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  • Subject area(s): Marketing
  • Price: Free download
  • Published on: 14th September 2019
  • File format: Text
  • Number of pages: 2

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Introduction

The majority of people who live an active lifestyle, plays or watches sports, or simply likes wearing athletic apparel could agree that Nike, the Adidas Group, and Under Armour are some of the most familiar brands in the industry. This is no surprise to anyone, considering Nike and Adidas have the highest market shares in the U.S. and foreign countries; while Under Armour has a significant portion of the U.S. market. Reading and analyzing this case prepares us for future situations in our careers where we could encounter similar issues. Under Armour's main concerns seem to be very common among companies going up against key players in a large industry like athletic wear. Looking deeper into Under Armour, Nike, and Adidas' strengths, weaknesses, opportunities, threats, competitive forces, attractiveness, product lines, and foreign/domestic market shares can help with making future decisions that face Under Armour's brand. This includes how to grow market share and how to expand their product lines to compete with others.

Nike, Adidas, and Under Armour Competitive Forces

The key forces that any company should consider before forming a solid business strategy are competitive rivalry, threats of substitute products, supplier power, buyer power, and threats of new entry. The competitive rivalry for Adidas, Nike, and Under Armour is very moderate, with no other companies coming close to comparing with their market shares and revenues. The rivals in the athleticwear industry includes brands such as New Balance, Saucony, Puma, Asics, Champion, Eastbay, North Face, and Columbia. New Balance, Saucony and Asics have some impact on the competition in the footwear industry, but not so much the apparel and accessories. The quality of their products are very high and moderately priced, but have not been able to compete with the amount of sales of Nike, Adidas and Under Armour. North Face, Patagonia, and Columbia are sitting more in a niche part of the market: skiwear and winter sports. While they still make clothing, shoes, and accessories for the other sections of the athletic industry, they do not compare to the top three brands. Other brands such as Puma and Champion can compare moderately with Nike, Adidas, and Under Armour in the athletic apparel industry, considering they have significant revenues and sales. Overall, we can see that Nike, Adidas and Under Armour take over the majority of the industry market share and revenue as a result of producing products in each different niche.

The supplier power in the athletic industry is moderately high in the athletic industry, given the fact that Nike can probably buy exponentially larger orders than any other brand. This explains why UA tends to sell products at higher prices, but may also be because they have very innovative materials and designs. Suppliers in this industry can definitely charge different prices for each company in this industry, forcing changes in prices of companies product lines. The suppliers in this industry supply to many of the top brands, making it harder to switch to different suppliers.

The power of buyers is very important in any industry, considering they have a large range of choices for any type of clothing and footwear. If you think about when you shop online, you can fathom the amount of choices you have for any product you want. It is also easy to research lowest prices, discounted prices, and similar products. This makes the power of buyers moderately high for the athletic industry, ensuring that Nike, Adidas, and Under Armour make unique products that customers will be willing to buy at premium prices rather than price-competitive athletic wear. An upside to this part of the industry is that companies such as Nike, Adidas and Under Armour have high brand recognition, making them very attractive to customers. This has been proven to play a large role in customers buying patterns. These three companies have various athlete endorsements, which increase their brand recognition and loyalty even further, making it very difficult for smaller brands to compete with.

The power of substitution is not very significant in the athletic industry for Nike, Adidas and Under Armour products. While substitute products can be found anywhere, it is quite difficult to produce a variety of high quality substitute products that compare with Nike, Adidas, and Under Armour's product line and quality. These companies produce apparel and shoes for various sports, changing temperatures, and changing styles. Nike, Adidas, and Under Armour still dominate even considering the many substitute products on the market.

In general, the barriers for a new company to enter the athletic footwear and apparel industry is pretty high. It would be very difficult to compete with Nike, Adidas, and Under Armour. A company attempting to enter would need large amounts of capital, financial and human. Under Armour is one of the most recent case of a successful new entrant to the athletic wear industry, but it took many years and significant amounts of capital. The barriers to enter niche markets in this industry are lower, assuming they can produce an innovative product for a particular sport or style.

Industry Attractiveness

Overall, the athletic apparel, footwear, and accessories industry would not be the most attractive industry to enter at the time. The general industry is being dominated by Nike, Adidas, and Under Armour product lines. They dominate with product design, distribution, sales and revenue, brand familiarity, and athlete sponsorships. As mentioned earlier, a company would need high amounts of human and financial capital to even break the barrier to enter the market. A smarter and more effective decision for this market would be to enter a niche portion of the market, and eventually move into other parts of the industry after attaining customers. Niche markets could be markets such as golf, kids apparel, winter sports, and yoga.

