Read the case study and answer the question below with a one page response. What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s situation?

Founded in 1996 by former University of Maryland football player Kevin Plank, Under Armour was the originator of performance apparel—gear engineered to keep athletes cool, dry, and light throughout the course of a game, practice, or workout. It started with a simple plan to make a T-shirt that provided compression and wicked perspiration off the wearer’s skin, thereby regulating body temperature and avoiding the discomfort of sweat-absorbed apparel. Some 15 years later, with 2012 sales of $1.8 billion, Under Armour had a growing brand presence in the roughly $60 billion multi- segment retail market for sports apparel, activewear, and athletic footwear in the United States. Its interlocking “U” and “A” logo had become almost as familiar and well-known as industry-leader Nike’s swoosh. According to SportsOneSource data, in 2012 Under Armour had a 7 percent share of the U.S. market for lightweight running shoes (up from 3 percent in 2011) and a 13.7 percent share of the sports apparel segment (versus 11.1 percent in 2011). Across all segments, Under Armour had boosted its domestic market share from 0.6 percent in 2003 to an estimated 3.0 percent in 2012, while industry leader Nike’s share had remained relatively flat at about 7.0 percent; second-ranked adidas had a market share of about 5.4 percent in 2012.
Founder and CEO Kevin Plank believed Under Armour’s potential for long-term growth was exceptional for three reasons: (1) the company had built an incredibly powerful and authentic brand in a relatively short time, (2) there were significant opportunities to expand the company’s narrow product lineup and brand-name appeal into product categories where it currently had little or no market presence, and (3) the company was only in he early stages of establishing its brand and penetrating markets outside North America. Company Background Kevin Plank honed his competitive instinct growing up with four older brothers and playing football. As a young teenager, he squirmed under the authority of his mother, who was the town mayor of Kensington, Maryland.
When he was a sophomore, he was tossed out of Georgetown Prep for poor academic performance and ended up at Fork Union Military Academy, where he learned to accept discipline and resumed playing high school football. After graduation, Plank became a walk-on special-teams football player for the University of Maryland in the early 1990s, ending his college
Throughout his football career, he regularly experienced the discomfort of practicing on hot days and the unpleasantness of peeling off sweatsoaked cotton T-shirts after practice. At the University of Maryland, Plank sometimes changed the cotton T-shirt under his jersey as it became wet and heavy during the course of a game.
During his later college years and in classic entrepreneurial fashion, Plank hit upon the idea of using newly available moisture-wicking, polyester-blend fabrics to make next- generation, tighter-fitting shirts and undergarments that would make it cooler and more comfortable to engage in strenuous activities during hightemperature conditions. While Plank had a job offer from Prudential Life Insurance at the end of his college days in 1995, he couldn’t see himself being happy working in a corporate environment—he told the author of a 2011 Fortune article on Under Armour, “I would have killed myself.” Despite a lack of business training, Plank opted to try to make a living selling high-tech microfiber shirts. Plank’s vision was to sell innovative, technically advanced apparel products engineered with a special fabric construction that provided supreme moisture management. A year of fabric and product testing produced a synthetic compression T-shirt that was suitable for wear beneath an athlete’s uniform or equipment, provided a snug fit (like a second skin), and remained drier and lighter than a traditional cotton shirt. Plank formed KP Sports as a subchapter S corporation in Maryland in 1996 and commenced selling the shirt to athletes and sports teams.
The Company’s Early Years
Plank’s former teammates at high school, military school, and the University of Maryland included some 40 National Football League players that he knew well enough to call and offer them the shirt he had designed. He worked the phone and, with a trunk full of shirts in the back of his car, visited schools and training camps in person to show his products. Within a short time, Plank’s sales successes were good enough that he convinced Kip Fulks, partner in his enterprise. Fulks’s initial role was to leverage his connections to promote use of the company’s shirts by lacrosse players. Their sales strategy was predicated on networking and referrals. But Fulks had another critical role—he had good credit and was able to obtain 17 credit cards that were used to make purchases from suppliers and charge expenses.
Operations were conducted on a shoestring budget out of the basement of Plank’s grandmother’s house in Georgetown, a Washington, D.C., suburb. Plank and Fulks generated sufficient cash from their sales efforts that Fulks never missed a minimum payment on any of his credit cards. When cash flows became particularly tight, Plank’s older brother Scott made loans to the company to help keep KP Sports afloat (in 2011 Scott owned 4 percent of the company’s stock).
It didn’t take long for Plank and Fulks to learn that it was more productive to direct their sales efforts more toward equipment managers than to individual players. Getting a whole team to adopt use of the T-shirts that KP Sports was marketing meant convincing equipment managers that it was more economical to provide players with a pricey $25 high-performance T-shirt that would hold up better in the longrun than a cheap cotton T-shirt. In 1998, the company’s sales revenues and growth prospects were sufficient to secure a $250,000 small-business loan from a tiny bank in Washington, D.C.; the loan enabled the company to move its basement operation to a facility on Sharp Street in nearby Baltimore.
