Under Armour Case Notes:
((History))
Kevin Plank - founder (former University of Maryland football player)
“To make a superior t-shirt and nothing more”
In 1996, he wanted to create a shirt that would help control the temperature of an
athlete’s body, not just soak up the sweat during intense activities.
He wanted a shirt that enhanced performance rather than detracted from it.
The Result: a synthetic shirt made of high-tech material that had a snug fit designed to
feel like a second skin. = regulated body temperatures
“A unique product that would meet the needs of all athletes.”
The first big sale was made to Georgia Tech University.
Plank marketed the product by focusing on the value-added concept.
1990s: UA achieved national recognition
1998: Official supplier of performance apparel to NFL Europe
1999: Signed contract to feature UA in Warner Brothers’ movies
2000: UA has become a globally recognized brand + supplying performance apparel to
the NFL, NHL, MLB, USA Baseball, US ski team, among many other professional
leagues abroad.
2005: UA was supplying over 100 NCAA Division 1A football programs and 30 NFL
teams
- during this time, UA was still looking for other areas to branch into within the
performance apparel industry.
- introduced a loose-fit clothing line and added women’s clothing to its product
line.
- the company went public, seeking to sell as much as $100 million in shares of
common stock
- UA was said to have been “positioned as a real player in the industry” (Ben
Sturner, Pres., Leverage Sports Agency)
2006: (4Q) launched new product line--footwear
2007: UA increased its marketing initiatives by opening self-owned retail and outlet
stores
2008: (1Q) UA had 43% of the total US performance apparel business sold through
sporting goods stores v. 32% for Nike, and 5.1% for Adidas.
- “UA has been identified with performance the way Starbucks is identified with
better coffee, and that is a huge advantage in entering new categories.”
Current Technology for Product Lines
Clothing made for every climate:
HeatGear
Hot weather
ColdGear
Cold weather
AllSeasonGear
Between extremes
Mission
“To enhance the experience for all athletes by applying passion, science, and the
relentless pursuit of innovation to create clothing with temperature control, comfort,
and flexibility.”
Goal
“To be a leading developer, marketer, and distributor of branded performance
products.”
“To become the world’s number one performance athletic brand.”
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It has been able to successfully penetrate the sports apparel market by using the
image and influence of domestic and international professional teams, collegiate
teams, Olympians, and individuals.
⁃
Utilizing broad-based, frequently free endorsements and well-received
publicity, Under Armour has also reached regular athletes, active outdoor enthusiasts,
elite tactical professionals, and active lifestyle consumers.
Current Status
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Quickly becoming a leader in the sports apparel industry
⁃
Potentially an opposing force to Nike in sports apparel, with its widespread
popularity amongst top-name athletes and sports programs and teams.
Evidence:
133% compound annual growth rate
Increase in operating income from $5.7 million to $52.5 million from 2003-2007
As of 2007, Under Armour had $606 million in sales revenue
⁃
Products are sold worldwide
⁃
Company’s HQ is in the US; support offices are in HK and Guangzhou, China
⁃
Primary sales are achieved through wholesale distribution and licensing to
distributors.
⁃
Products are offered through the company website and retailers, and company
stores in the US, Europe, Japan, Canada, South Africa, Australia, and NZ.
⁃
It competes in a highly competitive industry where the dominant competitors
have significant breadth of market coverage that it is difficult to find an entry point.
⁃
The main competitors have been advertising and establishing distribution
channels, marketing agreements, and recognition for many years.
⁃
Can be used sa Porter’s (threat of new entrants): The battle for UA was much
more uphill than most other new entrants to an established market. However, UA has
succeeded in breaking into a MATURE market and is NO LONGER simply an amateur
player in the sports apparel arena.
⁃
Currently, players from 30 of 32 NFL teams wear UA products.
⁃
Plank has attributed the company’s success to the fact that “it has grown and
reinforced its brand name and image through sakes to athletes and teams at all levels,
from youth to professional, as well as through sales to consumers with active lifestyles
around the globe.”
“HOW DOES THE COMPANY STAY ON TOP OF ITS GAME?”
