Running in Recycled Shoes

Published Feb 16, 2023, 5:05 AM

Caspar Coppetti is the co-founder of On, a company that makes athletic shoes. Caspar's problem is this: How can you sell tens of millions of shoes a year -- and then take them all back, to turn them into new shoes?

The company's latest bid to attract new customers? A shoe subscription service.

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Pushkin. In two thousand and eight, Casper Cappetti got a call from an old friend, a former triathlete, who had made a prototype for a new kind of running shoe. He called me and said, Casper, I co invented this running technology. Can you help me bring it to market? And I said absolutely not. Are you crazy? Are you out of your mind? You will not stand a chance against the A six and Nikes of this world. Casper had a PhD in economics. He was working as a consultant at McKinsey, which is to say he knew how to evaluate his friend's business idea. I mean it was probably just the most stupid idea that I've ever heard. You know that, literally the market is littered with running shoe companies that didn't make it. Casper was impressed by the shoe that his friend had invented. It looked different than other shoes had these like padded cylinder is running across the soul, and the runners who tried it really seem to like it. But come on, a new running shoe company. Really, from first having the thought of, hey could be turned this into a company, until actually starting it. It took us more than two years and it wasn't up and down basically mustering up the courage. I'm kind of like, oh no, let's go back into our golden cage and comfort zone. And then Ah had this feeling of oh no, we should have tried it until we finally jumped. You know, you have to take the plunge at some point, and I'm glad you did. The company they started was called on o N. It went public last year and it's now worth around seven billion dollars. I'm Jacob Goldstein, and this is what's your problem. My guest today is Casper Competti, co founder of on. Casper's problem is this, how can you sell tens of millions of shoes a year and then take them all back and turn them into new shoots. We'll get to that problem later in the show, but first I wanted to talk to Casper about that first problem. How you start a running shoe company to compete against these multinational giants that seem to have the market locked up. One of Tasper and his co founder's first decisions was this, they'd compete by making their shoes more expensive than almost everything else on the market. So, look, when you're based in Switzerland and you're you're founding a company with an innovation. Basically, the only strategy that's available to you is a premium strategy like that sounds fancy Switzerland plus innovation, that sounds expensive to me. You know, we have one of you know that we have the highest tellers in the world, a very high cost space and it's innovation driven. And we looked at the marketplace and then we saw that about thirty percent of the volume and about half of the revenue is generated by runners that really care about their equipment and they're willing to spend thirty forty fifty bucks more to stay away from injury. And that's that's the mark that we went after. So you decide you're going to go after the runners, you have another choice to make. Right, this is twenty ten when you launched I believe, is that right? That's correct? Yeah, So that's a moment when lots of companies are starting to sell straight to consumers, to not go through retail stores like clothing brands traditionally have, but rather just sell on the internet, right, which does seem more efficient, But you don't do that. Not only are you are you selling your shoes more expensively you're not gonna when you launch, you don't really say okay, let's take advantage of this new directed consumer channel, right Why we of course asked that same question at that time. What we felt, and I think it was validated later on, was to really break through with runners, you need the validation of the technology. And there's two ways of validating. You can either work with athletes and win a ton of races, and or you can be with the run specialty stores. So you know, the run specialty stores are typically owned by a former college run or a professional runner that you know, works closer with the community, becomes a destination, you know, the running stores. You know, it's not like they were waiting for us. And what we did is we sent these influential store owners a pair of test shoes. Then I would call them a week or two later and say, hey, did you have a run. How do you like them? And they were like, oh, all these weird looking shoes, No, I never put them on, and please don't call me again. So we realized that I wasn't working, so we said, well, how can we get them to try to shoes? And basically we had to force them, and so I would call them and say, hey, I'm going to be in Hamburggram, I'm going to be in Boston next week, and do you have time to go for a run. And all these you