As sales continued to gain momentum, the bank later granted KP Sports additional small loans from time to time to help fund its needs for more working capital. Then Ryan Wood, one of Plank’s acquaintances from high school, joined the company in 1999 and became a partner. The company consisted of three jocks trying to gain a foothold in a growing, highly competitive industry against more than 25 brands, including those of Nike, adidas, Columbia, and Patagonia. Plank functioned as president and CEO; Kip Fulks was vice president of sourcing and quality assurance; and Ryan Wood was vice president of sales. Nonetheless, KP Sports sales grew briskly as the company expanded its product line to include high-tech undergarments tailored for athletes in different sports and for cold temperatures as well as hot temperatures, plus jerseys, team uniforms, socks, and other accessories.
Increasingly, the company was able to secure deals not just to provide gear for a particular team but also for most or all of a school’s sports teams. However, the company’s partners came to recognize the merits of tapping the retail market for high- performance apparel and began making sales calls on sports apparel retailers. In 2000, Galyan’s, a large retail chain since acquired by Dick’s Sporting Goods, signed on to carry KP Sports’ expanding line of performance apparel for men, women, and youth. Sales to other sports apparel retailers began to explode, quickly making the retail segment of the sports apparel market the biggest component of the company’s revenue stream. Revenues totaled $5.3 million in 2000, with operating income of $0.7 million. The company’s products were available in some 500 retail stores. Beginning in 2000, Scott Plank, Kevin’s older brother, joined the company as vice president of finance, with operational and strategic responsibilities as well. Rapid Growth Ensues Over the next 11 years, the company’s product line evolved to include a widening variety of shirts, shorts, underwear, outerwear, gloves, and other offerings. The strategic intent was to grow the business by replacing products made from cotton and other traditional fabrics with innovatively designed performance products that incorporated a variety of technologically advanced fabrics and specialized manufacturing techniques, all in an attempt to make the wearer feel “drier, lighter, and more comfortable.” In 1999 the company began selling its products in Japan through a licensee. On January 1, 2002, prompted by growing operational complexity, increased financial requirements, and plans for further geographic expansion,
KP Sports revoked its S corporation status and became a C corporation. The company opened a Canadian sales office in 2003 and began efforts to grow its market presence in Canada. In 2004, KP Sports became the outfitter of the University of Maryland football team and was a supplier to some 400 women’s sports teams at NCAA Division I colleges and universities.
The company used independent sales agents to begin selling its products in the United Kingdom in 2005. SportsScanINFO estimated that as of 2004, KP Sports had a 73 percent share of the U.S. market for compression tops and bottoms, more than seven times that of its nearest competitor.
Broadening demand for the company’s product offerings among professional, collegiate, and Olympic teams and athletes; active outdoor enthusiasts; elite tactical professionals; and consumers with active lifestyles propelled revenue growth from $5.3 million in 2000 to $263.4 million for the 12 months ending September 30, 2005, equal to a compound annual growth rate of 127 percent. Operating income increased from $0.7 million in 2000 to $32.7 million during the same period, a compound annual growth rate of 124 percent. About 90 percent of the company revenues came from sales to some 6,000 retail stores in the United States and 2,000 stores in Canada, Japan, and the United Kingdom. In addition, sales were being made to high-profile athletes and teams, most notably in the NFL, Major League Baseball, the National Hockey League, and major collegiate and Olympic sports. KP Sports had 574 employees at the end of September 2005.
Throughout 2005, KP Sports increased its offerings to include additional men’s and women’s performance products and, in particular, began entry into such off-field outdoor sports segments as hunting, fishing, running, mountain sports, skiing, and golf. Management expected that its new product offerings in 2006 would include football cleats. KP Sports Is Renamed Under Armour In late 2005, the company changed its name to Under Armour and became a public company with an initial public offering of 9.5 million shares of Class A common stock that generated net proceeds of approximately $114.9 million. Simultaneously, existing stockholders sold 2.6 million shares of Class A stock from their personal holdings. The shares were all sold at just above the offer price of $13 per share; on the first day of trading after the IPO, the shares closed at $25.30, after opening at $31 per share. Following these initial sales of Under Armour stock to the general public, Under Armour’s outstanding shares of common stock consisted of two classes: Class A common stock and Class B common stock; both classes were identical in all respects except for voting and conversion rights. Holders of Class A common stock were entitled to one vote per share, and holders of Class B common stock were entitled to 10 votes per share on all matters to be voted on by common stockholders. Shares of Class A and Class B common stock voted together as a single class on all matters submitted to a vote of stockholders. All of the Class B common stock was beneficially owned by Kevin Plank, which represented 83 percent of the combined voting power of all of the outstanding common stock. As a result, Plank was able to control the outcome of substantially all matters submitted to a stockholder vote, including the election of directors, amendments to Under Armour’s charter, and mergers or other business combinations.
At the time of Under Armour’s IPO, Kevin Plank, Kip Fulks, and Ryan Wood were all 33 years old; Scott Plank was 39 years old. After the IPO, Kevin Plank owned 15.2 million shares of Under Armour’s Class A shares (and all of the Class B shares); Kip Fulks owned 2.125 million Class A shares, Ryan Wood owned 2.142 million Class A shares, and Scott Plank owned 3.95 million Class A shares. All four had opted to sell a small fraction of their common shares at the time of the IPO—these accounted for a combined 1.83 million of the 2.6 million shares sold from the holdings of various directors, officers, and other entities. Ryan Wood decided to leave his position as senior vice president of sales at Under Armour in 2007 to run a cattle farm. Kip Fulks assumed the position of chief operating officer at Under Armour in September 2011, after moving up the executive ranks in several capacities, chiefly those related to sourcing, quality assurance, product development, and product innovation. In September 2012, Scott Plank, who was serving as the company’s executive vice president of business development after holding several other positions in the company’s executive ranks, retired from the company to start a real estate development company and pursue his passion for building sustainable urban environments.
