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Case 5 Teaching Note Under Armour’s Strategy in 2014
318
2. Does Under Armour have any core competencies and, if so, what are they?
We think students ought to single out the following as qualifying as Under Armour core competencies:
nDesigning innovative performance sports apparel
nCapabilities in using the endorsement of prominent sports teams and professional athletes and the
sponsorship of sports events to build growing awareness of the Under Armour brand
• Under Armour is succeeding in building a growing portfolio of celebrity endorsements and in
contracting with growing numbers of prominent sports teams to wear its apparel—these clearly
• UA is also building brand awareness and a stronger brand image with its sponsorship of growing
numbers of sports events.
Management believed that having audiences see Under Armour products (with the interlocking
• It is fair to say that UA has built a potent and authentic brand image and reputation in a relatively
short time
nSecuring retailers to stock Under Armour products in their stores—UA’s distribution capabilities are
3. Does Under Armour have any resource strengths or competitive capabilities that qualify
as a distinctive competence?
We do not see any credible evidence that any of UA’s resource strengths and capabilities have developed
beyond just being core competencies. To qualify as a distinctive competence, UA must have a resource
4. What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s
situation?
Under Armour’s Resource Strengths and Competitive Assets
nA growing lineup of product offerings—the company has a growing array of moisture-wicking apparel
items in many designs and styles for wear in nearly every type of climatic conditions. Indeed, Under
Armour’s diverse product offerings in 2012 consisted of apparel, footwear, and accessories (gloves,
nUA’s growing market share is adding to its competitive strength—UA’s market share for sports apparel
in 2013 was 14.7% in the U.S. (up from 12.7 percent in 2012 and 11.1 percent in 2011), which compared
nUA had built growing and competitively strong distribution capabilities in multiple distribution
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nGrowing global awareness of the Under Armour brand name, combined with growing appeal of Under
nGrowing skills and capabilities in promoting the sales and use of UA-branded products to high-
performing athletes and teams on the high school, collegiate, and professional levels. In 2014 UA was
the “official supplier of performance apparel” to increasing numbers of sports teams. Management
nGrowing, albeit still limited, distribution capabilities outside the U.S.
Under Armour’s Resource Weaknesses and Competitive Liabilities
nWeaker brand name recognition and reputation than key competitors—Nike and The adidas Group
Under Armour’s Market Opportunities
nUnder Armour has significant opportunities to expand the company’s still relatively limited product
lineup and brand name appeal into product categories where it currently had little or no market
nUnder Armour has very significant opportunities to expand outside of the United States—it is still in the
The External Threats to Under Armour’s Future Well-Being
nIntensifying competition from rival designers/marketers of performance sports apparel—see Exhibit 4
nThe buyer bargaining power that can be exercised by large chain retailers like Dick Sporting Goods and
Conclusions regarding the attractiveness of UA’s overall situation: Under Armour’s overall
situation is highly attractive. UA is an up-and-coming company with increasingly potent resource strengths
that are producing gains in sales and market share. The company is correcting its resource weaknesses, has
5. What are the key elements of Under Armour’s strategy?
Class members should be expected to identify the following key elements of Under Armour’s strategy:
nBroaden the company’s product offerings to men, women, and youths for wear in a widening variety of
sports and recreational activities
nMarket the company’s ever-expanding lineup of performance products to additional consumer segments
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nSecure additional distribution of Under Armour products in the retail marketplace in North America via
not only store retailers and catalog retailers but also through Under Armour factory outlet and specialty
stores and sales at the company’s website
• Also, use licensing arrangements to manufacture and distribute Under Armour branded products.
In 2012, Under Armour had relationships with several licensees for team uniforms, eyewear, and
nExpand the sale of Under Armour products in foreign countries and becoming a global competitor in the
nGrow global awareness of the Under Armour brand name and strengthening the appeal of Under Armour
products worldwide
nUtilize endorsements and advertising to drive consumer demand for its products and build awareness of
nPromote the sales and use of its products to high-performing athletes and teams on the high school,
collegiate, and professional levels. This includes:
nIncrease the oor space exclusively dedicated to Under Armour products in the stores of its major retail
accounts
• Design and fund Under Armour “concept shops”—including ooring, in-store fixtures, product
nUse high-tech fabrics produced by third parties (fabric manufacturers) that were developed in
collaboration with the company’s product development team.