((Current Product and Sales Profile))
Geographic Distribution
⁃
93% of sales in 2007 were in the US. 4% in Canada. Other international markets
accounting for the remaining 3%.
⁃
UA sells products in 13 countries, including in-house distribution in the UK,
Germany, and France.
⁃
Sales in other Western European and Asian countries are done through
partnerships and third-party distributors.
⁃
Limited sales outside of the North American market were primarily the result of
an emerging international penetration plan that received new emphasis in 2006 with
the opening of a European headquarters.
⁃
IN AN EFFORT TO INCREASE THE GEOGRAPHIC DIVERSITY OF SALES,
these headquarters were opened to manage sales and distribution channels, and an
additional experienced industry talent was brought on board in 2007.
Product Segment Distribution
Apparel
- dominated in 2007 (84% of total
sales)
- Men’s apparel (68% of apparel sales
and 57% of total sales)
- Women’s apparel (23% of apparel
sales and 19% of total sales) =
representing a significant growth and
diversification opportunity
- Youth products made up the balance
of apparel sales.
Footwear
Accessories
7% of sales
5% of sales
Licensed Products
4% of sales
(In a nutshell, the non-apparel product segments made of the 16% remaining
percent of sales).
(Launched in 4Q of 2006: new footwear product line [initially offered baseball,
softball, and lacrosse cleats only] includes shoes for golf, football, running, and
cross-training).
= they should look into basketball shoes and soccer cleats
-
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UA captured 20% of the US football shoe market in the first year.
2009 1Q earnings is attributed largely to the new running shoe.
Accessories are developed and managed directly by UA. Primary products
include performance gloves for football, baseball, running, and golf aligned to
the Heatgear and Coldgear product lines with unique performance features.
UA licenses its brand name to independent manufacturers for other
miscellaneous products such as bags, socks, headwear, eyewear, and watches.
UA works with multiple licenses directly throughout the product development
process to ensure that the products are aligned with its brand and quality
expectations.
((Seasonality))
Trend: Sales are higher in the 3rd and 4th quarters of each year, aligning with football
and basketball seasons, and Christmas.
- UA has contemplated putting more emphasis on its baseball product line to
improve the sales balance and reduce the seasonal variability in sales, inventory
efforts, and distribution.
((Operations and Distributions/Distributors))
- UA possesses an efficient operations and distribution network. (blend of
physical-location metrics + strategic qualities)
- Leveraging its licensing partners (JR286 Inc., and USG), UA can provide a wider
range of branded products to its customers.
o This wider range of products adds value by reinforcing the brand and
generating revenue without having to organically develop capabilities in
these adjacent product categories.
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KEEN SELECTION and EFFECTIVE PARTNER RELATIONSHIPS made UA
develop unique products that customers value.
Investment in a new SAP system: key to the company’s ability to add products to
its list of offerings as it allows UA to manage a more diverse inventory and to
ship directly to distributors.
UA DOES NOT HAVE A PATENT ON ANY OF THE MATERIALS USED IN ITS
PRODUCTS.
o It needs to be cautious in its licensing agreements so companies do not
steal its know-how and introduce their own versions.
Effective corporate strategy implementation is critical. (in terms of profit +
position)
((Major Competitors))
3 largest:
- Nike (leader in athletic shoes, apparel, and equipment); an industry leader
- Adidas/Reebok (acquisitioned); initially struggled to find its niche
- Columbia Sportswear (success tied to number of sponsorships)
Smaller competitors (may become larger threats in the future):
SportHill
((Under Armour’s Leaders))
- Plank’s eye for unique innovation and unwavering spirit of dedication
o Values work as he had first-hand experience
o Uses athletic experience and connections for marketing
o UA being able to attract and keep loyal customers
o Regularly seeks feedback regarding existing products and the need for
new products
Management Style
- Unique team-driven style
International Leadership
- To facilitate international expansion, UA hired several new executives with
experience in international business.
