Under Armour Case Analysis Essay

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Under Armour Case Analysis Essay
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  • University/College:
    University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Words: 4092

  • Pages: 16

Under Armour Case Analysis

Introduction

Under Armour is currently one of the leading companies in the sports apparel industry whose mission is to “Make all athletes better through passion, science, and the relentless pursuit of innovation”.1 When Under Armour first broke into the sports apparel industry it was a disruptive pioneer that initially made the two giants, Nike and Adidas, a little weary. Under Armour revolutionized the sports apparel industry by creating apparel that used synthetic materials as an alternative to natural fibers, such as cotton, or other materials, such as polyester. This all-important switch to these materials resulted in a 2“shirt that provided compression and wicked perspiration off your skin rather than absorb it. A shirt that worked with your body to regulate temperature and enhance performance”. This promise to increase athletic performance distinguished Under Armour from the other competing sports apparel companies, however, such rival companies have since introduced synthetic materials into their product lines.

Under Armour was first conceived in 1996 by Kevin Plank, who at the time was the special teams captain for the University of Maryland football team. Plank, frustrated with having to repeatedly change his cotton shirt during practices, set out to create a shirt whose materials allowed the perspiration to dry quickly, causing the athlete to be quicker, faster, and stronger as a result of less burdensome water weight. He made it his mission to develop a shirt using synthetic materials that handled perspiration most efficiently than was previously expected. He developed a shirt that used said synthetic materials to handle perspiration and tested the prototype, aptly named 0039, with his own football team. After he graduated, Plank went to many different universities trying to find a buyer for his product. After some time, Plank found his big break when he managed to earn the football team of Georgia Technical University as a client.

As the performance apparel market has grown, Under Armour has diversified their product offerings, developed different types of performance gear, and ventured into women’s apparel, footwear, and other merchandise. This case study seeks to analyze Under Armour’s history, resources, capabilities, and core competencies, business and corporate-level strategies, as well as the general environment and competitive landscape. After careful scrutiny of these varying areas, the factors contributing to Under Armour’s current success and future challenges will appear to be much clearer.

Current Situation

Currently, 3Under Armour employs roughly 5900 individuals and, in terms of revenue, they are the third largest provider of performance sports apparel in the world. They are currently only in direct competition with Nike and Adidas. In 2012, Under Armour had an estimated revenue of $1.8 billion dollars, with expected net revenue in the range of $2.84 billion to $2.87 billion for 2014. This represents a growth of 22 percent to 23 percent over 2013. 4Under Armour has an estimated operating income of $85.3 million. In recent years, shoes have been Under Armour’s fastest growing product line, 5growing at a rate of about 31 percent from 2011 to $239 million in sales in 2012. 6Under Armour has quickly gained a reputation of providing quality equipment and sports apparel, thus leading to the company to be the official sponsor of many sports teams and individuals, such as the Tottenham Hotspurs of the Barclay’s English Premier League. Under Armour is also quickly becoming well-known for its charitable contributions to the community. They currently support the fight against breast cancer, as well as being a big supporter of the Wounded Warrior Project (which helps troops wounded in combat return to normal living) and various youth outreach programs in the community.

Industry Structure

Being an emergent competitor within the oligopoly of the athletic apparel industry, Under Armour is forced to focus on quality and innovation so as to keep up with competition and customer demands. Other than Under Armour, the industry’s most prominent competitors are Nike and Adidas. In Figure 1 of the Appendix, a strategic group model illustrates Under Armour’s performance in comparison to the other leading competitors in the same industry. 7The size of each bubble is the amount of market share that that company holds. According to the map, Under Armour comes in at third place; it is apparent that the firm needs to make some changes if they desire to remain a legitimate player in the long run.

As shown in Figure 2 of the Appendix, a Porter Five Force Analysis makes it clear that the overall rivalry within the athletic apparel industry is medium to high. Because Nike and Adidas already have a substantial amount of capital resources and other assets, Under Armour struggles against them to gain market share. 8Also, private labels of retailers and newer sports apparel companies could potentially pose a threat to Under Armour, but mostly due to the fact that Under Armour does not hold any fabric or process patents. This makes it extremely easy for any competitor to duplicate a product or process with no consequence. However, the threat of new entrants is not too troublesome within the industry because of the great capital cost required for branding, advertising, and meeting product demand. Furthermore, the sports apparel industry is in the maturity phase of the industry life cycle. This means that each company included in the oligopoly must compete directly against one another for market share. And in order to avoid becoming a weaker firm and being forced to exit, Under Armour must constantly rejuvenate their product line with better quality and new innovations.

Macro-Environmental Trends

In an examination of Under Armour’s external environment, or macro-environmental trends, the company’s political, economic, socio-cultural, technological, ecological, and legal environmental trends were considered. Politically, Under Armour does not face many roadblocks. If anything, the firm’s domestic operations benefit from government subsidies for eco-friendly practices. Additionally, since this industry is not usually called upon during campaigns, corporate taxes remain stable (meaning unlikely to change) and political pressures all bear a minimum on Under Armour in both the long and short term.

9Looking at the United States GDP growth over the last four fiscal years, the economy has grown at an approximate 2.4 percent. Although climbing, this number continues to fall short of the desired 3 to 4 percent growth. With interest rates low, and constant growth in the economy quarter after quarter, the economy is looking more promising for large companies such as Under Armour. This also bodes well for Under Armour since consumer confidence is on the rise and disposable income becomes more available given the rise in employment over the last year.

Next, the socio-cultural environment was examined to see what the trends are arising around the world. Although Under Armour started as a company whose mission was to serve the best gear to athletes everywhere so that they could reach their peak potential, Under Armour has made a name for themselves in the accessories industry. Not only are people wearing Under Armour in athletic events, but in the classrooms, and even in the back woods. People of all demographics are purchasing products from the industry.

