The purpose of the report is to examine the market position, financial performance, and strategic execution of the Under Armour, Inc., in order to analyze the factors that are the sources of the company’s strategic competitive advantages and define its potential areas of growth. The key performance indicators, as compared to the two closest competitors, comprise dynamics of the revenues and profits, selected ratios that describe liquidity, efficiency, and profitability, as well as stock performance metrics. The key success factors that underlie the strategy, including the brand management, marketing, and product innovations are explored in detail, along with the main opportunities that define the growth potential of the company.
Company Background
Founded by a former football player, Kevin Plank, the KP Sports company was initially targeting athletes; it developed innovative fabrics with moisture-wicking properties that ensured comfortable experience during intensive sports activities. The sale of the first T-shirts to be worn under sports equipment was launched in 1996. During the first years of its operation, the company sold special apparel to sports teams and schools. In 2000, it began marketing its products to retail chains and soon expanded to about 500 retail stores. Since 1999, the operations reached international markets.
In 2005, the company was renamed to Under Armour, Inc. and launched IPO; the founders retained the majority of stocks and “83% of the voting power” belonging to its founder and CEO, Kevin Plank (Thompson, 2012). The founder-led approach was reinforced in June 2015 when the company announced it plans to perform a two-for-one stock split and create a third, non-voting, Class C of stocks (Shaefer, 2015). The decision is supposed to both provide funds and enable the CEO maintain control of the company. Under Armour was named the Company of the Year 2014 by Yahoo! Finance due to its extraordinary growth history, excellent stock performance, and “the way the company has turned potential setbacks into wins in 2014” (Santoli, 2014). The company has been showing spectacular growth rates in the last years, effectively exploiting the market opportunities and strengthening its advantages in the competitive environment.
Overview of the Current Competitive Environment
Under Armour (UA) is a strong athletic sportswear brand that has been consistently showing an over 20% growth in the net revenues for the last five years and “a 5th consecutive quarter of over a 30% increase” in 2014 (Trefis Team, 2015a). By 2011, the company had achieved a market share of 2.8% and had been actively growing “in the roughly $60 billion multi-segment” of the U.S. market (Thompson, 2012). As of the end of 2014, for the first time, Under Armour attained the second position in the market, “edging out Adidas at the close of the calendar year” (Germano, 2015). During the last years, Adidas lost its market share not only to Nike and Under Armour but also to smaller market players.
Nike remains an undisputable leader in the industry with compelling market shares, in the footwear market, in particular, where it holds “60% of the U.S. market and 25% of the international market” (Trefis Team, 2015c). Nike’s international sales are almost triple as high as the combined sales of Under Armour and Adidas. The company implements a number of innovative initiatives with the efficiency multiplied by the company’s large size, including R&D, extensive “demand creation” programs and trend-setting advertising campaigns (Thompson, 2012). All three major companies compete in the realm of winning athletes’ endorsements, striving to increase recognition among different customer segments and take higher market shares from the competition.
Financial Performance
Key Financial Indicators
Under Armour has a strong revenue growth history, despite operating much smaller resources than its main competitors. The key financial indicators are presented in the Table 1 below. It can be seen that the company features relatively high margins and ROE, as well as high liquidity (measured by the current ratio), despite relying much on the financial leverage (debt to equity ratio). The profit margin is a potential area for improvement, reflecting high costs the company incurs to maintain its production, international operations, and advertising. The high growth is resulting in the correspondingly high market valuation. The company’s capitalization is comparable to Adidas whereas the company features a much higher profitability and returns on capital.