Core Competencies, Resource Strengths and Capabilities

Under Armour has several core competencies, the first of which is their skill and innovation of temperature controlling materials. The need for a cooling, moisture wicking fabric is what originally inspired Kevin Plank to begin making performance apparel. 21 years later, this spirit of innovation in regards to temperature controlling fabrics and technologies are still a driving force in Under Armour's success.

     Under Armour had the advantage of being the first in industry to successfully develop this type of performance apparel. Their continued dedication to innovation and differentiation in their ever-broadening product line has gained them a lasting competitive advantage over their closest competitors. What started as a single t-shirt has now expanded to countless products in multiple product lines which continue to grow and differentiate Under Armour further from its competitors. In addition to creating new products with the newest and best performance technology, UA continues to redesign their existing products with the new technology, further propelling the entire product line and the company forward in its mission to “make all athletes better through passion, design, and the relentless pursuit of innovation.”

     The second core competency that Under Armour has perfected throughout its lifetime is that of Sports Marketing. Plank's original efforts to sell his product revolved around calling upon sports teams to outfit their players. Through the years, as the scale of this sales strategy has grown UA has also risen to the challenge and developed ways to make this tactic benefit them in more ways than previously utilized. From the beginning this was their strategy to move product but two decades in and they have also begun using this sales strategy to gain brand and product awareness in international markets where they strive to gain market share.

     The list of school teams holding contracts with UA has grown from a handful in the 90's to over 100 in 2013, but UA's growth has not been constrained to D1 school teams, they have also secured contracts with major league sports organizations within the US including the NFL, MLB, NHL, and NBA. This endorsement of domestic teams has boosted sales for the company and raised brand awareness within America which has been invaluable to the company, but how UA plans to use this on the global stage is most notable. By selecting key sports and teams in foreign markets, Under Armour has selected what it believes to be the most efficient way to gain brand recognition and grow sales in foreign markets. For example, ice hockey is Canada's most popular sport and Under Armour has attempted to break into this new market by partnering with Hockey Canada and the Toronto Maple Leafs. They are replicating this strategy in Europe within the soccer and rugby leagues there, proving that their strong Sports Marketing ability not only allowed them to grow domestically, but that it will be a major driving force propelling them into future global success.

     Thirdly and finally, Under Armour's strong ability to outsource and maintain quality requirements has proven to be a core competency. Although UA outsources all of its fabric production, they have maintained a small, easily managed group of manufacturers and sources. The small number of outsourcers combined with UA's quality assurance team and the high standards to which manufactures are held guarantees that UA's brand name will not be tarnished by the actions of their partners and allows it to utilize the best fabric products as they become available, leading to continuous innovation and development

Strengths, Weaknesses, Opportunities, Threats

Strengths

Innovation and differentiation (HeatGear, ColdGear, AllSeasonGear)

Diversity (started out as just appealing to football; now a staple in most every sport)

Weaknesses

Outsourcing (many raw materials and fabrics manufactured by third parties)

Geography (room to expand globally; risky when the overwhelming majority of revenue comes from a single country)

Elasticity (demand for high-quality athletic apparel commensurately priced will fluctuate)

Opportunities

Growth (consistent growth in revenues is positive for the outlook of the industry's future)

Example: College football officials on TV

Threats

Petroleum price (the materials used in the fabrics come from petroleum, the price of which may be very fickle as in 2013)

Competition (difficult to control significant market share)

Suppliers (ability to have significant influence on the bottom line)

Strategy and Key Elements to Support Strategy

Under Armour's strategy is to differentiate themselves in the market by providing innovative, high quality, moisture wicking apparel to men, women, and youth. Key elements of Under Armour's overall strategy include:

Growth

Broaden the company's product offering

Target additional customer segments

Increase sales and market share in footwear segment

Acquire additional distribution in North American retail including: outlet stores, specialty stores, and web sales

Expanding the sale of Under Armour products to foreign countries and moving toward becoming a global competitor

Product line

Three segments: HeatGear, ColdGear, and AllSeasonGear. Each of these segments come in three compression types: compression, fitted, and loose.

Under Armour has extended their line to include footwear, accessories, and licensed product pairings such as running apps.

