Under Armour is currently one of the leading companies in the sports apparel industry whose mission is to “Make all athletes better through passion, science, and the relentless pursuit of innovation”.1 When Under Armour first broke into the sports apparel industry it was a disruptive pioneer that initially made the two giants, Nike and Adidas, a little weary. Under Armour revolutionized the sports apparel industry by creating apparel that used synthetic materials as an alternative to natural fibers, such as cotton, or other materials, such as polyester.
This all-important switch to these materials resulted in a 2“shirt that provided compression and wicked perspiration off your skin rather than absorb it. A shirt that worked with your body to regulate temperature and enhance performance”. This promise to increase athletic performance distinguished Under Armour from the other competing sports apparel companies, however, such rival companies have since introduced synthetic materials into their product lines.
Under Armour was first conceived in 1996 by Kevin Plank, who at the time was the special teams captain for the University of Maryland football team.
Plank, frustrated with having to repeatedly change his cotton shirt during practices, set out to create a shirt whose materials allowed the perspiration to dry quickly, causing the athlete to be quicker, faster, and stronger as a result of less burdensome water weight. He made it his mission to develop a shirt using synthetic materials that handled perspiration most efficiently than was previously expected. He developed a shirt that used said synthetic materials to handle perspiration and tested the prototype, aptly named 0039, with his own football team. After he graduated, Plank went to many different universities trying to find a buyer for his product. After some time, Plank found his big break when he managed to earn the football team of Georgia Technical University as a client.
As the performance apparel market has grown, Under Armour has diversified their product offerings, developed different types of performance gear, and ventured into women’s apparel, footwear, and other merchandise. This case study seeks to analyze Under Armour’s history, resources, capabilities, and core competencies, business and corporate-level strategies, as well as the general environment and competitive landscape. After careful scrutiny of these varying areas, the factors contributing to Under Armour’s current success and future challenges will appear to be much clearer.
Currently, 3Under Armour employs roughly 5900 individuals and, in terms of revenue, they are the third largest provider of performance sports apparel in the world. They are currently only in direct competition with Nike and Adidas. In 2012, Under Armour had an estimated revenue of $1.8 billion dollars, with expected net revenue in the range of $2.84 billion to $2.87 billion for 2014. This represents a growth of 22 percent to 23 percent over 2013. 4Under Armour has an estimated operating income of $85.3 million. In recent years, shoes have been Under Armour’s fastest growing product line, 5growing at a rate of about 31 percent from 2011 to $239 million in sales in 2012. 6Under Armour has quickly gained a reputation of providing quality equipment and sports apparel, thus leading to the company to be the official sponsor of many sports teams and individuals, such as the Tottenham Hotspurs of the Barclay’s English Premier League. Under Armour is also quickly becoming well-known for its charitable contributions to the community. They currently support the fight against breast cancer, as well as being a big supporter of the Wounded Warrior Project (which helps troops wounded in combat return to normal living) and various youth outreach programs in the community.
Being an emergent competitor within the oligopoly of the athletic apparel industry, Under Armour is forced to focus on quality and innovation so as to keep up with competition and customer demands. Other than Under Armour, the industry’s most prominent competitors are Nike and Adidas. The size of each bubble is the amount of market share that that company holds. According to the map, Under Armour comes in at third place; it is apparent that the firm needs to make some changes if they desire to remain a legitimate player in the long run.
Because Nike and Adidas already have a substantial amount of capital resources and other assets, Under Armour struggles against them to gain market share. 8Also, private labels of retailers and newer sports apparel companies could potentially pose a threat to Under Armour, but mostly due to the fact that Under Armour does not hold any fabric or process patents. This makes it extremely easy for any competitor to duplicate a product or process with no consequence. However, the threat of new entrants is not too troublesome within the industry because of the great capital cost required for branding, advertising, and meeting product demand. Furthermore, the sports apparel industry is in the maturity phase of the industry life cycle. This means that each company included in the oligopoly must compete directly against one another for market share. And in order to avoid becoming a weaker firm and being forced to exit, Under Armour must constantly rejuvenate their product line with better quality and new innovations.
