- May 6, 2020
Under Armour Company
KevinPlank who was the CEO of Under Armour established the company in1996. The company`s CEO was an athlete playing for a football team atthe University of Maryland when he came up with the idea. Plank saw agap in the market when he was in the field as he together with histeammates noticed that the clothing that was worn were often heavywith sweat. He sought a solution for this problem he had identifiedupon his graduation, and that is when the company Under Armour cameinto existence. After creating the company`s first prototypes, hedistributed them to his former teammates who he played with at theUniversity of Maryland to test them, and they gained publicity in theUS. Under Armour during its infancy stage focused on making innerwearfor the players of American football and this has gained popularityon the world scene such that the company has made innerwear for othersports as well such as soccer players, NBA players, and fieldathletes.
Thecompany currently produces innovative performance footwear,accessories and apparel for all ages and gender (Hill, 2010). It isin line with Under Armour mission statement which is making athletesbetter through design, passion, and the continuous objective ofinnovation. The company went public in 2005, and their growth wasconstant until 2009 where it started increasing and by the yearending 2012 their stock had experienced a growth of 500%. The companyalso experienced a sudden deviation of value in 2014 also, and thiswas mainly due to a stock split which was in the ratio of 2:1 andthis showed their proficiency as company making sports wears (Sara,2015). This paper will discuss whether Under Armours strategy 2014was potent enough to win market share from Adidas and Nike.
UnderArmour as a retailer for athletes, apparel focuses its marketing andproducts strategic efforts towards women, men, and youth. Someresources that the company allocates differ depending on the demandfrom the group of customers. The company`s primary source of revenueis therefore marketing and production efforts were geared towards menalthough youth and women products also contributed to the revenue theonly difference was that the bulk of it came from the sale of menproducts. More emphasis according to a Forbes article was placed onwomen market by Under Armour as they came to the realization thatbusiness from women would generate more income soon and it was abouttime they tapped into this market (Kraft, & Lee, 2015). For theimplementation of this change that Under Armour wanted to effect theystrategically sort retail locations where women often went shopping.
Reducingthe seasonal variability in sales, inventory distribution, andefforts and improving the sales balance will increase the financialcondition. Under Armour is feeling the declining direct consumermarket effect because of the premium pricing the category of theproduct is in and the broader economy is affected as a result. Thisproblem challenges the company to compete effectively with Adidas andNike who are its primary rivals in the sportswear industry.
Themission of the organization is to enhance all athletes experiencewith the application of science by creating sports apparel that isflexible, comfortable and has the control of temperature. Theproducts fabricated by the firm have been able to reach activeoutdoor enthusiasts, active lifestyle consumers, athletes, and elitetactical professionals. One of the products manufactured by thebusiness which is plank`s shirt has led to athletes improvedperformance because it regulates the temperature of their body. Thereare high-performance footwear products produced by the companythrough a highly lightweight and breathable design. In addition tothis, the company had lines of clothing specially made for everyclimate.
UnderArmour`s bulk of revenue is generated in the United States becausemost of the company`s sales are in the sports organizations in the USsuch as the NFL where the company supplies 30 of the 32 teams in theNFL. The company also provides the MLB, the NHL, the US ski team, theMLS, and the USA Baseball this constitutes to 90.7% of the totalrevenue the company gets from its sales. The company within itsmarketing and products strategic efforts has been able to incorporatethe culture of patriotism (Hill, 2010). The sportswear company doesthis by manufacturing tactical and military clothing. In addition tothis Under Armour provides promotions and discounts exclusively tofirst responders and the members of the US army as well as theirfamilies.
Political and Legal Environment
UnderArmour works directly with several licensees to guarantee that thecompany’s products are aligned with its quality and brandexpectations throughout the process of product development. Thecompany has no patented any material that is used in the productsproduced by the sportswear company (Kraft, & Lee, 2015). Thecompany needs to be cautious therefore in its licensing agreement toensure that their ideas are not stolen by the companies they areworking with to introduce their product versions.
Thereis high rivalry among the developed firms, whereby the competition isvery high, and the conditions of demand are high as well. Intensecompetition is caused by the low switching costs and low levels ofthe differentiation of products. Additionally, the company’s rivalspossess have already obtained economies of scale and have highdegrees of capital.
Threat of New Entrant (Moderately High)
Becauseof the trends in the industry such as the development of new sportsand the increasing consumer change towards healthier lifestylesincreases the rate of sports participation. Ease of switching brandand conventional technology make the low entry barrier low. Entrantshave to have a lot of capital to market so as to compete with Adidasand Nike.
Threat of Substitutes (High)
Technologyhas significantly helped in increasing the threat of substituteproducts. In particular, more consumers are continually using the webto read reviews, research about prices and find sales. This threatcan limit the prices for a firm’s products.