Exhibit 1 summarizes Under Armour’s financial performance in five of the seven years following the company’s 2005 IPO. Exhibit 2 shows the growth of Under Armour’s quarterly revenues for 2010 through mid-2013. The company’s stock traded in the $46 to $51 range in the first three months of 2013. Following the announcement of better-than-expected earnings in the first half of 2013 and management forecasts of full-year 2013 revenues of $2.21 billion to $2.23 billion, Under Armour’s stock climbed to $57 per share in mid-April 2013. Under Armour announced sales target was to achieve sales revenues of $2.2 billion in 2013, reaching $4 billion by 2016.
Under Armour’s Strategy
Under Armour’s mission was “to make all athletes better through passion, design, and the relentless pursuit of innovation.” The company’s principal business activities in 2012 were the development, marketing, and distribution of branded performance apparel, footwear, and accessories for men, women, and youth. The brand’s moisture-wicking fabrications were engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Its products were worn by athletes at all levels, from youth to professional, and by consumers with active lifestyles. Over 90 percent of Under Armour’s sales were in North America, but international sales to distributors and
retailers outside the North America were growing. Exhibit 3 shows the composition of Under Armour’s revenues from 2009 to 2012.
Growth Strategy
Under Armour’s announced sales objective was to achieve sales revenues of $4 billion by 2016, up from an estimated $2.2 billion in 2013. The company’s growth strategy in 2013 consisted of several strategic initiatives:
• Continuing to broaden the company’s product offerings to men, women, and youth for wear in a widening variety of sports and recreational activities.

• Targeting additional consumer segments for the company’s ever-expanding lineup of performance products.
• Increasing its penetration of the market for athletic footwear (where Nike was the clear-cut global market leader).
• Securing 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.
• Expanding the sale of Under Armour products in foreign countries and becoming a global competitor in the world market for sports apparel, athletic footwear, and performance products.
• Growing global awareness of the Under Armour brand name and strengthening the appeal of Under Armour products worldwide.
Product Line Strategy
Under Armour’s diverse product offerings in 2013 consisted of apparel, footwear, and accessories for men, women, and youth marketed at multiple price levels in a variety of styles and fits intended to regulate body temperature and enhance comfort, mobility, and performance regardless of weather conditions.
Apparel The company designed and merchandised three lines of apparel gear: HeatGear® for hot weather conditions; ColdGear® for cold weather conditions; and AllSeasonGear® for temperature conditions between the extremes.
HeatGear
HeatGear was designed to be worn in warm to hot temperatures under equipment or as a single layer. The company’s first compression T-shirt was the original HeatGear product and was still one of the company’s signature styles in 2013. In sharp contrast to a sweat-soaked cotton T-shirt that could weigh two to three pounds, HeatGear was engineered with a microfiber blend featuring what Under Armour termed a “Moisture Transport System” that ensured the body will stay cool, dry, and light. HeatGear was offered in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather.
ColdGear
Under Armour high-performance fabrics were appealing to people participating in cold-weather sports and vigorous recreational activities such as snow skiing who needed both warmth and moisture-wicking protection from a sometimes overheated body. ColdGear was designed to wick moisture from the body while circulating body heat from hot spots to maintain core body temperature. All ColdGear apparel provided dryness and warmth in a single light layer that could be worn beneath a jersey, uniform, protective gear or ski vest, or other cold-weather outerwear. ColdGear products generally were sold at higher price levels than other Under Armour gear lines.
AllSeasonGear
AllSeasonGear was designed to be worn in changing temperatures and used technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures. Each of the three apparel lines contained three fit types: compression (tight fit), fitted (athletic fit), and loose (relaxed). As of June 2013, Under Armour was actively pursuing efforts to grow its apparel sales in the men’s, women’s, and youth segments. The specific sales targets for each segment were:

• Men’s apparel: Sales revenues of $960 million in 2013, expanding to $1.5 billion in 2016.
• Women’s apparel: Sales revenues of $490 million in 2013, expanding to $960 million in 2016.
• Youth apparel: Sales revenues of $220 million in 2013, expanding to $470 million in 2016. Under Armour’s latest new offerings for women—a studio line that targeted yoga exercisers and a line of Armour Bra products—were said to be selling quite well in the first quarter of 2013.
Footwear
Under Armour began marketing footwear products for men, women, and youth in 2006 and had expanded its footwear line every year since. Currently, its offerings included football, baseball, lacrosse, softball, and soccer cleats, slides, performance training footwear, running footwear, basketball footwear, and hunting boots. Under Armour’s athletic footwear was light, breathable, and built with performance attributes for athletes. Innovative technologies were used to provide stabilization, directional cushioning, and moisture management, and all models and styles were engineered to maximize the athlete’s comfort and control.
As of June 2013, Under Armour had plans in place to grow the company’s footwear sales to $290 million in 2013 and to $600 million in 2016.