Technology is a force that can either make or break a firm’s success in today’s business world.10 With Under Armour, the company regularly upgraded its products as next-generation fabrics when better performance characteristics became available and as the needs of athletes changed. Since Under Armour’s development team remains current on technology, there is nothing that the technological environment could possess to threaten the company.

Finally, ecological and legal environments were examined. In the US, environmental and labor laws require companies to maintain their carbon consumption at a regulated level and give tax credits to those companies that practice sustainable activities. Also, hiring and promotion laws require businesses to promote and hire new employees fairly.11 Employee reviews have been mostly positive with regards to Under Armour’s human resource policies, yielding an above average approval rate.

Strategic Typology

Under Armour has a strategy that has positioned them to be one of the top five athletic wear and accessory companies in almost every category regarded. They have done so by playing the role of prospector (according to the Miles-Snow model). By being the first to market such materials in athletic wear and clothing, Under Armour provided a product that had never before been seen in the world of competitive and non-competitive sports. With other aspects of production such as accessories and later generations of apparel and gear, Under Armour has also played the role of analyzer. This means they tested the markets by using athletes to test their newer products to determine the needs of athletes – both professional and amateur – as well as youth athletes.

Internal Analysis

The strong internal structure of Under Armour starts with CEO Kevin Plank. Because Plank founded the company he has the passion, dedication, and motivation one needs in order to grow a company into a large international competitor. No one will have the same drive to make their company succeed more than one’s self. Although the company is several years behind Nike and Adidas, Under Armour has been growing steadily since its inception. 12Since 2004, Under Armour has increased its net income from 25.38 million to 208.62 million in 2012 and is predicted to keep growing.

13Under Armour has roughly 11.20 billion of apparel clothing market capitalization, which is dwarfed by Adidas’ (24.90B) and Nike’s (66.47B) cap. 2013 revenues show the same results with Under Armour at 2.33 billion, Adidas with 18.62 billion, and Nike with 26.29 billion in revenue. Under Armour is doing better than the industry average at 763.1 million. These statistics are common across the board; Under Armour out performs the industry average but fails to compete with Nike and Adidas in many financial aspects. Under Armour does lead the industry in gross margin with .49, tied with Adidas. The Nike and Adidas popular brand names have allowed them to rule the sports apparel market over the last decade, however, Under Armour keeps growing year to year. With a higher margin and a great research and development program, Under Armour can continue to creep up on the industry leaders, becoming a power house of its own.

Since day one, it has been an uphill battle trying to compete with the top sports apparel companies in the world, however, Plank surrounded himself
with a strong supporting team. Kip Fulks, a former Maryland lacrosse player and schoolmate of Plank, was brought onto the Under Armour team to help promote his product to lacrosse players, as well as other athletes in the Maryland area. Ryan Wood, a high school acquaintance of Plank, was also made a partner of the company to help continue to grow the business even further. With two fellow athletes as his vice presidents, Plank not only had two partners he could trust, but also had two fellow sports enthusiasts who shared the same passion for improving athletes’ performance in all sports. This strong upper management would be the key to getting Under Armour off the ground and competing in the worldwide market of sports apparel.

Plank and his companions created a product the public had ever seen before; a compression shirt using wicking performance fibers that kept athletes cool and light without the feeling of a sweat-soaked cotton t-shirt. 14This product proved valuable because it kept athletes cooler, but it also kept them from being slowed down by the added weight of accumulating sweat. However, Under Armour did not stop there. Further research allowed Under Armour to create footwear, pants, hats, headbands, and other accessories in order to keep athletes cool, as well as special clothing that could keep athletes warm in colder climates. Unfortunately, due to no patent protections, competitors such as Nike and Adidas began to replicate such products into their own brand.

Since changing the company’s name in 2005, Under Armour has grown into a solid, well-known sports apparel brand. Having such a high quality brand has allowed for high brand equity and loyalty from customers, much like top competing brands. The company has grown from the east coast to nationwide, as well as some international markets. With only a few thousand employees, Under Armour believes in quality over quantity. They hire only the best employees and train them well to ensure top research and development, not to mention top class customer service. A solid research and development team has allowed for the innovation of new products to gain an advantage over their top competitors. Under Armour is known for its “after-sales” follow up and interaction, which has allowed for a strong brand loyalty throughout its customers.

Although Under Armour has a great infrastructure, there is still much more they could do to grow. About 80 percent of revenue comes from performance apparel while just 20 percent comes from footwear, accessories and licensed revenue combined. Also, about 90 percent of the revenue comes from domestic sales; a majority of them coming from only two distributors: Dicks Sporting Goods, Inc. and The Sports Authority.

There is still great opportunity for Under Armour to grow by broadening their product line, as well as penetrating new emerging worldwide sporting markets. Upcoming events such as the Olympics and the FIFA World Cup offer Under Armour a great opportunity to get their apparel, footwear, and accessories worn by top athletes in a global setting. However, they are going to have to work diligently in order to steadily compete with Nike, Adidas, Reebok, Puma, and other sports apparel brands.

Problem Statement

As previously stated, Under Armour currently sits in the number two position in athletic clothing and apparel, bested only by Nike, the athletic clothing and shoe brand giant. 14Nike is the number one leading company in apparel, shoes (by nearly 30 times if you include Jordan and Converse brands by Nike) and even accessories. The reason for Nike’s long lasting, and most likely everlasting, success as number one is their brand name and its reputation as being the best. Specifically, Nike is not necessarily Under Armour’s biggest problem; rather it is the large number of competitors occupying similar – if not larger – market share in the industry. With players such as Nike, Adidas, Puma, Mizuno, Reebok, and many others, it has become increasingly difficult for companies to generate enough momentum to tap the market share in a significant way. Of course there are ways to make Under Armour more successful through marketing, development, and product line expansion, however, the largest concern lies with the extent of the competition with already well-established branding.