• Under Armour favored the use of superior, technically advanced fabrics, produced to its specifications
• The company regularly upgraded its products as next-generation fabrics when better performance
nUse contract manufacturers to produce all UA products. Specific components of UA’s production
strategy were as follows:
• In 2013, substantially all UA products were manufactured by 26 primary manufacturers operating
in 19 countries; 14 manufacturers produced approximately 65% of UA’s products. Approximately
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• All manufacturers purchased the fabrics they needed from the 6 fabric suppliers preapproved by
• Under Armour required its contract manufacturers to adhere to a code of conduct regarding quality
• UA strived to qualify multiple manufacturers for particular product types and fabrications and to
nUse three leased distribution facilities operated by UA to package and ship the majority of UA products
sold in the North American market. Distribution to European customers was handled by a third-party
nMaintain sufficient inventory to fill incoming orders promptly and put strong systems and procedures in
place to improve the efficiency with which inventories of individual products and total inventory could
be efficiently and effectively managed.
• The amounts of seasonal products it ordered from manufacturers were based on current bookings,
the need to ship seasonal items at the start of the shipping window in order to maximize the oor
6. Which one of the five generic competitive strategies discussed in Chapter 5 most
closely approximates the competitive approach that Under Armour is employing?
We think UA’s strategy most closely approximates a broad differentiation strategy. The company’s
7. What is impressive about Under Armour’s financial performance during the 2008-2013
period (as shown in case Exhibit 1)?
You should expect class members to use the financial ratios in Table 4.1 of Chapter 4 in performing
calculations to determine what aspects of UIA’s financial performance might qualify as impressive. In
addition to the ratios in Table 4.1, they will also need to calculate compound average growth rates (CAGR)
for certain financial measures. The formula for calculating CAGR (in percentage terms) is as follows:
nFrom 2008 through 2013, Under Armour’s compound average growth rate in net revenues was a strong
26.3%.
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nUA’s income from operations rose from $76.9 million in fiscal 2008 to $265.1 million in fiscal 2013, an
increase of 244.7% and a very healthy compound average growth rate of 28.1%.
8. How does Under Armour’s competitive strength compare against that of Nike and The
adidas Group? Do a weighted competitive strength assessment using the methodology
presented in Table 4.4 in Chapter 4 to support your answer. Based on your assessment
and calculations, does Under Armour have a net competitive advantage or disadvantage
in competing against Nike and The adidas Group?
There is ample information in the Under Armour case for students to do a competitive strength assessment
and practice using the methodology presented in Table 4.4 in Chapter 4. We urge spending about 10-15
Competitive Strength Assessments of Under Armour, Nike,
and The adidas Group
(Rating scale for each strength measure: 1 = very weak; 5 = average; 10 = very strong)
Competitive Strength Measures
Importance
Weight
Under Armour Nike adidas Group
Strength
Rating
Weighted
Score
Strength
Rating
Weighted
Score
Strength
Rating
Weighted
Score
Product line breadth
0.20 61.20 10 2.00 91.80
Brand awareness and brand
reputation
0.20 71.40 10 2.00 91.80
Caliber of portfolio of celebrity
endorsements and sponsorship
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323
The competitive strength ratings in the above table indicate that Nike has the greatest competitive strength
of the 3 companies—in our view, it is clearly a formidable competitor on every one of the strength measures
(hence the rating scores of 9 or 10 on each measure). We also see The adidas Group as being quite strong
However, had the competitive strength ratings been done for only the North American market where UA’s
Student competitive strength ratings can, of course, differ from those in the table above because there is
room for different judgments both as to the importance weights and the strength ratings. However, we think
that the total rating/score should nonetheless be highest for Nike, second highest for The adidas Group,
and third highest for under Armour. Class members can thus make a convincing case that Nike currently
enjoys a net competitive edge over both The adidas Group and Under Armour. The adidas Group seems at
9. What 3-4 top priority issues do Kevin Plank and Under Armour management need to
address?