Accessories
Under Armour’s accessory line in 2013 included gloves, socks, headwear, bags, kneepads, custom-molded mouth guards, inflatable basketballs and footballs, and eyewear designed to be used and worn before, during, and after competition. All of these featured performance advantages and functionality similar to other Under Armour products. For instance, the company’s baseball batting, football, golf, and running gloves included HeatGear and ColdGear technologies and were designed with advanced fabrications to provide various high-performance attributes that differentiated Under Armour gloves from those of rival brands.
Under Armour had licensing agreements with a number of firms to produce and market its various accessories except for headgear and bags. Under Armour product, marketing, and sales teams were actively involved in all steps of the design process for licensed products in order to maintain brand standards and consistency. Revenues generated from the sale of all licensed accessories are included in the licensing revenue amounts shown in
Exhibit 3A.
Marketing, Promotion, and Brand Management Strategies
Under Armour had an in-house marketing and promotions department that designed and produced most of its advertising campaigns to drive consumer demand for its products and build awareness of Under Armour as a leading performance athletic brand. The company’s total marketing expenses, including endorsements and advertising, were $205.4 million in 2012, $167.9 million in 2011, $128.2 million in 2010, and $108.9 million in 2009. These totals included the costs of sponsoring events and various sports teams, the costs of athlete endorsements, and advertising expenses.
Sports Marketing
A key element of Under Armour’s marketing and promotion strategy was to promote the sales and use of its products to high-performing athletes and teams on the high school, collegiate, and professional levels. This strategy included entering into outfitting agreements with a variety of collegiate and professional sports teams, sponsoring an assortment of collegiate and professional sports events, and selling Under Armour products directly to team equipment managers and to individual athletes.
Management believed that having audiences see Under Armour products (with the interlocking UA logo prominently displayed) being worn by athletes on the playing field helped the company establish on-field authenticity of the Under Armour brand with consumers. Considerable effort went into giving Under Armour products broad exposure at live sporting events, as well as on television, in magazines, and on a wide variety of Internet sites.
Exhibit 4 shows the Under Armour logo and examples of its use on Under Armour products. In 2011–2012, Under Armour was the official outfitter of all the athletic teams at Boston College, Texas Tech University, the University of Maryland, the University of South Carolina, Auburn University, and the University of South Florida and selected sports teams at the University of Illinois, Northwestern University, the University of Minnesota, the University of Utah, the University of Indiana, the University of Missouri, Georgetown University, the University of Delaware, the University of Hawaii, Southern Illinois University, Temple University, Wichita State University, South Dakota State University, Wagner College, Whittier College, and La Salle University. All told, it was the

official outfitter of over 100 Division I men’s and women’s collegiate athletic teams, growing numbers of high school athletic teams, and several Olympic sports teams; and it supplied sideline apparel and fan gear for many collegiate teams as well. In addition, Under Armour sold products to high-profile professional athletes and teams, most notably in the NFL, MLB, the National Hockey League, and the NBA.
Since 2006, Under Armour had been an official supplier of football cleats to the NFL. Under Armour became the official supplier of gloves to the NFL beginning in 2011, and it began supplying the NFL with training apparel for athletes attending NFL tryout camps beginning in 2012. In 2011 Under Armour became the Official Performance Footwear Supplier of Major League Baseball. Starting with the 2011/2012 season, Under Armour was granted rights by the NBA to show ads and promotional displays of players who were official endorsers of Under Armour products in their NBA game uniforms wearing UA-branded basketball footwear.
Internationally, Under Armour was building its brand image by selling products to European soccer and rugby teams. It was the official supplier of performance apparel to the Hannover 96 and Tottenham Hotspur football clubs and the Welsh Rugby Union, among others. In addition, it was an official supplier of performance apparel to Hockey Canada, had advertising rights at many locations in the Air Canada Center during the Toronto Maple Leafs’ home games, and was the Official Performance Product Sponsor of the Toronto Maple Leafs. In 2013, commensurate with its accelerated push to grow international sales, Under Armour was actively pursuing efforts to boost its market profile in foreign countries by signing highprofile foreign sports celebrities to endorsement contracts; top management expected to announce a number of such contracts in the second half of 2013 and the first half of 2014.
Under Armour also had sponsorship agreements with individual athletes. Its strategy was to secure the endorsement of such newly emerging sports stars as Milwaukee Bucks point guard Brandon Jennings, U.S. professional skier and Olympic gold medal winner Lindsey Vonn, professional lacrosse player Paul Rabil, Baltimore Orioles catcher Matthew Wieters, 2012 National League (baseball) Most Valuable Player and World Series Champion Buster Posey, UFC Welterweight Champion Georges St-Pierre, 2012 National League Rookie of the Year Bryce Harper of the Washington Nationals, NBA rookie Kemba Walker, the number two pick in the 2011 NBA draft Derrick Williams, tennis phenom Sloane Stephens, WBC Super-welterweight Boxing Champion Canelo Alvarez, and former world number one amateur golfer Jordan Spieth. In addition, the company’s roster of athletes included established stars: NFL football players Tom Brady, Ray Lewis, Brandon Jacobs, Arian Foster, Miles Austin, Julio Jones, Devon Hester, Vernon Davis, Patrick Willis, Santana Moss, and Anquan Boldin; triathlon champion Chris “Macca” McCormack; professional baseball players Ryan Zimmerman, José Reyes, and eight others; U.S. Women’s National Soccer Team players Heather Mitts and Lauren Cheney; U.S. Olympic and rofessional volleyball player Nicole Branagh; Olympic snowboarder Lindsey Jacobellis; U.S. Olympic swimmer Michael Phelps; and professional golfer Hunter Mahan.
