Environmental Scan
Under Armour is a sporting apparel manufacturer and wholesaler for women, men and youth. Their products feature special moisture-wick fabrics engineered in a diverse range of styles and designs for the performance athlete in any climate and at any age. Under Armour's products are worn by athletes at all levels including professional as well as consumers living active lifestyles. In 2015, Under Armour grew approximately 20% in revenues from year prior, generating global revenues of $4..9 billion and maintaining an operating income of $503 million.(Mann 2016) The majority of its net revenues are generated from wholesale sales of its products to end retailers. They also generate a marginal percentage of sales from direct to consumer sales on a sophisticated e-commerce platform storefront. All products are manufactured in offshore centers across 16 countries. Under Armour plans to grow its sales over the long term by expansion of its wholesale and direct to consumer sales in domestic and international markets.(Under Armour 2015)Porter's Five Forces
Here we will use Porter's Five Forces Model to analyze the profitability of sports apparel industry over the medium and long run. First, we shall consider rivalry. Among well-established companies, there is significant rivalry. Sports apparel industry has a high degree of competition that is matched by high conditions of demand. Market concentration is high, which is aided by low switching costs and low barriers to entry. Rivalry increases in conditions where product differentiation is low. With respect to its competitors, Under Armour faces competition from players with huge levels of capital and economies of scale. There is a high threat of substitutes in this industry. Threat of substitution puts downward pressure on prices, and increased use of e-commerce technologies and mobile web price searching only exacerbates this problem. The Sports apparel industry is fragmented by at minimum 25 competitors with brand name recognition. (Under Armour 2015) Buyers have high bargaining power. Price sensitive consumers who face zero switching costs and abundant choices puts downward pressure on prices and raises the bar for high quality service provision.(Under Armour 2015) Even though individually buyers are unable to influence price, collectively buyers' experience increased power from limited levels of brand loyalty. Consumers have many options and this increases the uniformity of price points for consumers. Suppliers have a moderately high bargaining power. Suppliers, typically, have the ability to enact price increases on products sold and or reduce quality in products supplied. Either of these may reduce a company's profitability level. The positive part of this story for Sports apparel is that suppliers are abundant, and this imposes downward pressure on price points held by suppliers.
SWOT Analysis
Strengths. Product placement. With a marketing budget less than that of its competitorsn, such as the global powerhouse Nike,, it became essential that Under Armour leverage any opportunities it could to attract its target market.(Morkel 2015) It started to infuse its products in over a dozen popular television shows, several motion pictures, and video games.of product placement helped place the product in a mainstream light and allowed the brand to reach a larger market.(Morkel 2015) Production companies, television networks, and movie studios began using Under Armour more and more. Several athletes who are not sponsored by Under Armour wear Under Armour, and this has proved invaluable for the company. In an interview, an Under Armour executive comments: "Guys aren't getting paid, but that's great placement. You can't beat that. And that's why the kids want it" (Ho 2016; Mills n.d.).
Brand Equity. Under Armour has a unilateral commitment to the mission by which Under Armour was originally founded on. Kevin Plank, founder and CEO articulates that he felt the brand's mission from the beginning was to meet an unmet need in the marketplace with competitors like Russell Athletics, Champion, Nike, Reebok, and Adidas. (Under Armour 2015) Plank wanted something that had a different feel than the cotton products that were dominating the marketplace. "There was an opportunity that was not being tapped. We (Under Armour) filled a vacuum.”(Plank 2015)
Weaknesses. Under Armour's brand strategy focuses on the quality of its products and its innovative materials. The competitive advantage they have built focuses on innovation and product development. Under Armour relies on third party manufacturers to develop and produce their specialty fabrics, however. This could pose a significant threat to its core competencies. In 2015, North American sales comprised 90.1% of total revenue (IBISWorld 2016). Under Armour should continue to focus on its international expansion efforts in order to position itself for continued growth over the medium and long term in foreign markets.
Opportunities. Multiple opportunities for continued growth, both in consumer product segments and in international markets. Nike has multiple billion dollar revenue countries where it sells its products globally. Under Armour is just entering the phase of international expansion. In 2015, it opened operations in China, for example. (Krantz 2016) Besides the growth opportunities internationally, Both Under Armour executives understand this doesn't mean they can take their focus from the brand targets in the United States. (Under Armour 2015) Their main focus is on building the brand and appropriate brand positioning across women, men, children and sports team segments. (Under Armour 2015)
Threats. Capital investment required to enter the sports apparel market is comparatively low compared to other industries. There is also the threat that suppliers could wield power and control the division of market share among competing companies, since it is the suppliers who essentially control price and have the ability integrate forward (Marketline 2015).