Currently, Under Armour has Cam Newton positioned as the face of their brand, with many other notable players solely being endorsed, however, the lack of multiple “MVP” caliber athletes as the face of the brand could also cause younger consumers to look elsewhere for apparel and athletic wear. Companies like Adidas – who endorse Derrick Rose, Dwight Howard, Robert Griffin III, as well as being an official sponsor of the NBA – and Nike – who has endorsed Michael Jordan, LeBron James, Derek Jeter, Tiger Woods and many more – already hold a slight advantage. Under Armour’s premium pricing for certain lines of apparel and clothing may affect sales in areas with lower average household incomes, causing certain consumers to shift towards the Adidas and Reebok aisles rather than Under Armour or Nike aisles. By capturing some of the smaller companies’ customers, Under Armour may have the ability to gain additional market share.

Strategic Formulation

While Under Armour maintains a strong market share compared to their competitors, there is still room to expand into untapped markets. Such markets would consist of expansion into international markets such as various major European Soccer leagues i.e. Barclays English Premier League, BBVA La Liga, and the German Bundesliga, as well as Latin American Baseball Leagues and European Rugby Leagues. By moving into these markets, Under Armour has the potential to take a larger share of apparel sales, not to mention securing long-term team sponsorships for professionally managed sports clubs. With the large number of professional leagues and individual players Under Armour can increase their overseas brand awareness and apparel sales.

A second recommendation would be for Under Armour to use their overseas expansion to gain high profile endorsements for marketing purposes. This exposure to a greater presence across more platforms will allow for a more densely populated market in the household sector of sales. With sport platforms such as rugby, cricket, and soccer leagues still with alternative sponsorships, up and coming athletes are yearning for well-known corporate sponsors, and thusly Under Armour has the ability to gain market share through marketing campaigns.

Another alternative strategy to increasing market share and sales would be for Under Armour to reinstate their original moniker, KP Sports, Inc., as a low cost alternative to their Under Armour line of products. The product line of KP Sports, Inc. would include all previous Under Armour products sold at a reduced cost and marketed to lower income regions of the world. This would provide the opportunity for Under Armour to increase their sales without tarnishing their higher priced, higher quality brand name and image, while still providing quality equipment and apparel to regions of the world that would otherwise lack access to such products.

A final recommendation for Under Armour would be to increase their retail presence through the use of more specialty store locations. With only a handful of existing Under Armour specialty stores, customers are being forced to shop at retail locations such as Dick’s Sporting Goods and Sports Authority. Such stores are over saturated with other top competitors such as Nike and Adidas. By increasing the number of specialty locations, Under Armour can offer their customers a wider selection of products, as well as offering them expert assistance in meeting their athletic apparel needs. Additionally, these locations could offer sales and discounts similar to those of factory outlet locations without the stigma of being a low quality alternative.

After evaluating all of the potential alternatives the choice is clear that expanding to overseas markets is the best option to gain market share, increase sales, and build a stronger brand image. With approximately 98 percent of sales coming from North America, the expansion overseas would provide limitless opportunities for sales growth. Given the large amount of success since the company’s inception, Under Armour has the potential to become the largest athletic apparel provider in the world if they can gain a larger market share abroad.

Strategy Implementation

In order for Under Armour to implement these strategies the company needs to think on a larger scale. Plank has done a great job getting his company off the ground and into the top three performance apparel firms around the world, but if Under Armour wants to survive and continue to thrive, it needs to think beyond the norm and penetrate these new, emerging international sports markets.

Plank has always strived to be the best so he has only hired the most competent workers for his company. Structurally, Plank should search for global partners that have connections in foreign markets. When marketing a product one must not only have to know the product well, but be familiar with the customs and norms of the market in which they are competing in. Incorporating foreign presidents and vice presidents into the company would allow Under Armour to get a solid hold on the Latin America, European, and even Asian, African or Australian markets. Under Armour should also focus on areas with extreme climate. Doing so would play to the advantage of their specialty performance wear for hot and cold weather. This may call for a rise in the number of people Under Armour chooses to employ.

In order to reach new markets Under Armour must also reallocate its resources. This means looking for cheaper labor markets to manufacture goods, as well as setting up new distribution centers domestically and in foreign settings. Cheaper labor and shipping costs can lower the price allowing for Under Armour to compete with Nike in the price war. Also, licensing the cheaper KP Sports brand can allow for a lower, more cost efficient alternative that will not tarnish the Under Armour brand, which has been known for the highest of quality. In the United States, Under Armour needs to open up more outlet stores which exclusively sell Under Armour merchandise. Spreading out merchandise between other retailers such as Bass Pro Shop, Champs Sports, Foot Locker, and even Fanatics – an online sports apparel shop – will also help increase market share. Under Armour may want to stay away from generic stores such as Walmart and Target in order to reduce the chance of damaging brand name.

Marketing is another key element to capturing market share and increasing sales. When it comes to commercials, billboards, and celebrity endorsements, Nike and Adidas lead heavily. Under Armour needs to get its name out to the public as much as Nike and Adidas in order to steal customers away, not to mention reaching up-and-coming teens who will be looking for gear to perform in when playing their desired sport. This also means targeting the biggest of star athletes on the rise. Not every endorsee will be a Michael Jordan, Tiger Woods, or Peyton Manning, but finding the next big breakthrough athlete may be what it takes to get young athletes to switch to Under Armour products.

On a financial level, Under Armour needs to keep funding a strong research and development team to continue to develop breakthrough products. Innovation will allow Under Armour to gain an advantage over Nike and Adidas, causing these companies to develop their own new products in order to continue to compete with Under Armour.