know, they're all former run and they still run probably most days, and running can be lonely, so they said, hey, yeah, sure, you know why not? And you know, I actually had no plans already to be in Boston or Hamburg, but I booked a fly tacket, flew there and brought a test too, And you know, these they're all nice guys and a lot of them are now close friends, so they couldn't turn me down. And I said, hey, well do you mind slipping these on for the run. And typically after a forty minute or our workout, they would be like, hey, this was a good pace and my legs, you know, feel actually pretty fresh. Tell me about the technology. That's how the conversation started. There's a moment I've read about that's interesting to me, where where you start getting into foot locker. But then, if I understand it correctly, you sort of sell into too many foot lockers. You kind of over expand a little bit in terms of where your shoes are available. Tell me about that so at the time, Footlocker started a run specialty format called run by foot Locker and basically we and we worked with those three stores that they had, and then they were summing through like crazy, and then they asked us to put on into twenty foot Locker stores. That was a bit a bit of a risk when we it was basically it was off strategy at the time. And so we said, well, okay, we can do twenty twenty doors. And we ended up being in Times Squares and and and we had tremendous success. So we have a window displayed in Times Squares and people were emailing me, Hey, you guys made it, You're in New York and so on. And then they expanded to eighty stores and that was too much. Basically, the same twenty stores that sold on well, they continued to sell well and everybody else, you know, in the Midwest for example, nobody was waiting for this weird Swiss brand. And we walked away with um, yeah, with definitely a learning that we were still holding on to this day. And what was the lesson there? Yeah, you basically, if you want to be premium, um, you always want to keep supply below demand, you know, you always want to have scarcity because nothing builds his hire like scarcity. Huh um, So you basically want to sell like slightly fewer shoes than you could. Is that that sort of the obstable to you? You know, that's you know, that's that's the story of our lives really ever since we started on. Basically, you know, we've been growing about eighty five percent on average every year, but we're always you know, we could we could have grown much faster, and so we're we're always kind of you know, threatening the needle, and we always have to say no, and we have to you know, like even sometimes I am too late, you know, I want to get a really cool shoe that we launched and they're sold out. Well, is part of that. I mean there is a fashion element to shoes obviously, right. People don't call it fashion, they call it uh streetwear, right, or you know people talk about being sneakerheads, but it's fashion, right, and that seems like a classic fashion, especially high end fashion strategy. Yeah. Absolutely, you know, we have a lot of hate relationship with fashion. When we started on, we had I mean, you are fashioned, right, thank your fashion, Thank you. Let's talk about it specifically, right, so you get into like Bloomingdale's and Nordstrom, which is like the opposite of the little running shop. Right, it's people buying fancy clothes. And it happens to be the case that over the sort of two thousand teens. Right as you're growing as a company at leisure is this growing segment where like rich people are buying expensive workout clothes and not working out in them, right, like Lululemon being the classic version there. But it seems like that's part of what you're riding right. Absolutely. Look, in the beginning, it boughted the heck out of us when somebody wore our high tech performance products with teens in the street. At some point we almost said, all you know, if you read one of Aaron's in the street, Uh, well we can do better, and we started designing for that market. Specifically. One place where the street where piece comes in is in your work with Roger Federer. Weirdly, so maybe we could talk about that now, Like, tell me, tell me how you came to work with Federer. Certainly the most famous Swiss athlete now maybe the most famous Swiss person now I can't think of another more famous. Definitely the most famous Swiss person. Um. Look, Switzerland's a small place, so he's basically my neighbor talking aside. Um. Um, you know, when when when Roger was done with his previous partner, Um, he he had you know, basically had to wear something and in Switzerland at the time its previous partner meaning meaning it was nice. Yeah. Yeah, so he had I think he worked. He played in Nikes for over twenty years of his career, and all of a sudden pictures started popping up in you know, with Roger wearing on and so we reached out and said, look, Roger, we're happy to send you the latest greatest so we don't have to go and buy them in the store. And at some