We think it is always a good idea to push the class for their assessment of what issues management needs
to address before proceeding to ask for action recommendations. Issue identification (or compilation of a
In Under Armour’s case, we see several high-priority issues that merit top management consideration:
nHow fast and how far to move into the athletic footwear segment? Does UA management really want to
nHow fast to expand the distribution of UA products to foreign markets outside North America and in
10. What recommendations would you make to Under Armour CEO Kevin Plank? At a
minimum, your recommendations should cover what to do about each of the top priority
issues identified in question 9?
Students should be pressed to offer practical action recommendations to address the issues identified
in the prior question. But you should appreciate that coming up with good action recommendations for
Under Armour that go beyond what management is already doing is likely to prove challenging to many
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The following recommendations seem to us to be on target and actions that students should propose be part
of Under Armour’s strategy:
nContinue to broaden the company’s product offerings by entering new segments of the market for
performance sports apparel, sports equipment, and sports accessories.
• Continue to expand Under Armour’s athletic footwear offerings—but exercise caution and prudence
in trying to establish a market presence in all models/styles of athletic footwear too quickly. We
suggest a strategy of entering new athletic footwear segments one-by-one over a multi-year period
• We very much like UA’s strategy of focusing on premium running shoes for the time being—this is
nContinue to expand into additional foreign countries and geographic regions of the world as fast as
practical—the long-term strategic objective here should be to achieve global market coverage but at a
nContinue to focus on the same four retail distribution channels: sales to retailers, sales to catalog
retailers, sales at Under Armour Factory House outlets and Brand House specialty stores, and sales
nContinue to build consumer awareness of the Under Armour brand and to enhance the company’s brand
reputation by:
• Signing additional appealing celebrities to endorse and promote Under Armour products.
nContinue to use innovative fabrics in UA apparel that enhance performance, comfort, and product quality
nContinue to use contract manufacturers to produce Under Armour products—integrating backward into
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Epilogue
In October 2014, Under Armour announced financial results for the third quarter ended September 30, 2014.
Net revenues increased 30% in the second quarter of 2014 to $938 million compared with net revenues of $723
million in the prior year’s period. Net income increased 22% in the third quarter of 2014 to $89 million compared
with $73 million in the prior year’s period. Diluted earnings per share for the third quarter of 2014 were $0.41
compared with $0.34 per share in the prior year’s period.
Third quarter apparel net revenues increased 26% to $705 million compared with $561 million in the same
period of the prior year, driven by expanded offerings in categories such as golf, outdoor, running, training, and
women’s studio. Third quarter footwear net revenues increased 50% to $122 million from $81 million in the
prior year’s period, led by new introductions in running and basketball. Third quarter accessories net revenues
increased 32% to $85 million from $64 million in the prior year’s period, primarily driven by expanded offerings
in headwear, bags and gloves. Direct-to-Consumer net revenues, which represented 26% of total net revenues
for the third quarter, grew 35% year-over-year. International net revenues, which represented 9% of total net
revenues for the third quarter, grew 94% year-over-year.
Kevin Plank, Chairman and CEO of Under Armour, Inc., stated,
Our strong third quarter results demonstrate the power of the UA brand. The momentum and growing
confidence we outlined last quarter in Footwear and International were on full display in the third
quarter with growth rates accelerating to 50% and 94%, respectively. Our Direct-to-Consumer business
continues to drive our vision to Empower Athletes Everywhere with the debut of local E-Commerce
sites in the United Kingdom, Germany, and France, as well as optimizing all global sites for mobile
to stay ahead of where our consumers are going. And we were particularly excited about our I WILL
WHAT I WANT™ global women’s campaign, featuring Misty Copeland and Gisele Bündchen, which
ignited a powerful new dialogue with our female consumer as we begin to bridge the gap between
female athletes and athletic females.
Gross margin for the third quarter of 2014 was 49.6% compared with 48.4% in the prior year’s quarter, primarily
driven by higher import duties in the prior year’s period and favorable year-over-year sales mix. Selling, general
and administrative expenses as a percentage of net revenues were 34.0% in the third quarter of 2014 compared
with 31.7% in the prior year’s period, reecting broad-based investments to support global growth initiatives as
well as higher incentive compensation expenses. Third quarter operating income increased 21% to $146 million
compared with $121 million in the prior year’s period.
