Sportswear

Under Armour

2017.04

Under Armour, a serious threat to Nike and Adidas
Sportswear
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I. Under Armour: a worthy competitor in the sporting goods market

The sports apparel and equipment industry has long been divided into three groups.

  • The [1] top dog: American multinational corporation Nike was valuated at $30.6B for the fiscal year 2016, and it continues to sit at the throne of the global sporting goods industry with a 30-40% share of a market estimated to be worth $80B.
  • The runner-up: Adidas, the darling of Germany, was valuated at $20.6B for the fiscal year 2016. The company boasts strong market shares in Europe, makes up 20-30% of the global market share, and has been a credible threat to Nike for many years.
  • The rest: Reebok, Puma, New Balance, and several other sporting goods companies have tried to challenge Nike and Adidas’s stronghold on the industry, but with little success.

However, in 2014, Under Armour, a company that creates “sportswear for athletes,” emerged to be a significant threat to the US market.

  • Under Armour, the new runner-up: In 2014, Under Armour reported an annual revenue of $2.6B, topping Adidas’s $1.6B, placing the company in second place.
  • Faster growth than Nike or Adidas: Under Armour’s sales have risen by 30% each year from 2010 to 2015. Meanwhile, Nike grew by 10% each year, and Adidas, 6%.

Despite a recent fall in Under Armour’s stock, experts assert that the company has what it takes to compete against Nike and Adidas.

  • Under Armour’s stock plummets: Under Armour’s stock price has been falling consistently since Q1 of 2016. Reasons for this decline: 1) A company centered and built around the US, 2) worries about the company’s focus on functional apparel, and 3) a slowing US economy.
  • Under Armour’s strength: Under Armour created its own niche of performance apparel within the sporting goods industry and has differentiated itself from Nike and Adidas with such unique, interactive facilities as their Fitness Performance Center.


II. Under Armour’s history and its differentiators

Under Armour was founded in 1996 by Kevin Plank. Plank played American football in his school years, but he was also matchless among peers in his business acumen.

  • Kevin Plank was born into a wealthy family but demonstrated an entrepreneurial spirit from his youth. At age 10, he made $150 per week mowing lawns for neighbors.
  • Plank, however, was a terrible student. He managed to be admitted to the prestigious Georgetown Preparatory School, but because of poor academic performance and behavioral issues, Plank was expelled in his sophomore year.
  • After his expulsion, he went to another high school where he played football, and he continued to do so at the University of Maryland. Unfortunately, Plank was not good enough to play professionally.
  • Plank launched various businesses at the University of Maryland. One of these was Cupid’s Valentine, an annual business that sold roses for Valentine’s Day. Plank made $17,000 from the rose business, which eventually became seed money for Under Armour.

Upon graduating from Maryland, Plank pursued a business idea that had arisen because of the discomfort he had experienced while wearing cotton T-shirts as a football player. He hoped to find a material that would absorb the sweat from his body more efficiently and thus threw himself into the sporting apparel industry.

  • Kevin Plank was the “sweatiest guy on the football team,” and he hated that cotton shirts did not wick sweat well. He then settled on the idea of making functional undershirts for athletes.
  • Upon graduating in 1996, Plank founded Under Armour (meaning armor worn underneath gear) and succeeded in developing a sweat-wicking fabric.
  • After developing his prototype, he sold his apparel to the athletes at his college and to peers who had gone on to play in the NFL. In 1996, he sold 500 shirts and earned $17,000 in revenues.
  • Assured of the potential of his company, Plank invested $100,000 into building a factory and marketed the company’s products to various college football teams.
  • By word of mouth, Plank’s sweat-wicking apparel became widely known among athletes, and requests for purchases began trickling in.

Under Armour, by spending its first five years on developing an unparalleled athletic undershirt, quickly rose to the top in its industry and IPO'd on the NASDAQ in November 2005.

  • In 1999, Under Armour marketed its products through product placements in two Warner Brothers movies: Oliver Stone's Any Given Sunday and The Replacements. This then led Plank to place a $25,000 ad in ESPN the Magazine to capitalize on the national exposure. The company raised $750,000 through the ads.
  • The company then expanded to manufacture athletic shoes.
  • In 2003, Rosewood Capital invested $12M into the company. The same year, the company launched its first television commercial.
  • In 2005, Under Armour IPO'd on the NASDAQ and opened its first full-line, full-price retail location.

After its IPO, Under Armour launched a hugely successful [2]“underdog”marketing strategy, branding itself with an image that contrasted with those of Nike and Adidas.

  • While Nike and Adidas spent millions sponsoring world-class athletes, Under Armour chose to sign the underdogs – athletes with little exposure but massive potential.
  • For example, Under Armour picked up Stephen Curry, who had been abandoned by Nike, in 2012, and Jordan Spieth, who had then never played in a professional golf tournament, in 2013.
  • Curry rose to fame in 2014 as the pride of the Golden State Warriors and as Lebron James’ rival. Spieth also [3] made a name for himself by winning the 2015 US Open. These athletes allowed Under Armour to stand shoulder to shoulder with its competitors Nike and Adidas.
  • In 2015, Under Armour launched another campaign with an impressive roster of major athletes, highlighting their [4] rags-to-riches tales. The “I will what I want” campaign featured, among others, Misty Copeland, the first African-American Female Principal Dancer with the prestigious American Ballet Theatre.

For 23 quarters straight, Under Armour increased its earnings and has become one of the premier sporting goods brands along with Nike and Adidas.


III. Five takeaways from Under Armour

1. Keep your focus – let the quality of your products market themselves.

  • For its first five years, Under Armour focused solely on developing, producing, and selling undershirts for football players.
  • Under Armour’s breathable and sweat-wicking compression shirts were a huge success, and demand for them naturally rose.

2. It is more important to be a company that solves problems than one that sweeps the market.

  • Since its founding, Under Armour has focused on creating apparel that could help athletes reach their maximum potential.
  • For 20 years, Under Armour not only invested into solving the aforementioned issues, but it also responded to the feedback they received from athletes and experts about their products. In this way, the company was able to produce such innovative products as their Core Shorts.

3. Innovation over perfection.

  • Under Armour is not so much concerned about the flawlessness as they are about the responses they get from customers regarding the style and technicality of their products.
  • This method is comparable to the release models of tech start-ups in Silicon Valley i.e. release and upgrade model.

4. Engage in realistic and thoughtful marketing procedures.

  • By sponsoring lesser-known athletes, Under Armour can find like-minded and hardworking talent who can benefit from the support.
  • The company’s vision and mission, “to make all athletes better,” is clear in its product lineup, how it invests into R&D and sponsorships, and its marketing messages and ads.

5. Don’t become reliant on outside investment. Grow your business using the money you earn through sales.

  • Plank believed that investments would be meaningless without already having a product that customers enjoyed and liked to buy.
  • Investment funds should be used not for product development purposes, but to mass produce a good that has already been approved of its excellence.


IV. The future of Under Armour

In 2017, Under Armour must consider three key questions that could determine its future.

  • First road: Will Under Armour be able to reach the international consumer base?
  • Second road: Will Under Armor continue to produce innovative sporting goods other than their undershirts?
  • Third road: Will Under Armor be able to keep and carry out the core values of its founder?

What do you think are Under Armour’s differentiators? Do you think Under Armour will be as successful abroad as it has been in the United States? Can you see Under Armour surpassing Nike or Adidas?

Please discuss Under Armour with your Ringle Tutor and take the time to improve your spoken English.

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