point we get a phone call from his agent and it said he said, well, Roger's just landing, coming back from a tournament. He has twenty minutes to meet you guys a year round and we said sure, and he came and we ended up talking for more than two hours. Um. And at one point we said, Roger, we really have to go back to work. Um. But what came out of that is true, that that is well, you know, we did it very politely, but we can you know. Um. Shortly after he reached back down and said, hey, let's go for dinner, and from that a conversation started, um could be getting involved. And of course the only thing that that he had experienced with and frankly most of the the athletes, was just an endorsement deal sponsorship which for which for Federer would be tens of millions of dollars, right, presumably more money than your little running company had. Right, there's no way you're going to be able to sign him to an endorsement deal. You can't apply, you know, Um, it could be a couple tens of millions of dollars per year for for a regular sponsorship deal with him. So um. So basically, you know, we came to the conclusion that we can't afford to pay him. Um. He's the much bigger brand than On was at the time, but he could pay us. And so he became an investor and we literally made the shortest ever agreement I think ever done in the history of sports, where it's basically said, look, there are no regulations on either side. He's an investor, um, and you know, if if we have fun together, we're going to make this thing big and out of that came a beautiful line of lifestyle products, as you were. And then as as his compact came nearer, against the advice of his medical and trade any trainers staff, he said, look, I want to comback. I have a new knee. I want to come back in a new shoe. And so in like record time, literally like four or five months, we developed the professional tennis shoe that he then wore in his comeback, and he put his whole experience into that into that shoe. So that shoe, if I understand correctly, like if I go back to your running shoes, those you started with the most hardcore runners people at running stores. But the federal shoe you did not go for like the hardcore tennis uh community. Right. You debuted it at a at a streetwear store in Manhattan, is that right? Yeah? So look, the you know, the white tennis sneaker is one of the beloved lifestyle silhouettes, like you know in in in many languages is actually sneakers called tennis, yeah, tennis shoes. And then when I was a kid with the tennis shoes anyway, Yeah, and I mean in a way this sort of speaks to that arc of going from just being like a hardcore runners only running shoe to being kind of a fashion shoe, right. I mean, Federa is wearing it, so obviously it's a legit tennis shoe. But also your sell people are lined up around the block in Manhattan and it's cost two hundred dollars and then it sells for twice that on the secondary market. This is like a sneakerhead fashioned shoe. Yeah. Absolutely, still to come. The next big problem for Casper and on how to take back all the shoes they sell tens of millions of pairs a year and turn them into new shoes. That's the end of the ads. Now we're going back to the show. Let's talk about your subscription shoe. You launched a subscription shoe last year. Tell me about that business. Yeah, so ninety nine percent of the Sporting Coots products are made from crude oil? Is true? If shoes also our shoes shoes ex peril anything, you know, and most basically esther stick of one kind of past. Yeah. Shoot, running shoes are plastic. All the foam, all that, this, all that that, it's it's plastic. Running shoes are plastic, and plastic is crude. Oil. It sucks, and so you know, and what's verse is, you know, you go through a pair of running shoes maybe four times a year, two times a year depends how often. It depends on how much you run, right, I feel like what is the median runner? About about twice a year? Right? About twice? Yes, exactly. So you know, then then people throw them away and in the US they will land end up in the land fillings with some there they're burnt. But it's not a it's not a sustainable business model by any means. So we said, hey, let's change that. And um, we looked into two things. First of all, we want to move away from petrol based raw materials UM. And so this particular model that you're speaking about, which we call cyclone, is made from beans castor beans that you know, we're cultivated back in the seventies when the energy oil crisis was active and you could actually make petrol from it. And the other thing was how can we make our product circlar So, how can we design a product but it's a parable footwear that you know you can use, but then you can easily take back, take apart and make a new product out And so with Cyclone. We did that, but then we realized and we were not the first company. There maybe two or the others that have designed circlear running shoes, but we're the first ones to take circularity series. In terms of that, we said, hey, we want