Cash and cash equivalents increased 34% to $249 million at September 30, 2014 compared with $186 million
at September 30, 2013. Long-term debt including current maturities increased to $192 million at September 30,
2014 compared with $54 million at September 30, 2013. Inventory at September 30, 2014 increased 28% to
$637 million compared with $497 million at September 30, 2013. In May 2014, Under Armour closed on a $150
million term loan and paid off $100 million drawn on the company’s revolving credit facility.
For full-year 2014, Under Armour management expected 2014 net revenues in the range of approximately $3.03
billion, representing growth of 29% to 30% over 2013, and 2014 operating income of approximately $348
million, representing growth of 31% over 2013. According to CEO Kevin Plank:
Our plans of crossing $3 billion in net revenues and achieving 30% growth this year represent significant
milestones for the Brand, but we believe we are just getting started. We are delivering consistent top line
results while making the right investments to support both the near- and long-term opportunities of the
Brand. This includes investments to build world-class design and innovation capabilities for all of our
products, accelerate our international footprint, and expand our 30 million users under our Connected
Fitness platform. We believe this balanced approach will continue to drive our global ambitions and
long-term value for our shareholders. We are proud of what we have built and continue to see ourselves
as a much larger brand than the $3 billion in revenues we are projecting for 2014.
Case 5 Teaching Note Under Armour’s Strategy in 2014
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Under Armour’s closing stock price on November 18, 2014, was $69.37, versus a price of $43.65 at year-end
2013. The stock split 2-for-1 in April 2014.
In September 2014, according to data from Sterne Agee and SportsScanInfo, Under Armour’s combined sales of
athletic footwear and sports apparel in the United States edged ahead of those of Adidas for the first 8 months of
2014. Under Armour’s sales were said to be $1.2 billion versus $1.1 billion for Adidas. However, both companies
lagged far behind Nike’s estimated sales of $8.9 billion over the same period.
Also, in August-September 2014, Under Armour waged a battle to sign NBA star Kevin Durant whose seven-
year $60 million contract with Nike was about to expire. Under Armour offered Durant a 10-year deal said to
be worth between $265 million and $285 million that included cash, an equity stake in Under Armour, and a
community center built in the name of Durant’s mother. Even though Durant was said to be “blown away” by
Under Armour’s offer, he ultimately chose to go with a 10-year counteroffer from Nike said to be worth as much
as $300 million, including a $50 million retirement package (Nike’s original offer—prior to the offer from Under
Armour’s—was said to be worth about $20 million annually. Later, it was reported that Durant could not legally
accept Under Armour’s offer if Nike opted to match the UA offer. And even if Nike had not matched UA’s offer,
Durant might have chosen to stay with Nike—in 2007 when he came out of college, Durant opted to pass on an
$80 million endorsement contract offer from Adidas precisely because he wanted to sign with Nike.
Despite not signing Kevin Durant, Kevin Plank said in October 2014 that Nike had not been challenged on many
endorsement deals and that Under Armour planned to compete head-on with Nike on endorsement deals going
forward. He indicated that Under Armour would soon launch a signature shoe with endorsee Stephen Curry
during the upcoming 2014-2015 NBA season. In October 2014, UA signed 18-year-old Emmanual Mudiay to an
endorsement deal that included shoes and apparel. Mudiay had just decided not to attend SMU and instead play
a season of basketball for the Guangdong Southern Tigers in China; this enabled him to collect a salary ($1.2
million) and also sign other endorsement deals. Mudiay was projected to be a top five draft pick in the 2015
NBA Draft.
In the women’s segment, Under Armour had recently added supermodel Gisele Bundchen to its portfolio of
endorsees to help promote the “I Will What I Want” campaign for Under Armour, aimed at reaching women.
Under Armour’s sales of women’s products were about half those for men, but UA was continuing its push to
rapidly grow its sales of women’s products—a segment that management believed had significant upside sales
potential.
For the latest information on developments at Under Armour, please visit the Investor Relations section at www.
underarmour.com and check out the company’s recent press releases and financial results.