During 2010–2012, Under Armour hosted over 100 combines, camps, and clinics for male and female athletes in many sports at various regional sites in the United States. It sponsored American Youth Football (an organization that promoted the development of youth and a variety of camps and clinics), the Under Armour Senior Bowl (a televised annual competition between the top seniors in college football), the Under Armour (Baltimore) Marathon, the Under Armour AllAmerica Lacrosse Classic, and a collection of high-school All-America games in a variety of sports. Under Armour had partnered with Ripken Baseball to outfit some 35,000 Ripken Baseball participants at camps and clinics and to be the title sponsor for all Ripken youth baseball tournaments. It had partnered with the Baseball Factory to outfit top high school baseball athletes from head to toe and serve as the title sponsor for nationally recognized baseball tryouts, training camps, and tournament teams.
Under Armour spent approximately $53.0 million in 2012 for athlete endorsements and various sponsorships, compared to about $43.5 million in 2011 and $29.4 million in 2010. The company was contractually obligated to spend a minimum of $154.5 million for endorsements and sponsorships during 2013–2017.
Under Armour did not know precisely what its future sponsorship costs for individual athletes would be because its contractual agreements with these athletes were subject to certain performance-based variables. Retail Marketing and Product Presentation
The primary thrust of Under Armour’s retail marketing strategy was to increase the floor space exclusively dedicated to Under Armour products in the stores of its major retail accounts. The key initiative here was to design and fund Under Armour “concept shops”—including flooring, in-store fixtures, product displays, life-size athlete mannequins, and lighting—within the stores of its major retail customers.
This shop-in-shop approach was seen as an effective way to gain the placement of Under Armour products in prime floor space, educate consumers about Under Armour products, and create a more engaging and sales-producing way for consumers to shop for Under Armour products.
In stores that did not have Under Armour concept shops, Under Armour worked with retailers to establish optimal placement of its products. In “big box” sporting goods stores, it was important to be sure that the growing variety of Under Armour products were represented in all of the various departments (hunting apparel in the hunting goods department, footwear and socks in the footwear department, and so on). Except for the retail stores with Under Armour concept shops, company personnel worked with retailers to employ instore fixtures and displays that highlighted the UA logo and conveyed a performance-oriented, athletic look (chiefly through the use of life-size athlete mannequins). The merchandising strategy was not only to enhance the visibility of Under Armour products but also to reinforce the message that the company’s brand was distinct from those of competitors.
Media and Promotion
Under Armour advertised in national digital, broadcast, and print media outlets, and its advertising campaigns included a variety of lengths and formats. The company’s “Protect this House” and “Click-Clack” campaigns featured several NFL players, and its “Protect this House” campaign had been used in several NFL and collegiate stadiums during games as a crowd prompt. Beginning in 2003–2004 and continuing through 2012, Under Armour utilized an ongoing series of TV commercials where the Under Armour brand asked athletes engaged in sporting events at their home field to “Protect this House” and athletes responded to the request with a resounding “I WILL” to familiarize consumers with the Under Armour brand. Top executives believed the long- standing “Protect this House. I WILL” campaign had been instrumental in making the Under Armour brand a widely recognized household name. In February 2013, Under Armour launched its biggest-ever global marketing campaign featuring Under Armour’s now iconic I WILL trademark. The campaign’s principal 60- second ads on TV and online depicted four of Under Armour’s up-and-coming celebrity endorsers—Canelo Alvarez, Sloane Stephens (the only teenager ranked in the top 20 in the World Tennis Association), Bryce Harper, and Kemba Walker—in their authentic training environments outfitted in the company’s most technologically advanced products. The new ad campaign showcased Under Armour’s new Spine Venom® and Micro G® Toxic 6 performance footwear collections, the new ColdGear infrared insulated apparel collection, and the Armour39® system. The first-of-its-kindArmour39 system was a digital performancemeasuring device that enabled users to track their heart rate, calories burned, and intensity during a workout; the headline attribute of the Armour39 system was a single numerical I WILLpower score that reflected an individual’s overall effort during a workout session and that served as a gauge of the person’s training and athletic potential.
On several occasions, the company had secured the use of Under Armour products in movies, television shows, and video games; management believed the appearance of Under Armour products in these media reinforced authenticity of the brand and provided brand exposure to audiences that may not have seen Under Armour’s other advertising campaigns.
In 2011–2012, Under Armour significantly grew the company’s “fan base” via social sites like Facebook and Twitter; the company’s goal in using social media was to engage consumers and promote conversation about the company’s products and brand. Distribution Strategy Under Armour products were available in more than 25,000 retail stores worldwide at the end of 2011, of which about 18,000 retail stores were in North America. Under Armour also sold its products directly to consumers through its own factory outlet and specialty stores, website, and catalogs.
