Under Armour is a sports apparel, footwear, and accessories company that is quickly becoming a global force to be reckoned with. The company is competing in a saturated market and has maintained the ability to grow. Analysis of the company shows that it should: look for alternative sources of materials and suppliers; continue a marketing campaign using athlete endorsements; and, model expansion into new foreign countries after the successful entrances into areas such as Europe. Reasoning behind these recommendations is shown in the analysis below. Background
Under Armour was established in 1996 by Kevin Plank, a former football player with the University of Maryland. Plank saw the potential for the need of comfortable and lightweight workout gear to be produced. The company was originally named KP Sports, after Plank. When the company went public in 2005 the name was changed to Under Armour. Under Armour is considered a pioneer of performance apparel created from complex synthetic materials. Their gear is designed to keep athletes cool and dry throughout the course of a game, practice or workout in various conditions. The apparel product line for Under Armour consists of HeatGear, ColdGear, and AllSeasonGear. Since the introduction of this type of sports apparel fabric, the concept has been widely copied by all the major sportswear brands. Strategy
Under Armour segments different strategies for growth, product lines, marketing and distribution. The growth strategy of the company has the focus of continuing to broaden the company’s product offerings, target additional consumer segments, and secure additional distribution of Under Armour products. The product line strategy consists of creating a diverse product line to reach multiple market segments. This carries into their marketing strategy of putting Under Armour products in positions to be seen by the public. To do this Under Armour enters into agreements with a variety of collegiate and professional sports teams, sponsors both collegiate and professional sport related events, and sells Under Armour products to both teams and to individual athletes. To market in the retail sector Under Armour works to dedicate floor space exclusively to their products in the stores of its major retail clients as well as introducing Under Armour stores. Under Armour has also worked to maintain and increase sales in the United States as well as expand into foreign markets of different Asian countries. Five Forces
Porter’s Five Forces Model can be used to analyze the sports apparel industry. The rivalry among established companies is high. The sports apparel industry is very competitive for multiple reasons. There are a large number of companies and a high volume of demand, both factors increases rivalry. Low switching costs for customers also increases the competition. Under Armour’s main competitors have large levels of capital at their disposal. Key players in the industry include Nike, Adidas and Reebok. Generally lower levels of product differentiation also increase the rivalry between these companies. The threat of new potential entrants is moderately high. The sports apparel market has been subject to continuous changes of trends that have increased its popularity. These trends include: a rise in concern for healthier living, and higher participation in sports.. Any attempt at a new entrant would have to put out a lot of capital on marketing and advertising to prove as competition for these companies. The threat of substitute products is high.
The market for sports apparel, athletic footwear, and sports accessories is large and fragmented with more than 25 companies. Nike, who is an industry leader, only has about 4% of the market share of sports apparel and 17% of the footwear market. These numbers support the evidence that gaining market share is extremely difficult. The bargaining power of buyers is high. Price sensitive customers have a lot of power as the costs to switch between brands are extremely low or nonexistent and customers have multiple product options when purchasing. In this market, buyers are divided and no individual buyer has the ability to influence a product or price, however overall disloyalty to a brand can give segments of consumers levels of power. The bargaining power of suppliers is moderate. In the sports apparel industry there is a large amount of suppliers that companies can choose between to manufacture their products. However, for Under Armour specifically, the company relies on a small number of suppliers to produce about half of their fabric offerings. Conclusion
The analysis of this market indicates that the market is favorable for existing competitors and those who are able to differentiate their products. While Under Armour does not have to be overly concerned with the threat of new entrants, they must continue to advertise their products to differentiate themselves from other competitors. Under Armour must also focus on continuing marketing efforts to retain and help grow their market share against the industry leaders. PESTLE Analysis
Foreign direct investment policies of some countries, such as areas of China, can prohibit brands to have 100% ownership of their stores in their countries if they feel it poses a threat. As most of the complex compression materials come from petroleum based synthetics and others from cotton blends the company is subject to any restricts and political policies placed on these materials. Economic
