Under Armour — Industry Analysis Essay
Under Armour — Industry Analysis
Sociocultural/Demographic – Under Armour was able to build its brand image through extensive sponsorship. Under Armour now provides gear to the NFL, MLB, MLS, NHL the USA baseball and Ski teams including other professional leagues abroad. In 2005, Under Armour was supplying over 100 NCAA division I-A football programs and 30 NFL teams. Only four years since its founding Under Armour had become a globally recognized brand, and was still looking for areas to branch into within the performance apparel industry and introduced a women’s and youth line. Technological – Founder, Kevin Plank found a niche, an undershirt that could control the body temperature of the athlete and that would also enhance performance by keeping them cool, warm, dry when on the field. Under Armour uses synthetic, high tech fibers that provide temperature control comfort and flexibility.
After it went public in 2006, Under Armour invested in a new SAP system which has allowed the company to add to its list of offerings. Economic – Under Armour has had a continuing trend of increased sales in the third and fourth quarters of each year aligning with the football and basketball season as well as gift-giving season in the U.S. Some supplies used by UA are commodities, such as petroleum-based materials, and therefore are subject to potential price fluctuations. Environmental/Geographic – approximately 94 percent of UA sales in 2010 were in North America with the remaining 6 percent split among international markets. Political/Legal – N/A
B.Industry Analysis – Porter’s five force model.
Barriers to Entry
Barriers to entry in this market are relatively high, there are competitors that have been established for years and are still competing for endorsements and investing large amounts of money for product innovation. Under Armour was able to find a niche in the apparel sector of athlectic gear and through that gained plenty sponsorship and brand imaging to move into developing athletic footwear. Power of Suppliers
Under Armour has only a few third-party suppliers and manufacturers which are located outside of the U.S. making the power of the supplier high. 70-75 percent of Under Armour products come from only 8 suppliers that manufacture and distribute their product. Making a product such as athletic shoes is the least difficult part of being in this industry, making a product worth buying and competing at the global level is where most fail when attempting to enter the market. Power of Buyers
Buyers want to reduce their costs and purchase a product at a lower or more convenient price for the best quality and service. Buyers have the choice to switch to another product at no cost. Under Armour has developed unique products that its consumers value and are willing to pay more for. Threat of Substitutes –
There is a high threat of substitutes in the athletic gear industry especially when competing with companies such as Nike and Adidas who have been around much longer, have the funds to continuously innovate their products and already hold a large market share. Under Armour has used “authenticity” as it’s guiding principle to grow the company and advertise their products, but if they wish to be the number one brand of athletic gear they will have to appeal to people who are also concerned with the look of the product and not just performance. According to research done by NPD Group, almost 80 percent of activewear is used for non-sports activities. “Under Armour will need to find a balance between being fashionable while retaining its credibility with serious athletes.” Intensity of Rivalry –
Rivalry is high in this sector, companies are looking to be sponsored and introducing the next big product. Analyst believe that Nike purposely targeted Under Armour by launching new basketball shoes at the same time Under Armour was attempting to introduce its first basketball footwear in 2010. C.Competitor Analysis
Nike is working to stay at the top as the number one footwear brand as well as the number one brand in all other areas of the athletic gear and they are doing so by advertising its brand through high-priced endorsement deals, media advertising, event sponsorship, partnerships and alliances. Adidas, combined with Reebok is the second largest athletic apparel manufacturer in the world. Adidas became the industry leader in soccer shoes and apparel when the German soccer team won the World Cup while wearing Adidas cleats in 1954. Columbia also found a niche when it introduced its breathable, waterproof fabrics in the 80s the company continues to grow through its innovative product development and acquisition.
Columbia is now the top skiwear seller in the US, specializing in snowboard gear, hunting, fishing, hiking, camping and casual wear. 40 percent of Columbia’s sales came from outside of the US. D.Under Armour has the potential and most importantly the resources (money, loyal customer/ athletes, sponsors) to move up in the industry and closer to becoming number one in the athletic apparel industry. 93 percent of UA sales were made in the U.S. and 84 percent of those sales were in apparel with men’s apparel accounting for 57 percent of that. UA should target women and affluent sports (golf, snow sports)
2. Under Armour should focus on innovating their performance enhancing apparel and penetrating markets abroad to increase their sales outside of the US. If they wish to compete with Nike in the shoe sector they should take their time developing their shoe line to produce products that, like their apparel, also improve performance. Developing a shoe line that is unique to the company and that its consumers value is much more important than having a product out on the market to make a sale or simply compete with Nike. 3. An alternative strategy would be to focus on producing athletic shoes other than basketball and football, such as baseball; this would help to increase sales during the first half of the year rather than only during basketball, football and gift-giving season.