Bargaining Power of Buyers (High)
Customerswho are sensitive to price have a lot of power. Customers have a lotof options about the products they can choose, and switching costsare nonexistent. The buyers have the ability to ask for services ofthe best quality and to force the products’ prices down.
Bargaining Power of Supplier (Moderately High)
Usually,suppliers can increase the products’ prices, or decrease the degreeof quality of the supplied products, thus reducing an enterprise’sprofitability. Nonetheless, the industry contains several supplierswhich translate to costs which are lower. Suppliers of high-qualityproducts such as Nike, Adidas, and Under Armour have more leverage.
Driversof Change in the Industry
Increasedpower of purchasing of young people is one of the drivers of changebecause it has been on the increase over the years. In someinstances, this has led to the undermining of the exclusiveness ofparticular brands such as Thomas Hilfiger and Mulberry. Young peopleare not greatly influenced by star athletes when they advertise forspecific products or get influenced by their friends as well. Whenthe demand increases for a particular kind of product, a company mustattempt to achieve a competitive advantage by providing it. Anotherdriver is technology, whereby companies have the ability to beinnovative and creative and use technology to make sense of theirdreams. Technology has allowed companies to consider the wants andpreferences of the buyers, for instance creating sports attire whichcan be suitably worn during any kinds of weather (Cheskin, Sherkin &Bates, 2014).
KeySuccess Factors in the Industry
Researchand Development (R&D) is one of the success factors, andcompanies such as Nike and Under Amour embrace it. For instance, theyuse the R&D in the designing of premium concert athleticproducts. Furthermore, the companies respond to the interests of thecustomers globally, and the constant changing demographics in thecompetitive industry. Another factor is a broad range of relativeproducts, whereby for a company to be successful, it has to haveseveral products which include shoes, apparel, and products forsports. Some of the businesses that offer such products include Nike,Adidas, and Under Armour. For instance, Under Amour makes shorts,jerseys, shoes, base layers and so on, and their stock value has beenincreasing as shown below. A competent workforce which instillsinnovation and inspiration is also a factor because it can work withdifferent communities and cultures globally.
UnderArmour primary objective is to obtain a larger proportion of themarket share. However, the company is competing with Nike and Adidaswho are giants in the sporting goods industry (Plank, 2012). Thesetwo companies have attained large market shares because of theiractive growth of their brand equity, efficient supply chain, andtheir excellent ability to create value on a continuous basis fortheir stakeholders. Under Armour needs to adopted these strategiesand as a result, it has been able to compete with these two sportsgiants in the sportswear industry. The company has consistentlyincreased their annual sales revenue from 2012 all through to 2014however their figures have not been as big as the industry leaderswho are Adidas and Nike. Even though Under Armour is trying to attaina larger market in this industry, it should also be cautious and viewgrowth as a protective measure from the two companies who can usetheir advantage to push competitors out of the market. They canachieve this by buying them out or lowering prices to make itimpossible for businesses to compete with them (Kraft, & Lee,2015). There are some strategies that Under Armour can employ toachieve growth leading to a larger market share such as sportsmarketing, a more effective and efficient supply chain,technologically advanced products through research and development,and through an improved distribution network.
Corporate Level Strategy
UnderArmour`s strategy was to make partnerships with pro teams or collegesbecause they wanted to buy rights which would aid in sponsoring theparticular teams. Because the company is based in North America, itincreased its hold on the market in U.S and expanded intointernational markets by targeting most cities in Asia, as well asthe European regions. One of the best strategies they adopted was toseek a low-level dominant diversification strategy of the business.This approach enabled the company to acquire a bigger market sharefrom its competitors, and some customers were drawn to become newcustomers to the enterprise. Notably, their primary source of revenuewas and currently is the sales of apparels which account forapproximately 80%, whereas the rest of their acquired revenue isassembled from accessories, licensing and footwear as well.
Business Level Strategy
UnderArmour made itself different from other athletic apparel firms byusing material which is synthetic in the production of clothing. Itis worth to note that this was the first company to creatively makeuse of the technology of synthetic material, which aids in keepingathletes warm when the weather is cold and chilly in instances whenit is too hot. The strategy it used was to find the athlete stars ofthe next generation, who would represent the brand, and this is thereason as to why the company`s primary audience is sporting teams andindividual athletes. This strategy is potent enough to win marketshare from Adidas. In addition to this, it experiences a first-moveradvantage in performance sports apparel. Moreover, they areconsidered to be second-movers in the sectors of global sportsfootwear and clothing. Another strategy it had was to expand theirpresence in women’s market, by using social media to theiradvantage.