In an examination of Under Armour’s external environment, or macro-environmental trends, the company’s political, economic, socio-cultural, technological, ecological, and legal environmental trends were considered. Politically, Under Armour does not face many roadblocks. If anything, the firm’s domestic operations benefit from government subsidies for eco-friendly practices. Additionally, since this industry is not usually called upon during campaigns, corporate taxes remain stable (meaning unlikely to change) and political pressures all bear a minimum on Under Armour in both the long and short term.
9Looking at the United States GDP growth over the last four fiscal years, the economy has grown at an approximate 2.4 percent. Although climbing, this number continues to fall short of the desired 3 to 4 percent growth. With interest rates low, and constant growth in the economy quarter after quarter, the economy is looking more promising for large companies such as Under Armour. This also bodes well for Under Armour since consumer confidence is on the rise and disposable income becomes more available given the rise in employment over the last year.
Next, the socio-cultural environment was examined to see what the trends are arising around the world. Although Under Armour started as a company whose mission was to serve the best gear to athletes everywhere so that they could reach their peak potential, Under Armour has made a name for themselves in the accessories industry. Not only are people wearing Under Armour in athletic events, but in the classrooms, and even in the back woods. People of all demographics are purchasing products from the industry.
Technology is a force that can either make or break a firm’s success in today’s business world.10 With Under Armour, the company regularly upgraded its products as next-generation fabrics when better performance characteristics became available and as the needs of athletes changed. Since Under Armour’s development team remains current on technology, there is nothing that the technological environment could possess to threaten the company.
Finally, ecological and legal environments were examined. In the US, environmental and labor laws require companies to maintain their carbon consumption at a regulated level and give tax credits to those companies that practice sustainable activities. Also, hiring and promotion laws require businesses to promote and hire new employees fairly.11 Employee reviews have been mostly positive with regards to Under Armour’s human resource policies, yielding an above average approval rate.
Under Armour has a strategy that has positioned them to be one of the top five athletic wear and accessory companies in almost every category regarded. They have done so by playing the role of prospector (according to the Miles-Snow model). By being the first to market such materials in athletic wear and clothing, Under Armour provided a product that had never before been seen in the world of competitive and non-competitive sports. With other aspects of production such as accessories and later generations of apparel and gear, Under Armour has also played the role of analyzer. This means they tested the markets by using athletes to test their newer products to determine the needs of athletes – both professional and amateur – as well as youth athletes.
The strong internal structure of Under Armour starts with CEO Kevin Plank. Because Plank founded the company he has the passion, dedication, and motivation one needs in order to grow a company into a large international competitor. No one will have the same drive to make their company succeed more than one’s self. Although the company is several years behind Nike and Adidas, Under Armour has been growing steadily since its inception. 12Since 2004, Under Armour has increased its net income from 25.38 million to 208.62 million in 2012 and is predicted to keep growing.
13Under Armour has roughly 11.20 billion of apparel clothing market capitalization, which is dwarfed by Adidas’ (24.90B) and Nike’s (66.47B) cap. 2013 revenues show the same results with Under Armour at 2.33 billion, Adidas with 18.62 billion, and Nike with 26.29 billion in revenue. Under Armour is doing better than the industry average at 763.1 million. These statistics are common across the board; Under Armour out performs the industry average but fails to compete with Nike and Adidas in many financial aspects. Under Armour does lead the industry in gross margin with .49, tied with Adidas. The Nike and Adidas popular brand names have allowed them to rule the sports apparel market over the last decade, however, Under Armour keeps growing year to year. With a higher margin and a great research and development program, Under Armour can continue to creep up on the industry leaders, becoming a power house of its own.
Since day one, it has been an uphill battle trying to compete with the top sports apparel companies in the world, however, Plank surrounded himself
with a strong supporting team. Kip Fulks, a former Maryland lacrosse player and schoolmate of Plank, was brought onto the Under Armour team to help promote his product to lacrosse players, as well as other athletes in the Maryland area. Ryan Wood, a high school acquaintance of Plank, was also made a partner of the company to help continue to grow the business even further. With two fellow athletes as his vice presidents, Plank not only had two partners he could trust, but also had two fellow sports enthusiasts who shared the same passion for improving athletes’ performance in all sports. This strong upper management would be the key to getting Under Armour off the ground and competing in the worldwide market of sports apparel.