Table 1. Key Financial Figures: Under Armour, Nike, Adidas (2014 or most recent period)
Sources: Forbes (“The World’s Biggest Public Companies,” 2015), Yahoo! Finance (“Key Statistics,”2015a)
Under Armour |
Nike |
Adidas |
|
Global 2000 ranking |
1867 |
289 |
683 |
Market capitalization |
17.65 billion USD |
89.36 billion USD |
14.11 billion EUR |
Revenues, 2014 |
3.25 billion USD |
30.25 billion USD |
15.14 billion EUR |
Quarterly revenue growth |
25.5% |
7% |
17.30% |
Net income, 2014 |
206.23 billion USD |
3.11 billion USD |
586 million EUR |
Profit margin |
6.35% |
10.27% |
3.35% |
Operational margin |
11.12% |
13.60% |
6.82% |
Operating cash flow |
190.04 million USD |
4.66 billion EUR |
823 million EUR |
ROA |
10.88% |
13.41% |
5.18% |
ROE |
16.54% |
26.43% |
9.98% |
Trailing P/E |
87.24 |
29.69 |
28.55 |
Debt/Equity |
49.07 |
10.12 |
30.81 |
Current Ratio |
3.2 |
2.72 |
1.66 |
Stock Performance
Under Armour features a unique stock performance, which has been consistently growing since IPO and showed an increase of over 800% during the last five years. By contrast, its main competitors, Nike and Adidas, demonstrate much more modest growth rates with Adidas’ recent decline. The streamlined price growth (see Chart 1 below) provides additional challenges to the management regarding the high expectations of investors. In the pessimistic scenario, the company will face a steep reduction in the stock price, which currently reflects very optimistic forecasts with the very high P/E (see Table 1 in the previous section).
Chart 1. Five-Year Dynamics of Share Prices: Under Armour (UA), Nike, and Adidas (“Under Armour, Inc.,” 2015)
Analysis of the Strategic Execution
Strong Branding
Under Armour has successfully built upon its authentic brand and expanded its presence into a number of product categories. The company currently markets “apparel, footwear, and accessories” for all age categories and income segments that suit diverse tastes and weather conditions with the focus on the improved performance (Thompson, 2012). Since the first years of its operation, Under Armour has been working on increasing the brand awareness by placing the logo on all sports equipment and getting “broad exposure at live sporting events, as well as on television, in magazines, and on a wide variety of Internet sites” (Thompson, 2012). The company’s brand positions are reinforced by its simple and recognizable logo, shown consistently across all campaigns executed in a broad range of marketing channels.
Multi-Channel Sales: Retail Chains, Direct-to-Consumer Stores, and E-Commerce
It can be claimed that the major part of the company’s success was attained due to its effective retail store strategy launches in 2000. Under Armour has been investing in acquiring exclusive store facilities in retail locations, as well as maintaining consistent brand management and product placement via “flooring, in-store fixtures, product displays, life-size athlete mannequins, and lighting” (Thompson, 2012). In the dedicated areas in large retail chains and exclusive concept stores, the company aims to immerse and engage customers with Under Armour success story by building and reinforcing the brand’s distinctive positioning against the competition. Additionally, the company is developing its e-commerce platform.
The majority of sales, 67% in 2014, are made via the wholesale channel, which includes “national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic 3 departments and leagues and teams,” as well as through independent distributors and licensees in selected countries, about 3% (“The 2014 Annual Report,” 2015). The direct-to-consumer channel, represented by direct sales to teams, athletes, and sales via house stores made 30% of its sales in 2014. The e-commerce website is a relatively new initiative, launched only in December 2012. In early 2014, the e-commerce sales made about 9% of sales with the goal to grow “to around 25% in the future” (Singh, 2014). As the website features most of the products presented in the physical stores, e-commerce is expected to turn into a great conversion tool, in general, and in the international market, in particular.
Product Innovations and Product Management
From the original compression shirt to the more recent product lines such as UA Storm, Charged Cotton®, and UA ColdGear® Infrared platforms, the company aimed to provide the most cutting-edge solutions for athletes and subsequently more customer segments (“The 2014 Annual Report,” 2015). Importantly, the product innovations are consumer-facing; they are supported by consistent communication, which enhances the mutual understanding and contributes to the high perception of the Under Armour products’ quality among the customers. The company collaborates with customers, suppliers, athletes, and other stakeholders in order to identify, test, and develop new products in line with the latest trends and customers’ needs. Under Armour relies on vendors around the world to manufacture its products and strives to maintain the highest quality and sustainability standards.
Due to the high complexity of the business, the company is facing problems with the inventory management. In 2012, the management declared the intention to review the entire product line and consider cutbacks in the number of products in order to attain a higher efficiency of the business (Thompson, 2012). New systems and processes to enhance the inventory management shall be implemented. In addition, the company focuses on the “added discipline around the purchasing of product, production lead time reduction, and better planning and execution in selling of excess inventory” (“The 2014 Annual Report,” 2015), which are expected to contribute to a better efficiency in handling the assets.
Comprehensive Marketing Programs
Being strongly brand-centric, the company has a dedicated marketing and promotions team that “produced most of its advertising campaigns to drive consumer demand for its products and build awareness” of the brand (Thompson, 2012). The company has been investing in the development of integrated multi-channel marketing campaigns with a strong focus on customer experience and exemplary implementation in digital media, mobile applications, and social network tools.