Appendix

Figure 1 – Strategic Map

Figure 2 – Porter Five Force Analysis

Figure 3 – SWOT Analysis

References

Cheng, Andria. “Underdog Under Armour Still Has a Long Way to Go to Catch up with Nike.” Behind the Storefront RSS. N.p., 24 Oct. 2013. Web. 15 Feb. 2014. .

Dreier, Fred. “Under Armour Flexing Its Muscles Overseas.” Forbes. Forbes Magazine, 04 Apr. 2012. Web. 14 Feb. 2014. .

Rothaermal, Frank. Strategic Management: Concepts. “Mapping Strategic Groups.” 1st Edition. McGraw Hill, 2013. 74-76. print.

Thompson, Arthur A. “Chapter 7.” COMPETITIVE STRATEGY. N.p.: McGraw-Hill Create, 2012. 78-94. Print.

Trefis Team. “Under Armour Through The Lens Of Porter’s Five Forces.” Trefis.
Insight Guru Inc., 16 May 2013. Web. 10 Feb. 2014.

“UA Competitors | Under Armour, Inc. Class A Comm Stock – Yahoo! Finance.” UA Competitors | Under Armour, Inc. Class A Comm Stock – Yahoo! Finance. N.p., n.d. Web. 17 Feb. 2014. .

“Under Armour, Inc. – Financial History.” Under Armour, Inc. – Financial History. N.p., n.d. Web. 17 Feb. 2014. .

Under Armour Inc (UA) Key Developments | Reuters.com.” Reuters. Thomson Reuters, n.d. Web. 17 Feb. 2014. .

“United States Economy Expands 3.2% in Q4.” TRADING ECONOMICS. N.p., n.d. Web. 16 Feb. 2014. .

Wagner, Kurt (July 1, 2013). “Under Armour’s Crew”. Fortune 168 (1): 17.
“Working at Under Armour.” Glassdoor. N.p., n.d. Web. 17 Feb. 2014. .

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Under Armour Case Analysis Essay

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Under Armour Case Analysis Essay
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  • University/College:
    University of Arkansas System

  • Type of paper: Thesis/Dissertation Chapter

  • Words: 6407

  • Pages: 26

Under Armour Case Analysis

Executive Summary

Under Armour is a company started by the former University of Maryland football player Kevin Plank. Although the company started in a basement, they have overcome many obstacles financially to have a continual growth in sales. The founder has been successful in developing new and innovative gears and apparels to help stay ahead of their competitors. Under Armour finds it extremely important to maintain relationships with their managers and more importantly with professional teams. The company has prided itself on maintaining a competitive advantage by always having top notch products and adopting new strategies and ideas to outcompete the rivals. The company strategy and initiatives clearly seems to be working since Under Armour is able to compete with Nike and Adidas.

Under Armour mainly markets to people with active lifestyle, as a result the company made it a priority to be a major player in the life of people who play sports or enjoy being physically active globally. Some competitive advantages enjoyed by Under Armour are the amount of fitness product they offer. Also the ability to recognize the company is simple because their logos are easy to identify. With the strong brand loyalty and the cost advantage that the company has, it is evident that the company will expand in domestic as well as international market.

The company needs to expand their target market from national to international and develop clothes for people interested in a more casual look. The company should move from the performance based apparels to a more diverse set of product segment which include athletic and sportswear. The fact that Under Armour narrows its product to athletes makes the company to lose customers to their competitors who sell both athletic and casual wears.

Introduction

Under Armour is a profitable and ‘well-known company whose strategy and initiative edge has giving it a greater recognition and attention. My analysis starts by looking at a summary of the current situation i.e. the strategic posture and the current financial performances. Secondly the analysis will summarize the external analysis of Under Armour by describing the attractiveness of the industry, threats and opportunities that are associated with the growth of the company. This section will focus on the driving forces for change, Porter’s Five Forces Model, and the key success factors. The third segment of my analysis will summarize the internal analysis of Under Armour. This section will focus on the company’s resources and competences, value chain analysis, and a comparison of strengths to rivals.

The fourth segment of my analysis will summarize the SWOT analysis of Under Armour. Hear, my analysis is to compare the external and internal factors that have helped the industry archived its objectives. Based on my comparison of the internal and external factors affecting the company, I will conclude my report by providing recommendations that when properly executed will provide a significant and continued competitive edge to compete in the 21st century.

Summary of the Current Situation

This section provides a summary of the current situation, current financial performances and posture. It provides a clear inside on Under Armour’s aggressive push that involves many steps to further the company’s accomplishments. Some of which includes promotion and marketing, evolving sales strategy, increase presence in the retail market, networking and referrals, widening its product offering, targeting team managers. 1. Under Armour main focus is to “make all athletes better through passion, design, and relentless pursuit of innovation”. The goal is to empower athletes everywhere. This approach is very successful in that the company is constantly coming up with new merchandise for consumers so as to outcompete their biggest competitors. 2. Their main objective is to have “universal guarantee of performance”.

Under Armour is determining to dominate the market since every product that they put out must be better than what is currently out in the market. Their main goal is “best in class”, since the company is determined to increase its presence in the retail market. Under Armour’s strategies are consistent due to the fact that they are striving to provide the best possible products for the consumers. These strategies have giving Under Armour a sustainable competitive advantage over it competitors. Thus giving the company a priority to expand into international markets.

