On Holding told investors in its 2026 outlook that direct-to-consumer channels—company-owned stores and its online shop—are the primary driver of planned gross margin expansion, according to The Motley Fool. The Swiss premium running brand projects that shifting revenue mix away from wholesale toward DTC will push gross margins above 61% in 2026, up from 60.1% in 2024. The company currently derives roughly 30% of revenue from DTC channels, a figure it plans to increase through deliberate retail expansion and digital investment.
On Holding operates 66 owned retail stores globally and continues opening flagship locations in high-traffic metropolitan markets. The brand's DTC channel carries gross margins approximately 15-20 percentage points higher than wholesale, where retailer markups and promotional pressures compress profitability. By routing more volume through owned touchpoints, On Holding captures the full retail margin and controls the brand experience end-to-end, from product presentation to customer data.
The mechanism works because premium physical product brands face a structural trade-off: wholesale scales distribution fast but surrenders margin and customer relationship. DTC inverts that equation. On Holding sells the same running shoe at the same $160 retail price whether through Nordstrom or its own SoHo store, but in the owned channel it keeps the 50-55% wholesale markup that would otherwise go to the retailer. That margin delta funds the cost of operating stores and digital infrastructure, with surplus flowing to gross profit. The brand's premium positioning—shoes engineered with CloudTec cushioning, marketed to performance runners willing to pay for differentiation—means customers accept buying direct without needing a discount to convert.
The playbook also carries a data advantage. Every DTC transaction feeds first-party customer data—purchase history, size preferences, email engagement—that informs product development, inventory allocation, and retention marketing. Wholesale sales generate revenue but leave the brand blind to who bought, why, and what they might want next. On Holding has leveraged its DTC data to refine its product line, discontinuing low-margin SKUs and doubling down on hero models that repeat-purchase.
A small physical-product brand can run the same margin-expansion play without building a flagship store network. Start by identifying your highest-margin product—typically your hero SKU or limited-edition variant—and route 100% of its volume through your own Shopify site, removing it from wholesale availability. Price it at full retail, no promotions, and reinvest the margin gain into acquisition: $8-12 Meta ads targeting customers who already buy your category, creative focused on the specific product feature your wholesale partners undersell. A candle brand might pull its best-selling seasonal scent from wholesale and run it DTC-only, using the $18 per-unit margin gain to fund a $600 monthly Meta budget that drives 50-75 new customers at $8-10 CAC. Ship in branded packaging with a repeat-purchase incentive—15% off next order, minimum $50—to build the owned customer file. Track repeat rate; if it exceeds 25% within 90 days, expand the DTC-only assortment.
The broader pattern: premium brands that control margin control destiny. On Holding's 2026 outlook is a public declaration that wholesale growth, while easier to scale, is a profitability ceiling. The DTC shift requires upfront investment—store leases, digital infrastructure, acquisition cost—but it converts revenue into enterprise value because owned customers and owned margin compound. For a physical-product brand at any scale, the move is the same: identify where you're surrendering margin to distribution, take one product direct, and prove the unit economics before expanding the play.
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