Case Study for Under armour

1 Case study: Under Armour in Trouble Under Armour (UA) has seen its revenues decline at a modest pace since the end of 2016. Troubles began when the North American apparel market began its slump. Since around 80% of the revenues at the company come from the region, this slump took a heavy toll on sales and profitability. In a bid to clear out mounting inventory, management had to resort to selling off excess product at cheaper prices through a slew of promotions and discount campaigns. For the third quarter of 2017 ending September 30, 2017, UA sales fell to US$1.4 billion, down 4.5% from the same period in 2016. This marked the first decline in sales ever for this global performance footwear, apparel, and accessories company, since it went public in November 2005. Earlier, in the first quarter of 2017, UA reported its first-ever operating loss of US$23 million. Footwear sales a key statistic for future growth for the company increased by only 2% compared with the 64% growth in 2016. UA's footwear sale had been almost stagnant in the first quarter of 2017. The company's latest edition of Stephen Curry's shoes was not selling well, especially in North America, which accounted for 80% of its revenue. In the first quarter of 2017, UA's footwear sales in international markets increased by 52%, but it declined by 1% in its primary market, North America. The history of UA dates back to 1996 when Kevin Plank, a then 23-year-old former special teams' captain of the University of Maryland football team, started the apparel business from his grandmother's basement in Washington. While playing for the University of Maryland football team, Plank noticed that while he had to change his sweat- soaked T-shirts worn under his jersey, his compression shorts remained dry. Upon graduating, he began the process of creating a solution to this problem and thus decided to make T-shirts using a moisture absorbing synthetic fabric. Over the years, UA was able to grow exponentially due to its ability to build an incredibly powerful brand in a relatively short time. Plank had employed breakthrough technology, celebrity endorsements, and appropriate product placement to establish the UA brand in the athletic-apparel industry. In contrast to its competitors, the UA brand proposition was always targeted at sports teams. By the early 20005, the company continued to expand and was penetrating markets outside North America with its pioneering design to keep athletes cool, dry, and light throughout the course of a game, practice, or workout. In the early 20005, a new trend started in the global performance apparel industry, wherein consumers started taking an interest in tracking their physical activity. Sensing an opportunity to enter a niche market by selling monitoring devices as well as by collecting the user's personal data, sports apparel companies started investing intensely in wearable technology. While UA was an incredible success story, Plank made the mistake of not patenting his 'moisture wicking shirts'. by the early 20005, competitors started imitating UA's products. Reebok's 'Play Dry' and Nike's 'Pro Compression' performance gear lines became very popular. Due to the greater economies of scale enjoyed by these big competitors, it became increasingly difficult for UA to remain competitive. Realizing the importance of ling patents, the company applied for some patents for unique products and designs between 2012 and 2014, and expected to file more in the future. Moreover, UA owned several trademarks. Unlike its competitors, UA has hardly improved its international reach since 2010. While Nike and Adidas look for a balance between their domestic and international businesses, UA pushed its North American business to try and gain significant market share. This strategy worked for the company in the beginning; however, the same strategy became the reason for its fall from grace in recent times. UA's over-reliance on North American revenues led to heavy losses in the top and bottom lines as the North American apparel market hit a slump. Analysts listed several factors for the poor results for UA in the fourth quarter of 2016, which was a key holiday season. The company had been affected by the problems faced by brick-andlmortar retailers specializing in athletic wear. While UA blamed a "dynamic and promotional retail environment" in North America for its problems, some of its rivals are doingjust fine. Analysts are bullish about Adidas after the company announced better- than-expected preliminary second-quarter sales and earnings and increased its 2017 outlook. Revenue rose 20% to 5.0 billion in the quarter. On August 1, 2017, UA reported revenue of US$1.038 billion compared to a forecast of US$1.077 billion. Though the company reported a narrower-than-expected loss in the second quarter of 2017, it trimmed its sales forecast for the year. UA expected to grow by 9 to 11% lower than its previous forecast of 11 to 12%. The company also expected adjusted earnings for 2017 to be between 37 cents and 40 cents per share, compared to market expectations of 42 cents a share in 2017. In 2018, UA says it will be a 'louder brand', but analysts are skeptical. Plank argued that UA's commitment to being loud this year is about promoting great product, citing the HOVR footwear. However, it already pumped up the volume in 2017: The Company increased advertising spending 18% over 2016, for a total of $565.1 million, according to company financial documents. Some analysts remain wary. "While there are some crumbs of comfort in the latest results from UA, the numbers still give the impression of a brand that has run out of steam," wrote Neil Saunders from W Retail. He noted that while international sales are increasing, such growth comes at a higher cost. He also said the brand missed an opportunity by not pushing farther into women's categories, saying UA remains 'masculine'. "While store design, marketing, and products remain male focused, UA will continue to struggle with women," wrote Saunders. UA next steps forward will focus on clarity and efficiency, which could combat the lack of focus that analysts say, has hurt sales. A restructuring plan aimed at enhancing operations, streamlining the company's structure and increasing speed across different parts of the business. The plan includes 280 job cuts and it will revolve around five product categories: men's training, women's, run, basketball and lifestyle. Sharpening the company's focus should help the company strengthen demand for its products, which has diminished over the past year. While UA has fallen victim to the lower selling prices that has taken place across sports apparel, there are reasons to believe some of its problems are unique to the company. Read the case and answer the Questions: 1. Identify the factors that might have affected the poor results for UA in the fourth quarter of 2016. 2. Describe the marketing strategy for UA. 3. How could the company differentiate itself in the market? What should the company have done to keep the sustainable competitive advantages over the competitors? 4. Would you consider the UA growth strategy as successful? Support your answer by providing evidence. 5. What are the solutions you would suggest to the company in order to overcome its problems