Plank and his companions created a product the public had ever seen before; a compression shirt using wicking performance fibers that kept athletes cool and light without the feeling of a sweat-soaked cotton t-shirt. 14This product proved valuable because it kept athletes cooler, but it also kept them from being slowed down by the added weight of accumulating sweat. However, Under Armour did not stop there. Further research allowed Under Armour to create footwear, pants, hats, headbands, and other accessories in order to keep athletes cool, as well as special clothing that could keep athletes warm in colder climates. Unfortunately, due to no patent protections, competitors such as Nike and Adidas began to replicate such products into their own brand.
Since changing the company’s name in 2005, Under Armour has grown into a solid, well-known sports apparel brand. Having such a high quality brand has allowed for high brand equity and loyalty from customers, much like top competing brands. The company has grown from the east coast to nationwide, as well as some international markets. With only a few thousand employees, Under Armour believes in quality over quantity. They hire only the best employees and train them well to ensure top research and development, not to mention top class customer service. A solid research and development team has allowed for the innovation of new products to gain an advantage over their top competitors. Under Armour is known for its “after-sales” follow up and interaction, which has allowed for a strong brand loyalty throughout its customers.
Although Under Armour has a great infrastructure, there is still much more they could do to grow. About 80 percent of revenue comes from performance apparel while just 20 percent comes from footwear, accessories and licensed revenue combined. Also, about 90 percent of the revenue comes from domestic sales; a majority of them coming from only two distributors: Dicks Sporting Goods, Inc. and The Sports Authority.
There is still great opportunity for Under Armour to grow by broadening their product line, as well as penetrating new emerging worldwide sporting markets. Upcoming events such as the Olympics and the FIFA World Cup offer Under Armour a great opportunity to get their apparel, footwear, and accessories worn by top athletes in a global setting. However, they are going to have to work diligently in order to steadily compete with Nike, Adidas, Reebok, Puma, and other sports apparel brands.
As previously stated, Under Armour currently sits in the number two position in athletic clothing and apparel, bested only by Nike, the athletic clothing and shoe brand giant. 14Nike is the number one leading company in apparel, shoes (by nearly 30 times if you include Jordan and Converse brands by Nike) and even accessories. The reason for Nike’s long lasting, and most likely everlasting, success as number one is their brand name and its reputation as being the best. Specifically, Nike is not necessarily Under Armour’s biggest problem; rather it is the large number of competitors occupying similar – if not larger – market share in the industry. With players such as Nike, Adidas, Puma, Mizuno, Reebok, and many others, it has become increasingly difficult for companies to generate enough momentum to tap the market share in a significant way. Of course there are ways to make Under Armour more successful through marketing, development, and product line expansion, however, the largest concern lies with the extent of the competition with already well-established branding.
Currently, Under Armour has Cam Newton positioned as the face of their brand, with many other notable players solely being endorsed, however, the lack of multiple “MVP” caliber athletes as the face of the brand could also cause younger consumers to look elsewhere for apparel and athletic wear. Companies like Adidas – who endorse Derrick Rose, Dwight Howard, Robert Griffin III, as well as being an official sponsor of the NBA – and Nike – who has endorsed Michael Jordan, LeBron James, Derek Jeter, Tiger Woods and many more – already hold a slight advantage. Under Armour’s premium pricing for certain lines of apparel and clothing may affect sales in areas with lower average household incomes, causing certain consumers to shift towards the Adidas and Reebok aisles rather than Under Armour or Nike aisles. By capturing some of the smaller companies’ customers, Under Armour may have the ability to gain additional market share.
While Under Armour maintains a strong market share compared to their competitors, there is still room to expand into untapped markets. Such markets would consist of expansion into international markets such as various major European Soccer leagues i.e. Barclays English Premier League, BBVA La Liga, and the German Bundesliga, as well as Latin American Baseball Leagues and European Rugby Leagues. By moving into these markets, Under Armour has the potential to take a larger share of apparel sales, not to mention securing long-term team sponsorships for professionally managed sports clubs. With the large number of professional leagues and individual players Under Armour can increase their overseas brand awareness and apparel sales.