Wholesale Distribution
In 2011–2012, close to 70 percent of Under Armour’s net revenues were generated from sales to retailers. The company’s two biggest retail accounts were Dick’s Sporting Goods and The Sports Authority, which in 2012 accounted for a combined 22 percent of the company’s net revenues. Other important retail accounts in the United States included Academy Sports and Outdoors, Hibbett Sporting Goods, Modell’s Sporting Goods, Bass Pro Shops, Cabela’s, Footlocker, Finish Line, The Army and Air Force Exchange Service, and such well-known department store chains as Macy’s, Dillard’s, Belk, and Lord & Taylor. In Canada, the company’s biggest customers were SportChek International and Sportman International. Roughly 75 percent of all sales made to retailers were to largeformat national and regional retail chains. The remaining 25 percent of wholesale sales were to lesser-sized outdoor and other specialty retailers, institutional athletic departments, leagues, teams, and fitness specialists. Independent and specialty retailers were serviced by a combination of in-house sales personnel and third-party commissioned manufacturer’s representatives.
Direct-to-Consumer Sales
In 2012, 29 percent of Under Armour’s net revenues were generated through direct-to- consumer sales, versus 27 percent in 2011 and 23 percent in 2010; the direct-to-consumer channel included discounted sales at Under Armour’s factory outlet stores and full-price sales through its specialty stores, global website ( www.ua.com ), and catalog. Over the years, Under Armour had opened increasing numbers of Factory House stores, mostly in outlet malls, to help the company sell excess inventory and provide value to customers. Under Armour expanded its factory outlet store base from 80 stores in 34 states at yearend 2011 to 101 stores in 37 states at year-end 2012. The first Factory House store in Canada was opened in 2012. In 2011, Under Armour opened a specialty store in Shanghai, China, to begin learning about Chinese consumers; three additional retail locations in China had been opened as of May 2013.
In late 2007, Under Armour opened its first company-owned retail specialty store location at the Westfield Annapolis mall in Annapolis, Maryland. In May 2008, Under Armour also opened a larger, 6,000-square-foot specialty store at Westfield Fox Valley in Aurora, Illinois (a Chicago suburb). In spring 2013, the company had six Under Armour full-price specialty stores in the United States (three in Maryland and one each in Massachusetts, Illinois, and Colorado); plans had been announced to open several more full-price retail locations in the mid-Atlantic region in 2013–2014. The first Under Armour specialty store outside of North
America was opened in Edinburgh, Scotland—it was owned and operated by First XV, a rugby store that was situated next door. By the end of 2013 Under Armour expected to have a total of 114 Factory House stores, with an average of 5,800 square feet per location; the goal was to have 141 Factory House locations averaging 7,700 square feet by late 2016. Under Armour management’s website strategy called for e-commerce sales at www.underarmour.com to be a growth vehicle for the company in upcoming years. To help spur website sales, the company was endeavoring to establish a clearer connection between its website offerings and the brand initiatives being undertaken in retail stores. It was also enhancing the merchandising techniques and storytelling regarding the products being marketed at its website. Management estimated that 40 million athletes would shop at the company’s website, growing to 90 million athletes worldwide in 2016.
Total direct-to-consumer sales—sales at company stores and www.underarmour.com —were expected to account for 29 percent of the company’s estimated 2013 sales of $2.2 billion, increasing to 31 percent of the targeted sales of $4 billion in 2016.
Product Licensing
In 2012, 2.4 percent of the company’s net revenues came from licensing arrangements to manufacture and distribute Under Armour branded products. Under Armour approved all products manufactured and sold by its licensees, and the company’s quality assurance team strived to ensure that licensed products met the same quality and compliance standards as company-sold products. In 2013, Under Armour had relationships with several licensees for team uniforms, eyewear, and custom-molded mouth guards, as well as the distribution of Under Armour products to college bookstores and golf pro shops. In addition, Under Armour had a relationship with a Japanese licensee, Dome Corporation, that had the exclusive rights to distribute Under Armour products in Japan. Dome sold Under Armour products to professional baseball and soccer teams (including Omiya Ardija, a professional soccer club in Saitama, Japan) and to over 2,000 independent specialty stores and large sporting goods retailers, such as Alpen, Himaraya, The Sports Authority, and Xebio. Under Armour made a minority equity investment in Dome Corporation in January 2011.
Distribution outside North America Because Under Armour management was convinced that the trend toward using performance products was global, it had begun entering foreign markets as rapidly as was prudent. A European headquarters was opened in 2006 in Amsterdam to conduct and oversee sales, marketing, and logistics activities across Europe. The strategy was to first sell Under Armour products directly to teams and athletes and then leverage visibility in the sports segment to access broader audiences of potential consumers. By 2011, Under Armour had succeeded in selling products to Premier League Football clubs and multiple running, golf, and cricket clubs in the United Kingdom; soccer teams in France, Germany, Greece, Ireland, Italy, Spain, and Sweden; as well as First Division Rugby clubs in France, Ireland, Italy, and the United Kingdom.
Sales to European retailers quickly followed on the heels of gains being made in the sports team segment. In 2012, Under Armour had 4,000 retail customers in Austria, France, Germany, Ireland, and the United Kingdom and was generating revenues from sales to independent distributors that resold Under Armour products to retailers in Italy, Greece, Scandinavia, and Spain. Gradual expansion into other countries in Europe, the Middle East, and Africa was under way in 2013. In 2010–2011, Under Armour began selling its products in parts of Latin America and Asia. In Latin America, Under Armour sold directly to retailers in some countries and in other countries sold its products to independent distributors that then were responsible for securing sales to retailers. Under Armour was utilizing its four retail locations in China to learn about Chinese consumers and what it would take to succeed in selling Under Armour products in China on a much wider scale. In 2013, distribution to the retail stores in China was handled through a third-party logistics provider based in Hong Kong.