Current Financial Performance

Under Armour has proven itself as one of the powerhouse in the sport apparel industry in North America. The overall performance of the company in recent year shows a net revenue increase of 24.6% from 2011- 2012 giving it a dollars increase of $362.2 million. It’s net income increase of $32.1 million dollars. Analysis on its financial statement (see Appendix Table 1 and Appendix 2 below) shows that the company has an average growth rate of more than 25 percent in the last 10 years. A significant increase in growth of revenue over the past years hit its maximum at 38.4%. This was from 2010 to 2011 with a dollar amount increase of 65m as a result of introducing new products such as hats and bags that decreased license revenues on the one hand and increased accessories revenues on the other hand in 2011.

In this same year the net sales increased by 411.5M or 40.2% from the previous year due partially to a 62.2% increase in direct consumer sales. At the same time, there was a significant decreased in License revenues by 7.1% or 2.8M. With the current strategy at hand, Under Armour was able to beat the other competitors in terms of its financial performance. Although the company was able to increase its factory house stores by 48% or 26 additional factories, and also updated e-commerce website, gross profit has remained around the same at 48%, while the EBITDA was at 13.5% and Net income at 6%. The decrease in gross margin percentage was as a result of the following: About 110 basis point decrease that was driven primarily by higher apparel production input costs, this include cotton, in the current financial year. While higher input costs continued to negatively impact apparel product margin in 2012 and are predicted to continue to the first half of 2013.

Like every other company within the apparel industry, Under Amour’s recognizes revenue via the time of sale. It’s 10K notes the following: “Net revenues consist of both net sales and license revenues. Net sales are recognized upon transfer of ownership, including passage of title to the customer and transfer of risk of loss related to those goods. Transfer of title and risk of loss are based upon shipment under free on board shipping point for most goods or upon receipt by the customer depending on the country of the sale and the agreement with the customer. In some instances, transfer of title and risk of loss take place at the point of sale, for example at our retail stores.

We may also ship product directly from our supplier to the customer and recognize revenue when the product is delivered to and accepted by the customer. License revenues are recognized based upon shipment of licensed products sold by our licensees. Sales taxes imposed on our revenues from product sales are presented on a net basis on the consolidated statement of income and therefore do not impact net revenues or costs of goods sold.” The revenue recognition method of the company is fairly conservative, since it doesn’t provide a chance for revenue recognition until the goods are delivered to it consumers. Our conclusion is that the company’s revenue recognition policy is aligned with the industry standards and exceeds on the conservative end of the spectrum.

External Analysis

Due to the important of the external environment in a company’s ability to compete, the external analysis of the sports Apparel will describe the attractiveness of the industry, opportunities and threats by providing valuable data and information that are associated with the industry. My analysis will focus on the driving forces of change, Porter’s Five Forces Model and Key success factors.

Driving Forces for Change

1. Rapid growth in the performance based apparels and gears globally: Due to the increase demand in Footwear, it is becoming more difficult to center the focus on Nike and Adidas as two of the most competitive players over its rivals as a result of past records. This has proven not to be true since there has been a significant increase in the youth population in the world and thus led to a significant increase in the number of sporting activities and also the number of people participating in sports. As a result of these, Adidas and Nike have got to compete with Under Armour and many order players in the industry and they are doing significantly well and are not falling wayside. A second factor that could affect the sports clothing company is the growing population of staying in shape. This has led to new customers for Under Armour because they are currently focusing their market on products that benefit sport players.

2. Growing buyer preference for the apparel that is differentiated from the rest: Furthermore, a decrease in consumer spending as a result of the current weak economy has made consumers to become very critical in making choices. As a result of these, Under Armour has got to continue to provide a superior product so as to convince today’s customers of the value of their brand and the quality of the product they are paying for. Providing consumers with the assurance of a better brand equity needs to be the focus of all marketing communicators. An increase in the unemployment rates that has not only affected the United States, but also the rest of the world and Europe in particular as dramatically decrease the net income of Nike and Adidas thus providing Under Armour a chance to compete on a central stage as it makes more of its revenue in the United States.

3. Employing technological innovation to keep up with changing trends in fitness: Every company has a different level of strategy that they operate on at the various level of management. Due to the degree of competition that exists in the industry, innovation has help companies to get their product in the market faster so as to get an absolute advantage over their competitors. On the case of the footwear division of Under Armour, the Senior Vice President thus operate at a functional level thus, he brings the strategic way of thinking into the core of the company. As a result of the strategic nature of the functional level over the corporate level, we are going to center our discussion more on the functional level.

Porter’s Five Forces Model

This next model explains the competitive dynamics of the industry. The first part of Porter’s Five Forces Model is the analysis of the competitive rivalry. 1. Competitive rivalry within the industry: Under Armour has two large rivals which are Nike and Adidas, these two competitors own a large portion of the market share. The competitive rivalry within this industry is medium to high. The biggest rival in the industry is Nike and it holds approximately 7.0% of the market while Adidas follow second with 5.4% of the market. Under Armour only controls 2.8% of the market in 2011. Under Amour lack of patent on the cooling shirt provides a strong competitive pressure on Under Armour due to the ease of being able to recreate the product that helped build the company name by its competitors. As the demand for the breathable sports shirts grows, other sports clothing companies are able to take advantage of the opportunities to gain the customers that have not yet invested in Under Armour.

2. Bargaining power of suppliers. The strength of suppliers bargaining power is low since Under Armour is able to manufacture its product in different countries. In 2001 Under Armour was purchasing materials from 23 primary manufacturers from 16 different countries. Under Armour has a very diverse base of suppliers thus providing the company with the ability to make a choice and hence weakening the bargaining power of suppliers.

3. Buyers bargaining power: Due to a significant presence of Under Armor’s product in various retail stores in North America has made the bargaining power of consumers to be medium. Since the technology is fairly new and is in high demand by athletes. This can also be justified by the significant presence of Under Armour’s products in shops like Sports Authority and Dick’s Sporting Goods which comprises of 26 percent of Under Armour’s revenue.

