansion indicates that mix and full-price execution were economically meaningful.
There is still a timing risk. Direct demand can be supported by launches, marketing or store openings that do not repeat. Wholesale partners may also interpret restraint as unreliable supply and allocate shelf space elsewhere. The correct policy is not to starve the channel. It is to ship against observed consumer demand and the partner's capacity to represent the brand properly.
Finding 2
Distribution restraint can be a brand investment, but only if the margin survives the channel shift.
DTC captures the retail markup and gives the brand better access to customer behavior. It also transfers costs from the retailer to the brand: paid acquisition, store labor, leases, returns, fulfillment, fraud, support and local compliance. Gross margin alone can therefore overstate the advantage.
On's adjusted EBITDA margin rose to 19.8% while DTC mix increased. That is an encouraging sign because operating profitability improved alongside gross margin. It suggests the channel shift did not merely move expense below the gross-profit line during the quarter.
But operators should resist treating DTC as inherently superior. A productive wholesale door can acquire customers, enable product trial and lower last-mile costs. A weak direct channel can pay heavily to rent attention from search, social platforms and marketplaces. Channel contribution should include acquisition cost, returns, store occupancy, fulfillment, service, fraud and inventory carrying cost.
The strategic objective is not maximum DTC share. It is controlled distribution with the best lifetime economics. Wholesale should do jobs that direct channels cannot perform efficiently: introduce the brand to a local market, provide physical fit and trial, reach a specialist community or supply convenience. Direct should do jobs that benefit from first-party knowledge, assortment depth, product launches and cross-category relationship building.
Finding 3
The constraint is credible only when inventory and partners improve.
A brand can describe weak wholesale demand as discipline after the fact. The thesis therefore needs falsifiable operating evidence. Inventory should become healthier relative to sales. Full-price sell-through should improve. Retail partners should reorder more predictably. Promotional exposure should fall without a collapse in consumer demand.
On's raised gross-margin outlook of at least 65% for 2026 signals confidence in mix, pricing and operations. Its lower sales ambition makes that margin goal more meaningful because the company is accepting a visible growth tradeoff. Yet the next several quarters matter more than the explanation. If inventories rise faster than sales or DTC growth decelerates sharply, the restraint may be covering a demand forecast error rather than protecting brand equity.
The distinction matters across premium consumer categories. Footwear, apparel, beauty, accessories and consumer electronics all face pressure to widen distribution once a product becomes popular. The easiest incremental revenue often comes from another retailer, marketplace or geography. Each addition increases reach but also raises the cost of maintaining price, presentation, product knowledge and inventory discipline.
Operators need a distribution hurdle rate. A new account should earn access not only by committing to buy units, but by demonstrating the right audience, merchandising standards, data sharing, replenishment capability and markdown governance. Revenue that fails those tests can be expensive working capital wearing a growth label.
Implications for operators
First, separate sell-in and sell-through in executive reporting. Brand revenue, retailer inventory and end-customer sales should sit on the same view by account, product and market. Lagging consumer data should lower the next shipment before it creates a promotion problem.
Second, assign every channel a job. A specialist running store may provide credibility and fitting expertise. A flagship may provide launch theater and customer research. Ecommerce may provide assortment depth and repeat purchasing. A general marketplace may provide convenience but weaken price control. The channel should be judged on the job, not only its revenue.
Third, measure full-price contribution. The metric should subtract discounts, allowances, returns, fulfillment, support, paid acquisition, occupancy and inventory carrying cost. It should also track the future effect of promotions on repeat customers. A discount that clears one season can lower willingness to pay in the next.
Fourth, make wholesale allocation conditional. Give inventory priority to partners with strong sell-through, accurate data, clean presentation and disciplined promotion. Limit exposure where inventory ages or unauthorized discounting spreads. This turns scarcity into a governance tool rather than a marketing slogan.
Finally, communicate restraint with evidence. Investors, employees and retail partners can interpret lower shipments as demand weakness. Management should disclose the operational indicators that justify the decision: DTC demand, reorder rates, weeks of supply, full-price mix and inventory growth. Without that bridge, discipline is indistinguishable from optimism.
Risks & open questions
The thesis would be weakened if On's DTC growth slows materially, inventory continues to build, or wholesale partners reduce future shelf space. It would also weaken if gross-margin gains reverse once currency, freight or product-mix benefits normalize. Public results do not disclose enough account-level sell-through or markdown data to prove that the restrained shipments were the precise cause of the margin improvement.
Brand heat can change quickly. Premium footwear is competitive, fashion-sensitive and exposed to product cycles. Strong direct demand in one quarter may not establish durable pricing power. The company must also show that apparel expansion produces repeat behavior rather than launch-driven novelty.
There is a governance question for partners. A brand that allocates tightly can protect price, but it can also shift inventory risk and planning uncertainty onto retailers. Sustainable discipline requires transparent allocation, reliable replenishment and shared demand data. Otherwise, retailers will favor brands that provide more predictable economics.
Appendix / methodology notes
This report uses On Holding's second-quarter 2026 earnings release published August 11, 2026, with the prior-year values presented in the same release. Constant-currency growth rates are company-reported. Blackrock Research calculated channel shares and percentage-point changes from disclosed figures. No estimate is presented as observed sell-through.
The analysis distinguishes wholesale sell-in, the brand's sale to a retail partner, from sell-through, the retailer's sale to an end customer. Public financial statements provide detailed sell-in revenue but limited account-level sell-through, markdown and reorder data. A stronger longitudinal test would add quarterly inventory, weeks of supply by channel, full-price sell-through, wholesale reorder rate, return allowances, DTC acquisition cost and cohort contribution margin for at least eight quarters.
The conclusion is a conditional operating thesis, not a claim that direct distribution is universally better. It would be falsified by deteriorating inventory productivity, falling partner quality, weaker direct contribution or renewed promotional activity despite restrained shipments.