Forgrowing its business operations, Under Armour pursued Nike’sstrategic measures by signing endorsements with outstanding athletestars and sports teams. Under Armour expanded into Europe by signingendorsements with a famous English football team, Tottenham Hotspur,and this was a significant step aimed at developing the company’brand in the European market. It is worth to note that this strategywas very beneficial for the company, as it led to the expansion ofthe brand’s market share. However, this strategy was not goodenough to win over Nike’s share of the market, despite the factthat its market share increased (Bowen et al., 2014).
Thegrowth strategy of the company was to expand on an internationalbasis, thus they also planned about the manner in which they wouldhandle competition from other businesses such as Adidas. It laid itsfocus on the U.S, despite the fact that Asia and Europe provided asignificant opportunity for the company to expand more. In thislight, Under Armour instituted a long-term plan which would ensurethat they acquired a bigger share of the market. Therefore, thecompany’s management undertook the largest media effort in Europe,thus increasing its popularity all over Europe. This plan turned outto be a success, and this is exhibited in the fact that the companycurrently has full uniform sponsorship deals with four individualendorsements, and three teams in Europe. The popularity of UnderArmour has continued to grow, and its market share has increased aswell. In particular, this has earned the company a competitiveadvantage over other competitors, thereby enabling them to win amarket share from Adidas. Under Armour also utilized a multi-domesticcorporate level strategy, as it customizes its services and productsin accordance to the domestic markets, more so according to thepreferences and needs of the sports teams and the individualathletes.
Bowenet al., (2014) define Under Armour as a unique sport`s firminternationally, in comparison to its competitors. For some years,the recognition of the brand has been improving, and in 2014, Forbesnamed the company as the 5th biggest sports brand internationally. Bythe use of technology, the company has achieved an impeccable qualityin their products and was placed as the 2nd largest sports company inthe market of United, States, whereby they outshined Adidas in 2014as asserted by Sara (2015). The success they achieved emanated fromall the strategies which they had employed.
Core Competencies and Capabilities
Thecompany specializes in high-performance goods which are created toconduct sports in all types of weather and climate. In particular,their clothing is set up to sustain continual body temperatures anddry at all sports levels. Regarding the firm`s apparels, threediverse product lines exist, and for all the product lines, theymanaged to register trademarks which are ‘Allseasongear` fortemperatures which are moderate, ‘Coldgear` for cold climate, and‘Heatgear` for an environment which is hot. This strategy has giventhem the ability to rule the market, as it incorporates all kinds ofseasons.
Regardingtheir manufacturing strategy, Under Armour planned for it to beconducted by suppliers, as opposed to the production being performedon an in-house basis. This approach enabled the company to choose andcreate technically improved, superior fabrics which were designed inaccordance with the specifications of the people. In addition tothis, they were able to focus on designed products which could beused in whichever climate. When in North America, distribution wascarried out by the providers of logistics who were primarily locatedin New Jersey, Canada, and Florida. Eventually, this allowed them tohave their products in these locations, as the distributors ensuredthat they satisfied the demand by the customers.
UnderArmour’s human resource activities comprise of approximately10,700 workers whereby 12760 of them work in the distribution centersand 7,000 work in factory and brand house stores. The companystrategically placed most of them in the United States and since itsinception, Under Armour has never experienced work stoppages or laborstrikes, and this depicts the excellent compromise and relationsbetween the employees and the company. The company’s human resourceactivities enabled the company’s reputation to be an effective toolfor winning the market share from Adidas.
SWOTAnalysis of Under Armour
Positive perspective for athletic footwear and apparent in the U.S market
Low entry barrier
High cost of labor
Comprehensive product portfolio
Lack of geographical diversity
Petroleum cost fluctuation
Innovationis noted in the Under Armour, especially with the creation of thecompression undershirt. Additionally, the company has regularly metthe changing preferences of the consumers in the industry with itsinnovative technology. This is also noted in the variations of itsapparel gear for different conditions of the weather (AllSeasonGear,HotGear, and ColdGear). In addition to this, the company establishedthe Storm Fleece which has an enhanced water resistant finish, andCharged Cotton, which is made from natural fast-drying cotton.
UnderArmour has recorded a positive growth of revenue for the past severalyears, with a yearly growth rate of 19.3%. From 2006 to 2011, the netincome of the company has tripled, with its net income per share morethan doubling (Bowen, Daigle, Dion and Valentine, 2014).
c.Comprehensive product portfolio
Asa primary strategy of growth, the company aims at expanding productoffering in more market segments. It started with the core focusbeing on football, but it has developed to design products for rugby,soccer, hockey, baseball and so on.
UnderArmour depends on athletic endorsements to promote and market itsproduct lines. As such, a risk is created regarding the athlete’ssocial performance and behavior, despite the fact that there arebinding agreements which protect the company from such hazards.