Sales of Under Armour products outside North America accounted for only 5.9 percent of the company’s net revenues in 2012, down fractionally from 6.1 percent in 2011 and 6.2 percent in 2010 (see Exhibit 3B). But despite the small percentage declines, dollar sales had risen briskly from $66.1 million in 2010 to $89.3 million in 2011 to $108.2 million in 2012. Top management saw growth in foreign sales as a huge market opportunity for the company in upcoming years, larger than the opportunity to grow sales in North America. But in 2013 the company’s strategy for increasing its penetration of foreign markets was fluid and very much in the early stages of being fleshed out.
Kevin Plank had opted to be patient in pursuing foreign expansion and take the time to “make the right decisions in Europe, Latin America, and Asia.” In the company’s 2012 Letter to the Shareholders, he said:
We are able to take a different, broader approach to how we enter these markets. Our grassroots efforts help us build the Brand by being intensely focused on sport authenticity in local markets. We are able to balance this approach with larger brandbuilding initiatives . . . in the age where we are all connected like never before through technology, we have the ability to change the traditional approach to reaching consumers in new markets through digital means like Ecommerce and social media.
In June 2013, Under Armour formally announced a new regional organization structure for its Under Armour International division, with targets to boost international sales revenues from 6 percent of total revenues in 2013 to 12 percent of total revenues in 2016. By comparison, in 2012 Nike generated about 59 percent of its revenues outside North America, and adidas, based in Germany, got about 60 percent of its sales outside its home market of Europe—these big international sales percentages for Nike and adidas were a big reason Under Armour executives were confident that growing the company’s international sales represented an enormous market opportunity for the company, despite the stiff competition it could expect from these two rivals.
Product Design and Development
Top executives believed that product innovation—as concerns both technical design and aesthetic design—was the key to driving Under Armour’s sales growth and building a stronger brand name. Under Armour products were manufactured with technically advanced specialty fabrics produced by third parties. The company’s product development team collaborated closely with fabric suppliers to ensure that the fabrics and materials used had the desired performance and fit attributes. Under Armour regularly upgraded its products as next- generation fabrics with better performance characteristics became available and as the needs of athletes changed. Product development efforts also aimed at broadening the company’s product offerings in both new and existing product categories and market segments. An effort was made to design products with “visible technology,” utilizing color, texture, and fabrication that would enhance customers’ perception and understanding of the use and benefits of Under Armour products.
Under Armour’s product development team had significant prior industry experience at leading fabric and other raw material suppliers and branded athletic apparel and footwear companies throughout the world. The team worked closely with Under Armour’s sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. Collaboration among the company’s product development, sales, and sports marketing team had proved important in identifying the opportunity and market for two product lines launched in 2011:
• Charged Cotton™ products, which were made from natural cotton but performed like the products made from technically advanced synthetic fabrics, drying faster and wicking moisture away from the body.
• Storm Fleece products, which had a unique, water-resistant finish that repelled water without stifling airflow.
Under Armour executives projected that the innovative Charged Cotton and Storm product lines would generate combined revenues of $500 million in 2016.
In 2012, in partnership with the Swiss Company Schoeller, Under Armour introduced products with ColdBlack ® technology, which repelled heat from the sun and kept the wearer cooler outside.
Sourcing, Manufacturing, and Quality Assurance
The high-tech specialty fabrics and other raw materials used in Under Armour products were all sourced from a limited number of preapproved specialty fabric manufacturers; no fabrics were manufactured in-house. Under Armour executives believed outsourcing fabric production enabled the company to seek out and utilize whatever fabric suppliers were able to produce the latest and best performance- oriented fabrics to Under Armour’s specifications, while also freeing more time for the product development staff to concentrate on upgrading the performance, styling, and overall appeal of existing products and expanding the company’s lineup of product offerings. In 2012, approximately 50 to 55 percent of the fabric used in Under Armour products came from five suppliers, with locations in China, Malaysia, Mexico, Taiwan, and Vietnam. Because a big fraction of the materials used were petroleum-based synthetics, fabric costs were subject to crude oil price fluctuations. The cotton fabrics used in the Charged Cotton products were also subject to price fluctuations and varying availability based on cotton harvests. In 2012, substantially all Under Armour products were made by 27 primary manufacturers, operating in 14 countries; 10 manufacturers produced approximately 49 percent of Under Armour’s products. Approximately 53 percent were manufactured in Asia, 19 percent in Central and South America, 18 percent in the Middle East, and 8 percent in Mexico. All manufacturers purchased the fabrics they needed from the five fabric suppliers preapproved by Under Armour. All of the makers of Under Armour products were evaluated for quality systems, social compliance, and financial strength by Under Armour’s quality assurance team before being selected and also on an ongoing basis. The company strived to qualify multiple manufacturers for particular product types and fabrications and to seek out contractors that could perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helped Under Armour control its cost of goods sold. All contract manufacturers were required to adhere to a code of conduct regarding quality of manufacturing, working conditions, and other social concerns. However, the company had no long-term agreements requiring it to continue to use the services of any manufacturer, and no manufacturer was obligated to make products for Under Armour on a long-term basis. Under Armour had an office in Hong Kong to support its manufacturing, quality assurance, and sourcing efforts for apparel and offices in Guangzhou, China, to support its manufacturing, quality assurance, and sourcing efforts for footwear and accessories.