these products back, and then you know, we came up with this idea, let's not sell this product, let's only make it available by subscription, so running as a service. Similar how you're watching movies now on Netflix and you no longer own the movie. Well, this has been a tremendous hit with consumers and we're just at the end of the first six month cycle and guess what we have received back over eighty percent off the shoes. That in terms of recycling rates is unprecedented. And that's before we even go out and threaten them with penalties and charge stack credit card. Just just people are well, certainly the people who sign up first are going to be the most likely to be good about it. Right, there are the people who are most excited by the model. So that's definitely what we hoped for. You, right, how much does it cost? And what do you get if you if I sign up for shoes as a service, So you pay a thirty dollar a month subscription fee, okay, and you get two maybe three pairs of running shoes a year, depending on how often you run. But the default is basically so thirty bucks a month is like three hundred and sixty bucks a year. Yeah, so two times one hundred eighty bucks, like you know, a high end running shoe, plus you do you do good for the planet. How often am I allowed to get new shoes if I'm paying three hundred and sixty basically as often as you as you'd like. You know, if you're if you're doing you know that the shoes will last you about five five miles typical standard running shoe, rightning, Yeah, I noticed that this subscription shoe is all white, bright white, which I thought might be sort of clever. I don't know if it's marketing at some level. It's like, oh, if your shoe gets dirty and you want really white shoes, which is like a thing now right, good news, just ask us, we'll send you a new bright white pear. Well, this this particular case, you know that that's purely for recycling reasons, you know, because if you mix colors and you have red, green and blue pears, you know, the next one will be brown. That's not that's not a very popular color. So you know, by keeping them white, not only do we save a ton of water because we don't have to die the fabrics, but it's also much easier to recycle. But you know, cyclone is interesting because it's our our laboratory for experimentation, and we learned not only to make a shoe out of your pere pieces. You know, your average running shoe maybe is made out of one hundred different pieces. Cyclone is made out of about five. I know that not all recycling is that it is actually more efficient than making things from raw materials. Kind of depends on what's being recycled and how in this instance is it more efficient it's better? Is it a smaller carbon footprint? Yeah, when you look at you know, you look at carbon or waste of water will save anywhere, you know, over the lifespan of a cyclone, so you know, this is about eight cycles that you know, the material stays in the loop, we will save about eighty percent of the waste, about the fifty percent of the carbon footprint, about seventy percent of water used. So it's it's it's very very substantial so we're talking about the subscription business, and clearly you just started it and it's sort of in the experimental phase. How much of your business do you think it's going to be in whatever timeframe you want, five years. The truth of the matter is, we don't know. This is an experiment and we're learning. I frankly don't think that subscription is going to be a huge thing in sports because consumers want choice and we've looked at rolling all these choices into a subscription model and it just makes things very, very messy and complicated. But for right now, for what it's worth, I think to actually have very high return rates in terms of recycling rates. It's a good tool and maybe it has its place. We only started this thing about six or seven months ago, so we're still learning. If you get to ten percent of our business, I think it's going to be a big number. I'm I guess a little disappointed in some at some level that that it's not going to be bigger. That you don't think it's going to be bigger. I mean, I mean a it would make a tidy end to the interview. So that's of course important to me. But but also, like you know, I like the efficiency piece, I will say I also, I have been buying basically the same pair of Nikes every six months for ten years or something, and you know, I always just buy last year's model because it's cheaper um. But you know, if they had a subscription model that was what I pay now or a little less, I would do it just because it's essentially what I'm doing already. I don't know what to do with my old shoes. Why do you think it's not going to be bigger? Why do you think it's only going to be you know, ten percent? If it's really successful, let me let me rephrase that. You know the this is I don't want you to rephrase it. I don't don't revise your estimate based on my sentiment. It just tell me why you think what you think. Look, as I said earlier, this is