Economy 201 Research Paper: Under Armour Dennis P Seeger PDF

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My final project for this term on the economic outlook for Under Armour based on past and present trends with the company. I have not yet received a grade, but based on my milestone grades and the improvements I made on the professor's advice I expect at least a B+....

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Running head: ECO 201 RESEARCH PAPER: UNDER ARMOUR

Eco 201 Research Paper: Under Armour Dennis P. Seeger Southern New Hampshire University

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Under Armour is a company like few others and this paper will show you that even though Under Armour has only been around for 22 years they are here to stay and will continue to grow for years to come. Started by former University of Maryland football player Kevin Plank, Under Armour has pioneered the modern performance wear industry. As any athlete knows a sweat soaked shirt is annoying, the same with being freezing while exercising. Under Armour changed this first by creating their moisture wicking and cooling shirts and then further expanding into keeping you warm in the winter and in keeping you at the right temperature in the less extreme seasons. Kevin Plank turned this start up into a 4.1 billion dollar company by doing one simple thing: Put the people’s needs above the company’s. Under Armour was the first sport apparel company to fully market to women and children as well as men and that has helped contributed to their almost astronomical growth. “Under Armour’s sales growth is growing over 20% nationally over the last 24 quarters in a row and in that same time international sales jumped 65%. Under Armour markets itself as a solution rather than a fashion which allows it to patent their clothing so other companies cannot use their ideas.” (Koppleman, 2016) Just this last quarter that ended on March 31, 2018 Under Armour is still showing growth of over 20% overall. Under Armour’s shirts, jackets, shoes, under garmets, compression sleeves and leg wear all serve a purpose which is to help any athlete from the professional level all the way down to the recreational level be the best they can be. Under Armour understands that you can’t just do it like Nike says because life throws road blocks and you can only be the best you can be, not some super human athlete just because you have some fancy clothing on. With their “Will finds A Way” campaign Under Armour is trying to teach through the voice of Dwayne Johnson the importance of hard work and perseverance in achieveing your goals in life by telling the

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inspirational stories of eight professional athletes and how they overcoming things like social anxiety or escaping war torn countries to become the amazing athletes and people they are today. With the guidance of Kevin Plank, Under Armour has become a force in the community. From their Replay grants that turn vacant lots into recreation areas to match people up with volunteering opportunities in their community and beyond. Under Armour and its staff really seem

to

care

for

the

people

they

supply

products

to.

As shown in the above chart Under Armour has been steadily growing until the last couple of years. This is due largely to a excess in supply and a waning demand in North America. A study done by Moody’s Corp, a credit rating agency, feels that they will recover, but it will take time. Under Armour made a number of mistakes the last couple of years, the main mistake was not being prepared for when sales in North America would decline. Other mistakes include inconsistent go-to-market strategies and interruptions to their supply chain when they switched to a new enterprise resource planning system. However

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Moody’s has hope for Under Armour and the sporting goods industry in general. Under Armour has to stay on top of its innovations to keep up with giants like Adidas and Nike and they need to keep growing their international market where China in particular is a big market. A more in depth view of Under Armour’s finances can be found at the following link

https://retail-

index.emarketer.com/company/data/5374f24b4d4afd2bb4446590/5374f2a64d4afd824cc15d7e/lf y/false/under-armour-revenues-sales which will also be included on the references page. My overall recommendation for Under Armour to re-find their former success is for them to learn from their mistakes and to keep building the market overseas. While the sales in North America fell to 3.1% in 2017 they soared more than 43% in all other areas. So for Under Armour to return to glory they need to do what anyone looking to succeed needs to do, learn from past mistakes and build upon prior success. The price elasticity is relatively elastic in regards to supply and demand for Under Armour and all other major sporting goods brands. For instance I will compare Under Armour’s and Nike’s New York City stores. Both brands have large stores and apparel, footwear, and accessories with prices ranging from $50-$200. This is where the comparisons end and where Under Armour is hurting itself. While Under Armour’s store is large it is not well marked and they do not have a lot of variety in colors and was very repetitive for both men and women’s clothing and footwear. Nike on the other hand had a well marked store with clothing and shoes in every style, color, and fabric imaginable. The also had athlete testing centers where you could tryout the running shows on a treadmill or basketball shoes on a basketball court. I would say that the price elasticity is less for Nike than it is for Under Armour. If Under Armour truly wants to regain its momentum and compete with a giant like Nike they need to be as innovative with their store designs and clothing and shoe colorings as they are when they are designing the

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fashion technology as well as trying to be less repetitive. For this particular example the consumer responsiveness to price changes for Under Armour’s products is going to be, at least in North America, more on a negative side than a positive side. If Under Armour’s prices remain the same as Nike’s or goes up and the consumer’s income remains the same or drops, people will probably go with Nike as they market themselves better in their stores as well as being the longer tenured brand and the more trusted brand. If Under Armour’s prices drop or Nike’s rise and the consumer’s income remains the same or goes up I would say that Under Armour’s domestic sales will go up a good bit, but to really take a pound of flesh out of Nike they will have to keep prices lower for several years and they will have to market themselves better with more variety to take loyal Nike customers away for the sporting goods giant. For any sporting goods company you need to stay on top of the amount of demand you are receiving for your product and adjust your supply and prices accordingly. This was one of Under Armour’s mistakes in that they didn’t realize that the sliding demand would last and kept producing like they were still experiencing extreme growth and they also did not lower prices to try and bring back customers and to try and help move some of the excess inventory. Under Armour has varying costs from things like research and development to labor to selling, general, and administrative expenses and many more besides. Until the last couple of years Under Armour has been able to maintain high level sales, but as interest in a product slides so does the company’s profit and for Under Armour this culminated in a loss of $48.26 million loss in 2017. As previously stated where Under Armour ran into issues was their lack of foresight into the fact that sales would not remain as high as they had been forever and they kept producing products like sales hadn’t slowed. This lead to a high surplus in product as well as high labor and manufacturing costs that led to the 48.26 million loss in 2017. Under Armour is