Economic recovery of the United States has resulted in a huge growth of the sport apparel industry and was a $60 billion dollar industry with over 25 companies in 2011 and has continued to grow which benefits Under Armour as it expands. The past few years have seen an increase in costs of raw materials and resources that Under Armour uses to produce its products. This is in conjunction with the price fluctuations due by political regulations surrounding petroleum and cotton as well as increase inflation rates as the economy recovers. Sociocultural
In the sport apparel industry price is not a huge differentiating factor between the main competitors so the strategy of product differentiation and providing quality products are important to gain and maintain customers. By leading the industry with new compression products and continuously updated their multiple product lines, Under Armour can use this sociocultural trend to their advantage. Consumers are becoming more health conscious as an overall trend despite the fact that obesity rates are higher than ever. This
trend towards the everyday person has benefited Under Armour by allowing them to expand product lines from teams and athletes to individuals interested in leading an active lifestyle.Youths are becoming more and more active in sports and Under Armour reflects this increased participation in the sponsorship of various youth football and athlete programs. When parents buy Under Armour for their children it may lead to increases in adult purchases. Technology
As consumers’ use of technology continues to grow it will become increasingly important for Under Armour to have a strong presence on its global online store. Legal Under Armour owns the rights to its product blends and requires its contracted manufacturers to ensure that all employees work within specific ethical and operational norms of businesses in the United States. Environmental
The petroleum basis for some of Under Armour’s products has the potential for problems in both the political and economic realms as well as the environmental realm. Consumers are moving towards eco-friendly materials to reflect the trend toward eco-friendly lifestyles. The use of petroleum based fabrics can become both more costly towards to company in capital and in brand image if the green trend continues to grow and sources of materials become a determining factor of purchasing. Conclusion
The macro environments in which Under Armour operates all play a part in how the company performs or will perform in the future. The market is in a period of growth and provides the opportunity for Under Armour to grow as long as the company keeps the above possible forces and scenarios in mind when adjusting their strategy. SWOT
Under Armour was established with innovation at its forefront when it created the compression t-shirt. Under Armour has continuously focused on the changing needs of the sports industry, and meeting these needs with new designs. This focus is demonstrated by its wide product mix, continuously updated product offerings, and entrance into various markets such as the sports accessory and apparel markets. Broad Product Portfolio
Under Armour has a large range of products that include various sports apparel lines, an accessories line and a footwear line. When the company began it had a main focus on football but has expanded to include products sports from basketball to swimming to UFC fighting. Financial Stability
Under Armour has had a compound annual growth rate of 19.3% for the five years between 2006 and 2011. The net revenues about tripled during this time and the net income just more than doubled. Weaknesses
Outsource of Manufacturing
Most of the raw materials used to produce Under Armour products are created and manufactured by third parties, and about half came from only six different suppliers in 2011. This poses a risk to the company as it gives give the suppliers high bargaining power in addition to making the company subject to the political and economic factors that may affect the cost of these petroleum based products. Limited Geographically
Under Armour has made efforts to move into foreign countries such as Canada, Japan and the United Kingdom. However, revenues from the United States accounted for about 94% of Under Armour totals in 2011. By continuing growth to football clubs and rugby clubs throughout Europe, as well as other sports in China and other Asian countries Under Armour can continue to expand and leverage its market share against Nike and Adidas. Opportunities
Direct-to-consumer sales have been a profitable area for Under Armour but many of their competitors have expanded this source of revenue to include online sales to customers. Since youth participation in sports is on the rise sport apparel companies can continue to expect growth with a generation connected to their mobile devices and can enrich these relationships with advancements like mobile applications. Threats
Due to the fact that a majority of Under Armour’s fabrics include petroleum as a product material the company is subject to political, economic, and environmental forces as seen in the PESTLE analysis; because the cost of petroleum can be very unstable and affected by the macro environment Conclusion
Under Armour has successfully expanded and gained market share in the sports apparel market through leveraging its technology and financial stability. Moving forward the company has the potential to gain a larger consumer base in the technological and online sector of consumer shopping but must mitigate the risks resulting from the use of particular raw materials and limited suppliers. Key Success Factors