an experiment at scale and we're learning u And if it turns out that people really love the subscription model, I mean, that would be a really positive outcome. And we're going to have to figure out the whole circularity piece, because we have publicly committed to bringing everyon product back by the end of the decade. If it's not going to be a subscription, Like, what's it going to be? What are your other options? It's probably going to be a combination of things. So right now, for in the subscription program, we're using mail basically FedEx a ups to bring it back fast forward three or four years. You'll be able to bring back your running shoes in basically where you bought them, similarly like you'd do it with other products. Because you know, this business model that our industry works on, taking crude oil out of the earth and then throwing it away is just not sustainable, bitter, you know, neither for the planet nor economically. I mean, I feel like the economics of it clearly work now. And if you really wanted it to change, what you would want is to impose a price on throwing it away, right, Make it more expensive to throw it away, make it cheaper to return it to the company, or make that price embedded in the price of the shoe when you buy it at retail. Right, Like that's what we've done with cans, Right, there's a deposit that sort of embeds that price in the retail price and makes it worth collecting and returning. Right, do you see any sort of top down price changes like that is that something absolutely seems more Euish than American Ish. Just just wait, look, plastics is in you smoking? Um, you know the you know and you're in the plastics business. This is absolutely or Jr. Saying that, Hey, yeah, it's well we stay the heads at that back in the day, you know, choking aside. Um. You know, similar to how oil fuel is taxed, Um, there will be a tax on on plastic and there will be a will be mandatory eventually to recycle plastics like it is with other things that you mentioned. Um, whether that is five years out or ten years out of fifty years out, it's definitely the right thing to do. Once that comes into play, it will they definitely make economic sense to be a first mover. Um. And you know in an on product to day there maybe four or five dollars worth of of of plastics that we can recuperate. And in this way, We'll be back in a minute with a Swiss and running shoe themed lightning round. Now let's get back to what's your problem. I want to finish with a lightning round a bunch of all right quick questions. What's the first pair of shoes you had that you remember Adidas is with a really nice velcro. Oh, the velcro, It's makes so much sense velcro. Why do you think velcro didn't like? Yeah? Is it? Is it actually worse? Like you from your sort of shoe science knowledge, is velcro a worse closure than laces? Laces are remarkably persistent technology. Well, the laces allow you to really finally adjust. Um, you know how how how tight the shoe is in different parts of the of the upper But velcrois is a very nice technology. Um, what situation is too formal to wear sneakers? None? Meeting the Pope? No? Absolutely, I did them our IPO in sneakers and a pair of shorts. So of course you did the IPO in snea because that's marketing. Okay, getting married, getting married sneakers to get married? Absolutely, I actually got married barefoot. Well that that's a hippie classic of respect. That Um, okay, let's do some quick Switzerland comparisons. Um Greer or Emmental Greer, Eiger or Matterhorn. I must say the Matterhorn is very spectacular. Stad Or Samrits Samorets. That's where I live. So you worked at the consultancy McKinsey before you started on and I'm surious if you think McKinsey is overrated or underrated. I think it's overrated. I feel probably mentioned consultants are are overused and companies should do things more with their own staff. We're definitely trying that. Is there something you learned as a consultant that you have found useful running a company? Oh, many things at McKinsey. When you when you are in a new assignment, you always talk to people that have done something in that space before, so you're you're not afraid to show that you have no clue about even though though you can. Empaid a lot of money to consult in a company, and that's something that we have applied it on heavily, you know, like we're able to it. As a startup entrepreneur, you have access to a lot of people that they're just helping you because they feel for you, because they've been in the same situation. What's your second favorite brand of running shoes? Well, I'll have to pass on that one. Passport. Capetti is the co founder of on. Today's show was produced by Edith Russolo. It was edited by Sarah Knicks and Robert Smith and engineered by Amanda ka Wong. I'm Jacob Goldstein. You can find me on Twitter at Jacob Goldstein, or you can email us at problem at Kushkin dot FM. We'll be back next week with another episode of What's Your Problem

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