Marketing, promotion, and brand management strategies

Sports marketing

Under Armour promotes the sale of their products to all levels of athletes. This includes agreements with sports teams, endorsements with pro athletes, etc.

Retail marketing and product presentation

The main goal of Under Armour retail marketing was to increase the amount of floor space in retail stores solely dedicated to Under Armour products. “Concept shops” are used to make displays more lifelike with mannequins and lighting.

Media and promotion

Under Armour has promoted themselves in a broad range of options national digital, broadcast, and print media outlets. They have launched several campaigns such as the “I will” campaign to build brand authenticity and loyalty.

Distribution

Under Armour's two main revenue streams come from wholesalers(around 70%) and direct-to-consumer sales(around 30%). Direct to consumer sales have increased every year.

Under Armour also participates in product licensing and have continually increased distribution to foreign countries.

Product design and development

Product innovation of both technical and aesthetic design have helped Under Armour develop their brand.

Under Armour continually works with athletes to produce new product lines that people want. Some of them include: Charged Cotton, Storm Armour Fleece, and ColdBlack.

Sourcing, manufacturing, quality assurance

Under Armour outsources fabric manufacturing so they can focus on bringing the most innovative and best-performing fabrics to their customers.

Many of the fabrics used are petroleum based so prices fluctuate according to crude oil prices.

Under Armour has 26 primary manufacturers all of which are continuously evaluated.

Distribution facilities and quality management

Under Armour has two major distribution facilities in Maryland and California.

Shipments to foreign countries are handled by a third party.

The company has underwent reviews to increase the efficiency of their distribution and quality management.

Overall, the company shows growth for almost line item applicable. The ROE, ROA, and ROS have shown consistent and steady with only a small dip from 2012 to 2013 but nothing that can be considered serious. While gross profit has the most variation, it has stayed at 48% meaning that 48% of sales revenue is left after cost of goods. Net profit shows the most consistent growth growing each year from 2008 through 2013. The interest coverage for Under Armour is extremely high and means the company has little to no problems covering their interest expense and other debts. The total asset ratio has been decreasing since 2011 but at 2013 it was sitting at 1.48 times. This means for every dollar of total asset that Under Amour was creating $1.48 in sales. Inventory turnover is consistent and means that Under Amour is moving their inventory efficiently.

  After looking over Under Armour's financials and related ratios it appears that the company is doing extremely well. For every revenue category the company is growing every year and while cost also growing, Under Armour is keeping up with those cost as you go down the income statement. What stands out the most from the income statement is how much EPS is growing each year and how much the company is earning for its shareholders. On the balance sheet we can see large amounts of cash coupled by low amounts of debt meaning company is making and saving plenty of money. Lastly we can see from the statement of cash flows that starting in 2012 cash from operating activities experienced a huge bump. While the reasoning behind this is most likely in management notes, this isn't a bad problem to have. Overall this company appears to be a strong buy due to its positive cash flows, low debt, and large returns on shareholder equity.

Recommendations for CEO

Going forward, Under Armour should continue to increase their presence globally. The company has already built a strong infrastructure by providing quality products and establishing a diverse customer base. Foreign markets, especially China, have huge populations that Under Armour can tap into. By endorsing Stephen Curry of the Golden State Warriors, Under Armour is already taking the right step by having an international renowned athlete who consumers can identify with. To ensure efficient distribution and quality product being delivered to the customer, Under Armour should establish a distribution center in Asia. Much of the fabric and materials used in Under Armour's products are already manufactured in Asia, so this would decrease shipping expenses and overall lead time. Nike and Adidas have already solidified themselves as global brands, so Under Armour has some catching up to do.

Additionally, Under Armour needs to step up their game in the footwear market. Their footwear sales and market share does not come close to Nike and Adidas market shares and revenue. Under Armour can increase their advertising for footwear, create new and innovative shoes, and improve their current product lines. Increased advertising for their shoes could include online and television ads showing popular athletes wearing the shoes, which has shown to be very successful for other brands.

Lastly, we believe that UA needs to dive deeper into the “athleisure” segment of the market. This market has proven to be successful for Nike and Adidas, therefore should be successful for UA. Adidas and Nike have created fashion-forward shoes, jackets, pants, and accessories that can be worn as streetwear. This could attract new types of customers for UA, including those who don't necessarily need performance athletic apparel and shoes. This would be a great way to increase market share, but needs to be done correctly in order to be successful.

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