Under Armour had a 17,000-square-foot Special Make-Up Shop located at one of its distribution facilities in Maryland where it had the capability to make and ship customized apparel products on tight deadlines for high-profile athletes, leagues, and teams. While these apparel products represented a tiny fraction of Under Armour’s revenues, management believed the facility helped provide superior service to select customers.
Distribution Facilities and Inventory Management
Under Armour packaged and shipped the majority of its products for the North American market at two distribution facilities located approximately 15 miles from its Baltimore headquarters. One was a 359,000-square-foot facility built in 2000 and the other was a 308,000-squarefoot facility; both were leased. In addition, the company utilized the services of a third-party logistics provider with primary locations in California and in Florida; the company’s agreement with this provider continued until May 2023. Distribution to European customers was handled by a third-party logistics provider based in Venlo, The Netherlands; the current agreement with this distribution expired in April 2014. Under Armour had contracted with a third-party logistics provider to handle packing and shipment to customers in Asia. Shipments of apparel, footwear, and accessories to independent distributors in Latin America, Australia, and New Zealand were handled by the company’s distribution facilities in the United States. In a few instances, Under Armour arranged to have products shipped from the independent factories that made its products directly to customer-designated facilities. Management expected that the company would add more distribution facilities in the future.
Under Armour based the amount of inventory it needed to have on hand for each item in its product line on existing orders, anticipated sales, and the need to rapidly deliver orders to customers. Its inventory strategy was focused on (1) having sufficient inventory to fill incoming orders promptly and (2) putting strong systems and procedures in place to improve the efficiency with which it managed its inventories of individual products and total inventory.
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 floor space productivity of retail customers, and the need to adequately stock its factory outlet stores. Excess inventories of particular products were either shipped to its factory outlet stores or earmarked for sale to third-party liquidators. However, the growing number of individual items in the product line and uncertainties surrounding upcoming consumer demand for individual items made it difficult to accurately forecast how many units to order from manufacturers and what the appropriate stocking requirements were for many items. Under
Armour’s year-end inventories rose from $148.4 million in 2009 to $215.4 million in 2010 to $324.4 million in 2011— percentage increases that exceeded the gains in companywide revenues and that caused days of inventories to climb from 121.4 days in 2009 to 148.4 days in 2010 and to 155.8 days in 2011. The increases were due, in part, to long lead times for design and production of some products and from having to begin manufacturing seasonal products and soon-to-be introduced products before receiving any orders for them. In January 2012, management announced that because inventory growth of 118 percent over the past two years had outstripped revenue growth of 72 percent it was instituting a review of the entire product line with the objectives of reducing production lead times, curtailing the number of distinct individual items included in the company’s lineup of product offerings (frequently referred to as SKUs or stock-keeping units), and doing a better job of planning and executing shipments of excess inventory to the company’s factory outlet stores. Year-end inventories dropped to $319.3 million in 2012, equal to 120.0 days of inventory. The company’s stated target for inventory turns in 2013 was 3.0; the 2016 target was for turns in the 3.0 to 3.3 range.
Competition
The multi-segment global market for sports apparel, athletic footwear, and related accessories was fragmented among some 25 brandname competitors with diverse product lines and varying geographic coverage and numerous small competitors with specialized-use apparel lines that usually operated within a single country or geographic region. Industry participants included athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel, and equipment. In 2012, the global market for athletic footwear was about $75 billion and was forecasted to reach about $85 billion in 2018; growth was expected to be driven by rising population, increasing disposable incomes, rising health awareness and launch of innovative footwear designs and technology.
The global market for athletic and fitness apparel was approximately $135 billion in 2012 and was expected to reach $181 billion in 2018. Nike was the clear global market leader, with a global footwear market share of about 17 percent and a sports apparel share of about 4.4 percent. Other prominent competitors besides Under Armour included adidas, Puma, Columbia, Fila, and Polo Ralph Lauren. Exhibit 5 shows a representative sample of the best-known companies and brands.
Competition was intense and revolved around performance and reliability, newproduct development, price, product identity through marketing and promotion, and customer support and service. It was common for the leading companies to actively sponsor sporting events and clinics and to contract with prominent and influential athletes, coaches, teams, colleges, and sports leagues to endorse their brands and use their products.
Nike, Inc. Incorporated in 1968, Nike was engaged in the design, development, and worldwide marketing and selling of footwear, sports apparel, sports equipment, and accessory products. Its principal businesses in 2011–2012 consisted of the businesses in the table on page 264. Total companywide sales were $20.9 billion in fiscal 2011 and $24.1 billion in 2012. Nike was the world’s largest seller of athletic footwear and athletic apparel, with over 40,000 retail accounts, nearly 560 company-owned stores, 19 distribution centers, and selling arrangements with independent distributors and licensees in over 190 countries—see Exhibit 6 . About 58 percent of Nike’s sales came from