4. Threats of new entrants: The barriers to entry are strong due to the brand loyalty. Companies require a large amount of capital in other to compete since the sport apparel industry need a large amount of resources on brand advertisement and endorsement. Brand loyalty place a large factor in the threats to new entrants since there are many customers who trust the quality that comes from the most popular brand makers as well as the feds that they carry with the products. As for companies that are already present in the apparel market, it is easy for them to move into the performance apparel market. With a lack of patents, as with the case of Under Armour, it may be easy to enter but the bottom line remains that it is difficult to compete as a result of no patent.

5. Threats of substitute products: Pressure from sellers of substitute products are high due to a significant increase in the demand for performance apparel. Due to the increase demand in Footwear, it is becoming more difficult to center the focus on Nike and Adidas as two of the most competitive players over its rivals as a result of past records. This has proven not to be true since there has been a significant increase in the youth population in the world and thus led to a significant increase in the number of sporting activities and also the number of people participating in sports. While the replication of Under Armour ‘s specific cold gear and hot gear technology has yet to occur, one can see that the competitive gape between Under Armour and its rivals are beginning to get close. As a result of a high threats of substitute, all of Under Armour’s other products can easily be substituted by any one of the clothing manufactures. Competitors’ positioning and future moves are the next factor in the external analysis. Under Armour’s biggest competitors are Nike and Adidas.

These two companies when compared together hold a great amount of similarity. They both specialize in apparel, equipment, sports footwear and accessories. They are also involved in the production of casual wear to helps expand the demand of their products. Under Armour compete with Nike a company that has created footwear for a list of sports including but not limited to: soccer, running, baseball, basketball, training, cheerleading, golf, football, lacrosse, skateboarding, outdoor activates, tennis, volleyball, walking and wrestling. Nike also makes its shoes similar to their sports apparel and the company has a lot of endorsements with professional sports players such as Tiger Woods so as to promote their products.

Adidas on the other hand is exceptionally a similar brand to Under Armour and Nike in that they also carry a vast variety of sporting gears as well as their large footwear collection. Adidas like Nike also sponsors professional sport players and sporting events around the world. As far as rivalry between these companies and their anticipated moves for the future, Nike and Adidas thus attempt making apparel with similar materials used by Under Armour for their shirts. If Under Armour is able to obtain a patent on all its products, they will be able to stop Nike and Adidas from completely copying their product.

Key Success Factors

This part of my analysis of the industry examines the key success factors in achieving success in the Sport Apparel and Active wear industry key factor plays are the main completive factors that enable company to prosper and out compete their rivals. Here are some important key factors that Under Armour uses to out-compete its competitors. 1. Innovative performance based apparels and gears: Under Armour’s goal is to have a brand that lives up to its promise of having an authentic brand. This started from the beginning as the company main strategy for success has been that of innovation. The company introduced the first performance and training based apparels and gears that was designed to have a brand that lives up to its promise of having a quality product that has multiple benefits for sports players and to keep athletics dry, cool and light during the period of the game. This is also done by having a product that does not have any stipulations or hidden requirements behind it. As a result, when an under Armour shirt is purchased it does not need anything to bring out the qualities that are promoted. These have made the company to experience a significant growth in the sports apparels industry.

2. Good marketing and promotion: Under Armour took every opportunity they could to get to show off their brand. The company has an in house marketing team that have been doing a great job in designing and producing advertising and marketing campaign amid at promoting growth and increasing sales. They would sponsor everyone and everything from individual athletes to entire team, from youth programs to nationally televised competitions. As a result of their great marketing skills consumers are becoming more aware of the product and the brand visibility is increasing. Under Armour is very aggressive in its promotion strategy to the point that it provides new up-and –coming athletes with clothing and accessories to bring the official footwear supplier of the MLB. This has helped the company to be visible among the consumer as the leading performance apparels. As a result of its aggressive promotion, the company in 2011 was able to spend $168 million dollars in marketing expenses including the endorsement of players (Under Armour: Challenging Nike).

Under Armour also worked with retailers to devise space in the store dedicated solely to Under Armour. In stores where such space where not allowed, the company worked to show off their merchandise in each individual department. As a result they were able to open their own company-owned retail stores. The fact that they were constant changes in athletic needs made the company to develop and implement new designs, products, and technology to fit the changing needs of the athletes. 3. Research and development: Under Armour is a company that has invested a lot on research and development so as to out-compete its competitors. Operating in a market where products substitutes are high, Under Armour has made research and development the center point of its operation. This as a result to be able to develop new and superior products so as to attract more customers and also to compete with Nike and Adidas.

Summary of External Analysis

After analyzing the threats and opportunities facing Under Armour and the industry, it becomes clear that Under Armour faces a high threat of substitute product, high competitive rivalry, and a pressing need for differentiation. The industry boasts many qualities that have been seen in the five forces model. If the company makes changes to combat these threats, the company will continue to grow but if not, then what they are helping to grow is not going anywhere and their competitors are going to benefit from their product. There are many key success factors in the industry that Under Armour has taken advantage of such as having an authentic brand, having room for growth, sponsorships, specific marketing, and company integration. Although Under Armour faces many threats, there are still many opportunities for Under Armour to grow as shown by the external analysis. The significant increase in population provides a market for growth in the sportswear and apparel industry, which allow Under Armour the opportunity to grow the company. All of these factors bring a positive outlook on the future of Under Armour’s sales and the sports and active wear industry.

Internal Analysis

The internal analysis shows that Under Armour is a strong company and has an excess of momentum; they have an excellent product, low production cost, significant brand recognition, and room for growth. After examining the external analysis form the previous section above, this section will look at different aspects of the company. This section will look at the factors that directly impact the company such as, what Under Armour is ill-suited for in manufacturing and sustaining themselves on the same levels as bigger rivals companies such as Nike, choices the company has made, and a comparison of Under Armour competitors. This analysis will provide an in-depth on Under Armour’s strengths, weaknesses, opportunities, threats and steps that can be taken to compete in the long run.