The central place in the Under Armour marketing belongs to sports sponsorships and celebrity endorsements, which have been a core part of the company’s strategy since the 1990s. Aiming to secure the deals with the athletes and emerging stars, who enjoy the high recognition of the public, Under Armour has been a darling of the market for years (Schaefer, 2015). Among the featured sponsorships and endorsements that cover diverse customer preferences, there are an extensive coverage of the basketball, baseball, football, and soccer teams, as well as contracts with the ski champion, Lindsey Vonn, the golf champion, Jordan Spieth, the NBA MVP, Stephen Curry, a famous ballet dancer, Misty Copeland, and other athletes and celebrities.
In 2014, Advertising Age named Under Armour the Best Marketer of the Year; it was a tribute to the company’s marketing innovations, “I will what I want,” “groundbreaking women’s campaign, smart PR and a take-no-prisoners approach” (Schultz, 2014). While restricting the marketing spending to 11% of revenues, Under Armour restructured the marketing programs in order to focus on three large campaigns, or “annual brand holidays” (Ibid.). The winning integrated marketing campaign of 2014 helped to reinforce the brand recognition and further boost sales in the female segment.
Exploring the Growth Opportunities: New Market Segments
One of the success milestones of Under Armour was the decision to expand into the female segment, in apparel and fledgling footwear. The company first targeted women in 2003 rather unsuccessfully but continued to try and enhance the approach. The efforts subsequently contributed to a streamlined growth in the business. The company “aims to grow the women’s business to around $1 billion by 2016” (Trefis Team, 2015a), strengthening its positions by new acquisitions, marketing campaigns, and sponsorship deals. In particular, since the end of 2013, Under Armour has been integrating a recently acquired Endomondo business. In 2015, the company closed the deal to buy the MapMyFitness platform; it intended to boost the offering in the fitness segment and specifically female customers. Recent endorsements of a supermodel and a ballerina have provided another boost for Under Armour’s sales in the segment.
One more fast-growing segment is the Under Armour footwear that, so far, is limited to the running shoes category. At the same time, the competing Nike brand holds prominent positions in “running, basketball, baseball, soccer, training, and casual shoes, in addition to slippers and children’s footwear” (Trefis Team, 2015c). In 2014, the Under Armour brand was expanding to the other segments, as well, such as active lifestyle and non-core outdoor and recreational categories, for example, golf, hunting, fishing, and camping.
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Exploring the Growth Opportunities: International Markets
Under Armour first entered the international markets of Japan in 1999 via licensee, in 2003, Canada, and in 2005, the UK via “independent sales agents” (Ibid.). In 2005, about 25% out of the 8000 retail stores were international stores in these three countries. In 2006, the European headquarters was established in the Netherlands. By 2011, the company had expanded to a number of countries in Latin America and Asia-Pacific region.
In 2014, the share of international markets in the net revenues reached 9%; the share of the sales is predicted to grow to 12% by 2016 from 6% in 2013 (Trefis Team, 2015a). In 2014, Under Armour exhibited the 96% growth in the International business (“The 2014 Annual Report,” 2015), with the ambitious long-horizon goal to increase the international markets share to 50% in the overall sales.
Conclusion
Under Armour is a fast growing company that has recently taken the second position by the market share, outperforming Adidas and challenging the undisputable leader, Nike, in the effective product development, integrated marketing, and comprehensive brand management. The strategy of a clear and coherent brand positioning, marketing efforts aimed at reinforcing the brand recognition, and efficient management of retail space shall remain the critical factors of the Under Armour’s position in the market. Relying on these traditionally strong areas, the company shall continue its strategy of expansion into the new business segments and international locations.
An area that shall gain a prominent position in the company’s strategy during the next years is the e-commerce segment, launched in the end of 2012 and so far taking a small share of Under Armour’s sales. It is also recommended to pay particular attention to the inventory management, financial discipline, and strong performance control of all areas of the business. The continuing emphasis on the operating efficiency can allow supporting the growth, maintaining the market capitalization, and improving the profit margins. Overall, the available evidence on the current strategy, competitive environment, and recent performance of the Under Armour Inc. allows expecting that the company shall build on its strong strategic execution and maintain the growth of revenues, securing its second position in the market.