((UA’s Business Strategies))
- Product Differentiation (ever since its inception in 1966, this was the means to
achieve THE COMPANY’S VISION OF BECOMING THE WORLD’S LEADING
PERFORMANCE ATHLETIC APPAREL BRAND by employing a differentiation
strategy through innovation)
o Physical Differentiation: value chain activities of technological
development and procurement
o Physiological Differentiation: marketing campaign—professional athletes
actually volunteering to wear it
o To maintain differentiation from Nike, “authenticity” should be used as
his guiding principal to GROW or ADVERTISE the brand
- Corporate level strategy: A low level of diversification
o UA offers more than one product
o 84% or revenues come from athletic apparel and gear
o Incorporating a shoe line helps with diversification efforts but still highly
dependent upon premium priced products that are closely related
 Economic risk on premium pricing
 Current declining retail consumer market affecting the broader
economy
 Risk on offering closely related nonessential products (subject to
fashion whims of customers)
*may be important for KRAs:
UA added domestic sales channels by introducing its first independent retial sales
outlet in Annapolis, Maryland. However, due to the conservative approach to growth in
2009, no new retail stores will be opened during the year.
- International Expansion
o Creating a broader consumer base
o International diversification can lead to greater operational efficiency, and
thus leading to higher financial performance
o UA’s products transcends cultural differences and is appealing to many
athletes regardless of nationality
o REGIONALIZATION
o Feasible because performance sports apparel does not require an in-depth
knowledge of local customer service.
o UA products are manufactured in China, so new offices in Europe are
primarily geared toward marketing and distribution; not having to deal
with challenges associated with establishing marketing plants in foreign
countries.
MARKETING
*can be used sa strengths sa SWOT
- Products have proven to be very effective that professional athletes want to use them.
- UA has become a master of product placement in movies, TV shows, and video games
(part of contracts since 1999).
-
Plank believes word-of-mouth advertising is the most effective method.
o Emphasized that a customer would be willing to pay the price because the
UA product has value in it
 Value = technology in the fabric + design + features that satisfy
what the athlete needs; the product ultimately helps the athlete
perform better
o Athletes = valuable marketing resource (mouthpiece)
*may be helpful in KRAs
- 5-yr partnership agreement in April 2009 with Carl Ripken Jr. (ret. prof. baseball
player) to be their official uniform representative. [he previously partnered with
Nike]
- capturing youth sports industry: sponsoring recreational teams and major
youth tournaments (ex. UA All-America high school football)
- initiated other public sponsorships (ex. Baltimore Marathon renamed to UA
Marathon, women’s US field hockey team + some of US women’s softball and
volleyball athletes in the 2008 Olympics)
- In 2008, UA apparel appeared nearly 3,000x in cable shows more than any other
company; movie studios are asking to use UA’s products lessening the
challenge of having to purchase product placement time.
In summary, the desire of athletes and movie studious to use UA’s products leads
to a lower-cost, more effective, grass roots ad campaign.
o Aside from UA sponsoring its first Super Bowl commercial (2008), it will
continue to use more guerilla tactics than traditional expensive ad
campaigns.
((STRATEGIC CHALLENGES))
- Current economic downturn (effects of the financial crisis)
- Competing rivals (Nike, Adidas/Reebok)
o UA has achieved a level of success in the US domestic market and limited
foreign markets but is relatively small in size and financial strength
compared to its major competitors with similar or competing product
offerings.
- Maintaining a positive brand image despite setbacks (recent recall of its men’s
protective athletic gear)
- Protection of the differentiation strategy
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o Relatively successful, however the lack of proprietary product rights,
intellectual property rights in foreign countries, and a heavy reliance on
relatively few third-party suppliers and manufacturers could adversely
affect the long-term sustainability of the firm. (IP in the technology,
fabrics, and processes used in manufacturing are owned by suppliers)
o Company’s ability to obtain patent protection for its products is limited
o Trademarks, licensing arrangements, and other legal agreements are
intangible assets that are critical to every brand.
o IP rights, laws, and regulations vary greatly in the global market. UA’s
heavy reliance on suppliers and manufacturers outside the US make it
more complex. (70-75% of fabric used in products come from only 6
suppliers: it has a weak position relative to its suppliers).
 Some of its supplies are commodities and are subject to price
fluctuations (petroleum-based materials) = swings in price and
availability
Improvement of production and procurement capabilities
Continued implementation of a sound international expansion strategy