Resources and Competences

Based upon the strengths, weaknesses, threats and opportunities of the company, Under Armour separates itself from the competitors by expanding its operations and growth with efficient use of resources and acquiring an unprecedented expertise and core competences. Under Armour has great strength in its internal environment that has help it to compete efficiently with the rivals. One of the strength is that their working strategy is based on innovation technology used in their material, and the great marketing development has given them an edge over other competitors.

Many product lines – Under Armour’s ability to offer anything and everything that has to do with fitness and athletics i.e. socks, hats, shoes etc. online and the company’s brand name and reputation to make performance gear have given them an advantage over their competitors.

One of the main weaknesses faced by Under Armour is that their supply chain management fares poorly. While under Armour competitors such as Nike had an average inventory holding time of 81.05 days, Under Armour was able to hold inventory for 132 days in 2012. This brings me to a conclusion that Under Armour lacks efficiency in its supply chain process.

One other weakness the company is having is that of customization, since the general public can only buy what is sold in shops or online. They cannot order items and request specific off brand color, have a name embroidered on the shirt, or have an item tailored to their specific body measurements.

Value Chain Analysis

While Under Armour ‘s value chain does not differ greatly from its competitors, they have found a way to keep cost down by having suppliers complete two or more separate parts of the supply chain. The value chain proved us with a crystal idea of the various steps Under Armour takes in doing business and proceeding in the environment. The design looks at the raw material network that consists of Natural fibres (Cotton, wool, silk, etc.) and Synthetic fibres (Oil, natural gas). While the source and manufacturing explores the component network of textile which in this case is Yarn (spinning), Fabric (weaving, knitting, finishing), Petrochemicals and Synthetic fibres. The marketing stage focuses on the production networks which talks about apparel manufacturers. In North America an example would be US garment factories (designing, cutting, buttonholing, ironing and sewing), with domestic and Caribbean/Mexican basin subcontractors. In Asia on the other hand, an example would be the Asian garment contractors with domestic and overseas subcontractors.

Securing clients focus more on the export networks which is all about all retail outlets from Brand-named apparel companies to overseas buying offices to trading companies. Distributing turn to look at the marketing networks which pays more attention on retail outlets such as department stores, specialty stores, discount chains, off-price, factory outlet, mail order, and lastly but not the list Mass merchandise chains. Under Armour has a strong Corporate Environment Code of Conduct which states that: “Under Armour was founded on the following core values: Innovation, Inspiration, Reliability and Integrity.” “Consistent with these values, we seek to do business with suppliers and their subcontractors that adhere to these practices, follow established work place practices and comply with our Code of Conduct. Value chain statement of Under Armour: Respect the Universal Guarantee of performance (UGOP).Every product we build must be better than what’s currently available on the market-best in class. Every product must be tested and every product must make athletes better, that’s our guarantee.”

This roles which are developed by the company’s top level management and branding heads of Under Armour footwear division are been followed by the company responding to matters that affects their customers. The role of the value chain of Under Armour is in sync with its compelling user experience, background support and relevant distinction, downstream solution, familiarity and visibility of the company. Under Amour’s mission statement includes the following: To make all athletes better, through passion, design and relentless pursuit of innovation. This mission statement to a larger extend is too open in nature. Under Armour customize their mission statement to be more specific to specific units of the company. An example is: To run athletes based on the confidence of products which are motivated through innovation, passion, design and comfort and are performance driven. (See Appendix 3)

Comparison of Strengths to Rivals

Under Armour is devoted to “the relentless pursuit of innovation” and making products to support the changing needs of athletes. Although the company’s innovation allows it to gain market share and stay competitive within the industry, Under Armour is overall weaker than its rivals. Even though Under Armour is engineered for both athletes and the general consumer, their loyalty base is not large enough to compete with substitute products. Under Armour researches new textiles to keep current with the best product options and often experiment with color, fabric, and texture to flex with changing fashion trends and enhance product awareness. The biggest issue facing Under Armour is the lack of patent on their designs, meaning that any of Under Armour’s rivals could design a product almost exactly like theirs without fear of retaliation.

While Under Armour has a recognizable design, it is not nearly as recognizable as Adidas and Nike, who have been in business longer and have more experience of how to market to customers and athletes, and have a much higher market share than Under Armour as well as years and years of financial and accounting data needed to properly identify trends in the market and forecast accordingly. (see Appendix 4 for major competitor and market share chart). Another weakness faced by Under Armour is the limited presents in international markets. The company gets about 90% of their total sales from the North American market while only 10% of its sales is coming from international market. The strengths and weaknesses of Under Armour in comparison to their competitors have a large impact of their future competitiveness, Whether or not Under Armour can overcome these weaknesses will play a large part in determining if the company can survive in the industry, and eventually surpass their rivals.

Summary of Internal Analysis
In conclusion, the internal analysis shows that Under Armour has both strength and weaknesses when it comes to its structure, competitors and resources, but they still have a long way to go before they can truly call themselves competitive with companies like Nike and Adidas. Under Armour’s main strength are their innovative products, low production costs, brand loyalty and high quality of their apparel. Under Armour will need to survive until they can amass the same resources, experience, and recognition as the bigger rivals. The major primary weaknesses faced by Under Armour is the lack of international market share, their lack of product line in comparison to their competitors, their limited number of distributors, and their lack in the female market segment. The weaknesses put forth in the internal analysis are what Under Armour needs to focus on in other to stay competitive and also stay in business in the long run.