A second recommendation would be for Under Armour to use their overseas expansion to gain high profile endorsements for marketing purposes. This exposure to a greater presence across more platforms will allow for a more densely populated market in the household sector of sales. With sport platforms such as rugby, cricket, and soccer leagues still with alternative sponsorships, up and coming athletes are yearning for well-known corporate sponsors, and thusly Under Armour has the ability to gain market share through marketing campaigns.
Another alternative strategy to increasing market share and sales would be for Under Armour to reinstate their original moniker, KP Sports, Inc., as a low cost alternative to their Under Armour line of products. The product line of KP Sports, Inc. would include all previous Under Armour products sold at a reduced cost and marketed to lower income regions of the world. This would provide the opportunity for Under Armour to increase their sales without tarnishing their higher priced, higher quality brand name and image, while still providing quality equipment and apparel to regions of the world that would otherwise lack access to such products.
A final recommendation for Under Armour would be to increase their retail presence through the use of more specialty store locations. With only a handful of existing Under Armour specialty stores, customers are being forced to shop at retail locations such as Dick’s Sporting Goods and Sports Authority. Such stores are over saturated with other top competitors such as Nike and Adidas. By increasing the number of specialty locations, Under Armour can offer their customers a wider selection of products, as well as offering them expert assistance in meeting their athletic apparel needs. Additionally, these locations could offer sales and discounts similar to those of factory outlet locations without the stigma of being a low quality alternative.
After evaluating all of the potential alternatives the choice is clear that expanding to overseas markets is the best option to gain market share, increase sales, and build a stronger brand image. With approximately 98 percent of sales coming from North America, the expansion overseas would provide limitless opportunities for sales growth. Given the large amount of success since the company’s inception, Under Armour has the potential to become the largest athletic apparel provider in the world if they can gain a larger market share abroad.
In order for Under Armour to implement these strategies the company needs to think on a larger scale. Plank has done a great job getting his company off the ground and into the top three performance apparel firms around the world, but if Under Armour wants to survive and continue to thrive, it needs to think beyond the norm and penetrate these new, emerging international sports markets.
Plank has always strived to be the best so he has only hired the most competent workers for his company. Structurally, Plank should search for global partners that have connections in foreign markets. When marketing a product one must not only have to know the product well, but be familiar with the customs and norms of the market in which they are competing in. Incorporating foreign presidents and vice presidents into the company would allow Under Armour to get a solid hold on the Latin America, European, and even Asian, African or Australian markets. Under Armour should also focus on areas with extreme climate. Doing so would play to the advantage of their specialty performance wear for hot and cold weather. This may call for a rise in the number of people Under Armour chooses to employ.
In order to reach new markets Under Armour must also reallocate its resources. This means looking for cheaper labor markets to manufacture goods, as well as setting up new distribution centers domestically and in foreign settings. Cheaper labor and shipping costs can lower the price allowing for Under Armour to compete with Nike in the price war. Also, licensing the cheaper KP Sports brand can allow for a lower, more cost efficient alternative that will not tarnish the Under Armour brand, which has been known for the highest of quality. In the United States, Under Armour needs to open up more outlet stores which exclusively sell Under Armour merchandise. Spreading out merchandise between other retailers such as Bass Pro Shop, Champs Sports, Foot Locker, and even Fanatics – an online sports apparel shop – will also help increase market share. Under Armour may want to stay away from generic stores such as Walmart and Target in order to reduce the chance of damaging brand name.
Marketing is another key element to capturing market share and increasing sales. When it comes to commercials, billboards, and celebrity endorsements, Nike and Adidas lead heavily. Under Armour needs to get its name out to the public as much as Nike and Adidas in order to steal customers away, not to mention reaching up-and-coming teens who will be looking for gear to perform in when playing their desired sport. This also means targeting the biggest of star athletes on the rise. Not every endorsee will be a Michael Jordan, Tiger Woods, or Peyton Manning, but finding the next big breakthrough athlete may be what it takes to get young athletes to switch to Under Armour products.
On a financial level, Under Armour needs to keep funding a strong research and development team to continue to develop breakthrough products. Innovation will allow Under Armour to gain an advantage over Nike and Adidas, causing these companies to develop their own new products in order to continue to compete with Under Armour.
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Cite this essay
Under Armour Business Success Analysis. (2016, Feb 24). Retrieved from https://studymoose.com/under-armour-case-analysis-essay