Mostof the raw materials used by the firm are from third parties, and canonly be on obtained from restricted sources. Because innovation anddevelopment increase the competitive advantage of a company, theestablishment of specialty fabrics by the third party could be riskyto the company’s core competencies.
c.Lack of geographical diversity
Despitethe fact that Under Armour has expanded to other locations such asAsia and Europe, 93.3% of its revenue is in North America.
a.Positive perspective for athletic footwear and apparel in the U.Smarket
UnderArmour has experienced a growth in the U.S, considering that it istheir principal geographic market. This revenue growth emanates fromthe growth of the industry, and a new emphasis on female buyers. Withthe participation of sports rising, the sale of footwear is projectedto increase between 2.6% and 5.2% for the next five years.
Withthe growing of mobile applications and internet use, the industry hasbeen significantly impacted. Even though Under Armour mostly usesdirect-to-consumer sales techniques, several firms in the industryhave embraced new ways to communicate with customers. In particular,some companies have hired people to develop some mobile apps whichhelp them to connect with their clients. In this sense, Under Armourbought a famous fitness app company called MapMyFitness (Sara, 2015).Another opportunity is the wearable fitness gadgets which the companycan embrace.
a.Low entry barrier
Becausethe suppliers can control the prices, they can integrate forward andlimit the share of the market to the companies in existence only.Additionally, the investment of capital to enter the market issomewhat low these new players get easy access to the market.
b.High cost of labor
Thecost of labor in the U.S steadily grew between 2003 and 2013.Additionally, there has been an increasing cost of labor in China,with the wages in the private sector rising by 13.9% in 2012(Frenkel, 2011).
c.Petroleum cost fluctuations
Theathletic apparel comprises of polyester and other textiles which arepetroleum based. Therefore, the revenues and production costs can besignificantly impacted by the cost of petroleum. In essence, theprice of petroleum can be a threat to the industry.
Regardingthe liquidity analysis for Under Armour, the Current Ratio of UnderArmour in May 31st2016 was 2.80, which is calculating by dividing the company’scurrent assets (15,025 million USD) by the current liabilities (5,358million USD). In May 31st2015, it was 2.52, which was derived by dividing 15,976 million USDby 6,334 million USD. The company’s quick ratio in 2016 was 1.62,which is derived by dividing the total quick assets (8,698 millionUSD) by the current liabilities (5,358 million USD). Regarding theprofitability analysis, the gross profit margin in May 31st 2016 was 46.24%, which is derived by dividing the gross profit(3,786 million USD) by the revenues (8,244 million USD), thenmultiplying the result with 100 (Frenkel, 2011). The net profitmargin in May 31st2016 was 11.61%, which is derived by dividing the net income (846million USD) by the revenues (8,244 million USD), then multiplyingthe result by 100.
UnderArmour should expand its presence in the global market, because theyhave mostly adopted the shop-in-shop approach which aims atattracting stores to decide to sell their products, the company ha toincrease its market share internationally and compete with foreigncompanies. This would impact the company positively because most ofits sales are conducted in North America. Going global will not onlyrealize significant revenue for the enterprise, but it will alsoensure that it outcompetes its competitors. If it fails to do so, apossibility of saturation on the existent market is possible, thusmaking it a challenge for the company to have the ability to stay inthe industry for long.
UnderArmor should also consider whether to increase its R&D, toincrease its chances for continual of growth. This is because of thefact that the company’s strong buying power and innovative designsare the core success factors to its position in the market. As thecompetition if the substitute products increase in the market, thecompany should aim at investing a significant amount in theadvertisements, endorsements, and development of new products.
Additionally,it should provide for more customization of its products inconformity to the wants and preferences of the female market. This isbecause women are getting more empowered to engage in sports whichthey would not have engaged in in the ancient days. As such, there isa growing opportunity for the female market, and Under Armour shouldtake advantage of that. By doing all the above, the company will bemore competitive in the industry, and outshine its rivals.
UnderAmour has established itself as an excellent brand amonginternational athletes. More specifically, they have strategicallyleveraged its core competencies, capabilities and resources as well.Considering its first-mover advantage, it managed to obtain asignificant portion of the performance apparel market. It is worth tonote that the company had the ability to win the market share overAdidas in 2014. It was primarily due to the competitive advantage ithad gained from its corporate level, business level, corporative andinternational strategies. Overall, Under Armour’s plans in 2014were potent enough to win the market share from Adidas. However, itsplans were not powerful enough to acquire Nike’s market shareinternationally, thus it still has a long way to go to gain Nike’smarket share.
Bowen,Daigle, Dion and Valentine. (2014). Under Armour Case Study.Retrieved fromhttp://robertdaigle.com/wp-content/uploads/2014/01/BowenDaigleDionValentine_UnderArmour_CaseStudy.pdf
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Sara,Germano. (2015). Under Armour Overtakes Adidas in U.S SportswearMarket.The Wall Street Journal. Retrievedfromhttp://www.wsj.com/articles/under-armour-overtakes-adidas-in-u-s-sportswear-market-1420753934