Research & Development
Successful sports apparel companies most continuously improve upon their existing products to maintain competitiveness and must show this to consumers with these new products. The sports apparel market is saturated with competitors, companies who fail to maintain the production of new products will not sustain market share. Sports Marketing
Under Armour’s main competitors of Nike and Adidas use large amounts of capital for marketing campaigns every year. Nike spent over $2.4 billion on marketing and advertising in 2011. During the same year Under Amour spent just under $168 million, over 30% more than the company had spent the previous year. By supplying products to official sports teams, in addition to popular teams, Under Armour is placed in front of large market segments and increases sales to fans. As sports become subject to the trend of globalization, companies must tailor their marketing campaigns towards the areas of popular sports around the world. Under Armour has strived to become known in hockey in Canada, and rugby and soccer in Europe. Finances
After successfully going public and steady performance Under Armour stocks fell slightly in 2008 with the recession but have been steadily increasing through 2012. The company’s Class A Common Stock has consistently performed well on the New York Stock Exchange. Under Armour had a return on assets from 9.06% in 2009 to 12.37% in 2012 in addition to an increasing return on equity. Under Armour has experienced growth in all of their product segments from 2010 to 2012. This growth was supplemented by the introduction of products such as Charged Cotton® leading to a 31.5% increase net revenues of apparel and a 42.9% increase in footwear net revenues.
Under Armour began to produce some hats and accessories itself instead of outsourcing and this resulting in huge growths in revenues, this change also resulted in a 7.1% loss in revenue from changes in licensing. In the 2010-2012 period the cost of goods sold rose due to increasing costs of manufacturing and raw materials. Under Armour has worked to offset these costs by decreasing administrative expenses. Under Armour typically experiences higher revenues during the winter, in part from higher profit margins with the ColdGear line. Fourth quarter sales in 2011 were lower than average and left Under Armour with large amounts of inventory. The company decided to reevaluate its entire inventory process after this to prevent this situation in the future. Recommendations
Moving forward Under Armour has areas with the potential for growth or where weaknesses can be mitigated to maintain its competitive stance and continue to grow. Suppliers Under Armour should focus Research and Development efforts on maintaining a strong presence in ecommerce. Under Armour should also put Research and Development into efforts to start exploring technology to allow the production of its complex fabrics without using petroleum-based materials. As shown in SWOT and PESTLE the inclusion of these materials poses a risk to Under Armour as the company becomes susceptible to political, economic, and environmental forces. Under Armour has the capital to invest in looking for alternative substances and is not currently suffering greatly from the use of petroleum, awarding the company time to begin research and remain at the forefront of innovation.
In addition to moving away from petroleum based products the company should look toward moving more production in house and/or increasing the number of suppliers it uses to lower the bargaining power of the suppliers and mitigate the economic risks of relying on small numbers. By relying on this small number of suppliers the company puts itself at risk during times of economic recession, such as in 2008-2009. The company has seen success from moving some of the production of its footwear and accessories to within the company and can take this as a signal to continue moving some products into this category as economically prudent. Marketing Efforts
Under Armour should continue to increase efforts in market campaigns. Its main competitors have large marketing campaigns backed by multiple athlete endorsement deals. Under Armour should periodically re-evaluate their deals and possibly look to performance-based contracts to help mitigate costs associated with these deals while continuing to scan for up-and-coming athletes as well as rotating well-known athletes to keep pushing the brand in front of fans. The use of popular social media sites such as Facebook and Twitter are cheap ways to increase the company’s brand awareness in conjunction with its other marketing efforts. Expansion
Under Armour should also continue exploration into foreign markets. The company has experienced success in the Canadian and European markets as well as expansion into China and Japan. The introduction of stores into China and Japan can be modeled to the entrance into Canada. Under Armour should look toward backing a well-known sports team or franchise, like Hockey Canada, to increase brand awareness of the company before moving large numbers of stores into the country. Under Armour should continue this expansion and market scanning of other countries to increase its global presence against its competitors.