SWOT Analysis
The SWOT analysis provides a clear summary of the strength, weaknesses, threats, and opportunities facing Under Armour. This analysis provides an in-depth combination of the internal and external environment surrounding Under Armour on a company level, and the entire industry. (see Appendix 5 for SWOT Analysis Chart). 1. Strengths: Under Armour is the leader in providing high tech undergarments for athletes competing in diverse climates using innovative technology, high quality of their apparel, their brand loyalty, in producing a moisture-wicking fabric geared to high demand of a narrow target market. Their ability in dealing with the pressure of changing industry conditions by creating opportunities using technology and honing in on product differentiation keeps them from losing market share to substitute products. As a result, Under Armour is gaining market shares at a higher rate than their competitors. They have one of a kind product that allows them to stay competitive in their industry.

A big factor for their brand is that it is recognizable to consumers. It is simple in design, which allows consumers to easily identify the products. Under Armour inherits selling power through buyer’s loyalty to the brand. Under Armour’s customers are high end professional athletes paying for quick production of customized products based on Under Armour’s image and brand recognition. 2. Weakness: Under Armour suffers from a variety of weaknesses which includes their lack of patent, international market, female market segment, product line in comparison to their competitors, limited number of distributors, and the lack of individual customizations. Their lack of patent on popular cooling shirts provides Nike and Adidas a chance to make their own product with the same benefit.

This is significant because they could lose their customers, and their competitors could come up with better products. Under Armour’s lack of international market presence provide its competitors an edge in the industry. 3. Threats: In an industry where competition is high, there are also significant threats such as, the need for product differentiation within the industry, high risk of substitute products, and high raw material expenses. Under Armour’s lack of patent poses a high risk since all of their products are at a high risk of substitution. Due to the degree of competition in the industry, a substitute product could drastically hurt their company and its market share.

Also the price of Under Armour raw material is high since the company uses petroleum to produce most of their products. 4. Opportunities: Irrespective of the many weaknesses faced by Under Armour, there are also many opportunities for growth in the industry. These opportunities include Under Armour’s customization and growing number of customers, innovation, growing population, and the expansion into international market. There is a growing population of staying in shape and going to the gym, which would bring Under Armour a lot of new costumers. Also the need for innovation within the industry provides Under Armour with more opportunities to outcompete its competitors.

Strategy Recommendations, Alternative Analysis and Arguments

These next few pages will discuss some recommendations that will help Under Armour to strengthen its current weakness with its narrow product offering and provides ways to better adapt them for the future. My recommendation includes increasing research and development, expanding their products into international markets, get patents on their products, focus on differentiation strategy, developing new product line to appeal to more consumers, shifting their strategy from a focused niche to more of a broad segment, and diversifying their product to carter for none athletes. Mindful of the degree of competition that exists in the industry, Under Armour as a matter of urgency needs to focus on the following recommendations in other to compete in the long run. 1. Expanding Under Armour’s presence in International Market. Although Under Armour’s marketing strategy sought shop-in-shop approach making it easy and appealing to stores’ decision to integrate the product, Under Armour must increase their foreign market share to compete internationally with their major competitors.

This is important since Under Armour depends on North America for about 90% of its sales. Going international will not only generate significant revenue for the company, but will also help the company outcompete its rivals. Under Armour failure to enter international poses a risk of saturation on the current market and also making it difficult for the company to compete or stay in business in the long run. 2. Increase Research and Development: The investment in Research and Development is probably the most important recommendation for Under Armour’s continued growth. This is due to the fact that Under Armour’s quality design and strong buying power are the key success factors to its current market position.

As competition and risk of substitute’s increases in the industry, Under Armour needs to invest a substantial amount in not only the development of new product, but also in endorsements and advertisement of the product. Furthermore, Under Armour needs to offer more street clothing, more individual customization, and more products targeted at female market. By doing so, they will have the ability to stay competitive in the industry. These recommendations if well executed should have the highest positive effect on Under Armour’s future. Based upon all the analysis, I am confident that the implementation of these recommendations will have a positive impact for Under Armour to maintain a competitive advantage. Thus provide growth and success for the company.

Ronantonnoel. “Strategic Management in a Global Context: Under Armour”. May 31, 2012. http://www.slideshare.net/Ronantonnoel/strategic-management-in-a-global-context-under-armour. Viewed Dec. 5, 2013. I do not take credit for the creation of this slide/value chain design. The source of the document has been retained and cited in the Bibliography, as well as the original sources of the information. The intended purpose of the diagram is to be a visual aid used to extrapolate data relevant to the case study Appendix 4: Major Competitor Market Share

Source: CNN Money
Appendix 5: SWOT Analysis
Strengths

Product Technology Innovation
Brand Loyalty
High Quality Apparel

Weaknesses

International Market Share
Lack of Female Customers
Limited Number of Distributors
Focused Segment
Product Lines
No Individual Customization
Threats

Substitute Products
Highly Competitive Industry
Need for Differentiation
Opportunities

Growth in Sports Wear Industry
Need for innovation
Foreign Market

Citations

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Burke, M. (2013, November 14). Under Armour, With First-Ever Acquisition, Enters The World Of
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Cammett, M., 2006. Development and the Changing Dynamics of Global Production: Global Value Chains
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Industry Canada, 2008. A Canadian Approach to the Apparel Global Value Chain, [online] Available at
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Ronantonnoel. “Strategic Management in a Global Context: Under Armour”. May 31, 2012. http://www.slideshare.net/Ronantonnoel/strategic-management-in-a-global-context-under-armour. Viewed Dec. 5, 2013.

Team, Travis. (2012,Nov 25). Breaking Down Under Armours $53 Fair Value. Retrieved from http://www.forbes.com/sites/greatspeculations/2012/11/29/under-armour-has-growth-but-is – still-a 53-stock/

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