PEST Analysis
A PEST analysis measures industry and market potential. A close consideration of these factors eases business analysis for market attractiveness as well as current and future potential of the business .
Problem Statement
Under Armour's Q2 of 2016 inventory-to-sales resulted in a loss of 62%. Under Armour
faces a gap in inventory management as well as it purchasing, planning and lead time.
Inventory management is key to the financial operation of the business and there is a gap
between actual and expected inventory efficiency in order for Under Armour's business
performance to reflect its public valuation (P/E of stock price in Q1 2016 commands 90
times projected earnings).
Analysis
The overall sourcing, manufacturing and distribution of Under Armour is severely flawed. Their competitive technical fabrics fluctuate in availability and price with the economy and are sourced from a number of specialist companies globally - meaning that a lot of
responsibility falls on these limited external sources. Furthermore, the actual manufacturing plants are widespread within 16 countries through Asia, Central and South America, Mexico and the Middle East, and the overall ordering and inventory of Under Armour's products stored in these locations is somewhat unpredictable due to their high amount of products available, long lead-times, and their inability to forecast demand efficiently.(Morkel 2015)
This, in turn, affects the overall reputation and profitability of the brand, as there can be unpredictable wait times on certain items, with excessive remaining stock on other items. This is further exasperated by Under Armour’s broad differentiation strategy which sees a broad product line encompassing apparel, footwear and sporting accessories.
Recommendations.
Under Armour operate under the mission statement“to make all athletes better through passion, design and relentless pursuit of innovation”, with principal business activities including the development, marketing and distribution of branded performance apparel,
footwear and accessories. It is apparent that Under Armour is experiencing strategic issues and is facing fierce competition in the market place. In order to grow on a global scale Under Armour needs to refocus its resources in order to cut costs and run efficiently. The following recommendations address the strategic issues faced by Under Armour and provide new business opportunities enabling them to secure a strong position within the market and to focus on the established key competencies of the company.
References
Under Armour (2016). Under Armour reiterates outlook for 2016 following announcement of Sports Authority bankruptcy. Retrieved from http://files.shareholder.com/downloads/UARM/0x0x879411/125d305c-a9bb-42fc-9436- 3ff3b647044e/UA_News_2016_3_4_UA_Biz.pdf
Plank, Kevin (2015, September 6). Under Armour Has Big Plans for the Chinese Market [Video file]. Retrieved from http://www.bloomberg.com/news/videos/2015-09-07/under- armour-has-big-plans-for-the-chinese-marketHo, Victoria (2016, April 28). China just launched a blatant rip-off of Under Armour called Uncle Martian. Mashable.com. Retrieved from http://mashable.com/2016/04/29/uncle- martian-under-armour/#xUYWqh5VXuqY
IBISWorld (2016). Athletic and Sporting Goods Manufacturing. IBISWorld Industry Research. Retrieved from EBSCOHost. Krantz, Matt. (2015, April 21). Under Armour's real problem (it's not Nike). America's Markets Blog. USAToday.com. Retrieved from http://americasmarkets.usatoday.com/2015/04/21/under-armours-real-problem-its-not- nike/Mann, Jake. (2016, April 11). Under Armour's problems are far more serious that Spieth: Morgan Stanley is worried about what new SportScan data shows. Retrieved from http://www.benzinga.com/analyst-ratings/analyst-color/16/04/7825713/under-armours- problems-are-far-more-serious-than-spieth-
Mills, Dan (n.d.) Under Armour CEO: vision is a CEO's most important job. SmartCEO. n.d. Retrieved from http://smartceo.com/under-armour-ceo-vision/
Morkel S. (2015). Sports and Fitness Clothing Market - Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2015 -‐ 2020” EBSCohost. Under Armour (2016a). Under Armour reiterates outlook for 2016 following announcement of Sports Authority bankruptcy. Retrieved from http://files.shareholder.com/downloads/UARM/0x0x879411/125d305c-a9bb-42fc-9436- 3ff3b647044e/UA_News_2016_3_4_UA_Biz.pdf
Under Armour (2016). Under Armour Form 10-‐K. Gale Business Insights.