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now trying to recoup those losses by cutting jobs and closing down production facilities as well as refocusing their sales on the surging foreign market. Research and development is one of the biggest costs for Under Armour as they are constantly trying to develop new ways for their apparel to be more functional and beneficial to the consumer. Another big cost is the labor involved in producing the products that research and development comes out with. These two major costs drove Under Armour to produce and try to sell extremely large amounts of their product to consumers. For quite a few years they succeeded and had a very large difference between profit and cost with the winner being profit. Now the cost is catching up to Under Armour as they did not tone back R&D or labor as sales started to dip and now have found themselves starting to lose money. It will take some rethinking on the part of upper management of Under Armour to turn the ship around without it going under the waves. If Under Armour does turn it around before it goes under or before the board decides to elect new leadership it may be hailed as one of the great turnarounds in the history of business because things will get worse before they get better.

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Compared to Adidas at 11% and Nike at 10%, Under Armour at 2% has a puny market share. This is a result of falling stock prices due to investors feeling that the fast rising company was finally slowing down after sustaining a torrid pace for about 7 years. This is the lowest Under Armour has ever been. Just in 2015 Under Armour had a 7% share which was two years before this study was down in 2017. As Under Armour’s CEO Kevin Plank illustrated you can jump into this particular ring and compete with the big boys, but if you want to keep competing and potentially overtake them you have to avoid Plank’s mistakes of lack of foresight and over production. So getting into the sports apparel business is pretty simple if you have a well thought out plan, but staying in and competing with companies like Nike and Adidas is the hard part. That hard part is what is killing Under Armour and if an upstart company comes in and does what Under Armour originally did Under Armour will be in real trouble because consumers and this is especially true of Americans,

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love the new flashy thing. So if something new and awesome comes along Under Armour will lose what little customers they have left in North America and they will probably take a hit overseas as well. Under Armour has three market segments apparel, footwear, and accessories. Under Armour’s bread and butter is the apparel segment. This is how they started out and they have several patents for their functional clothing that keep them competitive in the apparel market. Where they are truly taking a hit is with their footwear segment. They don’t come out with new types of footwear regularly enough and what they have is not very stylish. Their smallest segment is their accessories segment. The biggest part of this segment is their mobile fitness apps map my run, map my walk, and map my hike. I personally use map my walk and I am very pleased with it, but my aunt used map my run and was very dissatisfied with it because it kept starting and stopping which ruined her run times. Mixed reviews like these haven’t seemed to hurt the apps popularity as map my run and map my walk have over five million downloads and map my hike has 500,000 downloads. The recommendation I have for Under Armour is to devote more time into developing more styles and variations on colors for their clothes and shoes and to revamp their marketing on that front to bring back old consumers and to bring in new ones. They also need to show smarter production strategies to keep from overproducing again. Under Armour can take this action by learning from their mistakes and studying what made companies like Nike and Adidas keep growing while Under Armour faltered. The chief reasons being people like more variation in their clothing and footwear and that the aforementioned companies stay up with market trends so they do not lose money by overproducing their products. People want these sports products now more than ever and if Under Armour can change without loosing the innovative qualities that

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made it a popular brand, then they can turn themselves around and have sustained success again. I’m not saying it will be an easy or short road to success, but it can be achieved by following the examples of other great companies like Nike and Adidas by being a company driven by innovation while providing a wide variation in the styles and colors of the apparel and footwear offered.

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References Koppleman, C. (2016).

What Under Armour Knows About Branding That Its Competitors Don't Forbes

Thiam, A. (2017). Under Armour Heading North? retrieved from: https://seekingalpha.com/article/4065453-armour-heading-north Tyler, J. (2018). We went to Nike and Under Armour to see which was a better store — and the winner was clear retrieved from: http://www.businessinsider.com/nike-under-armour-comparedphotos-details-2018-3 (2018). The Business Of Under Armour retrieved from: http://investor.underarmour.com/income.cfm (2018). Under Armour And Dwayne Johnson Challenge You To Answer "How Are You Going To Get Here?" In New Global Training Campaign Under Armour, Inc. (2018). Under Armour Reports First Quarter Results Under Armour, Inc. (2018). Under Armour Revenues and Sales retrieved from: https://retailindex.emarketer.com/company/data/5374f24b4d4afd2bb4446590/5374f2a64d4afd824cc15d7e/lf y/false/under-armour-revenues-sales (2018). Under Armour should return to profitable growth in the next year retrieved from: https://www.marketwatch.com/story/under-armour-should-return-to-profitable-growth-in-thenext-year-2018-03-30

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Footnotes 1

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