Customers sue sneaker company On over shoes that cause 'noisy and embarrassing squeak'

Athletic shoe company On is facing a class action lawsuit, filed October 9, alleging that its "CloudTec" technology causes many of its sneakers, including popular models like the Cloud 5, to emit a loud, embarrassing squeak. Plaintiffs claim the company is aware of this widespread defect, refuses refunds, and deceptively markets the products, despite the issue not being covered by warranty. The lawsuit seeks compensatory, statutory, and punitive damages, along with refunds for shoes costing up to $200, posing potential risks to On's brand reputation and financial liabilities.

Analysis

Athletic footwear company On (ONON) is facing a class action lawsuit, filed October 9, alleging a significant defect in its "CloudTec" technology. The suit claims numerous popular sneaker models, including the Cloud 5 and CloudMonster, produce an "embarrassingly loud squeak" due to the technology's components rubbing together, despite being marketed for cushioned support. This legal action targets a core product feature across at least 11 of the brand's styles.

Plaintiffs assert "ascertainable loss" from alleged fraudulent business practices and deceptive marketing, seeking compensatory, statutory, and punitive damages, alongside refunds for shoes costing up to $200. The company's alleged refusal to offer refunds and characterization of squeaking as "normal wear and tear" despite widespread consumer complaints on platforms like TikTok and Reddit, could severely impact brand reputation and customer loyalty.

The lawsuit highlights a potential disconnect between product design, consumer expectation, and company response, with On reportedly aware of the issue but taking no remedial action. This negative sentiment, reflected in a -0.9 per-ticker sentiment score for ONON, suggests significant investor concern regarding potential financial liabilities and the long-term impact on consumer trust and sales.

Key Decisions for Investors

• Investors should closely monitor the progression of the class action lawsuit against On (ONON), as its outcome could significantly impact financial liabilities and brand equity.
• Evaluate the potential for sustained negative consumer sentiment and its effect on future sales and market share, particularly given the alleged widespread nature of the defect and company's current stance on refunds.
• Consider the implications for ONON's product development and quality control processes, as well as the potential for increased R&D costs to address the "CloudTec" issue or redesign future products.