Professional Documents
Culture Documents
Table of Contents
Executive Summary.................................................................................................... 2
Identification.............................................................................................................. 3
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Executive Summary
Under Armour (UA) was founded by Kevin Plank in 1996. UA was the originator of an innovative performance
fabric t-shirt for athletes. UA has since expanded its product line and increased its distribution and marketing
activities. Despite its rapid success, UA continues to trail in third place behind the industry leaders, Nike and the
Adidas Group (AG). To penetrate the market further and close the gap with the leaders, UA needs to improve its
inventory management; increase its brand awareness, production and distribution capabilities internationally;
and increase its footwear sales. Key industry success factors are aggressive marketing; brand awareness;
advanced R&D to provide technology innovative products; effective distribution networks; and customer
loyalty. An in-depth internal and external review was done on UA using various analytical tools with a summary
of the conclusions as follows:
Five Forces Analysis - UA faces the strongest competitive pressures from rival sellers and overall moderate to
strong forces in the sports apparel and the athletic footwear industry. However, these forces do not pose
significant risk to gaining market shares and industry profitability.
Weighted Competitive Assessment UAs strength in providing technologically advanced products is
overshadowed by its lack of established international distribution systems compared to its rivals.
Strategic Group Map - UAs quality products that are competitively priced, positions it to increase its market
share but it will also have to increase its presence at a global level.
PESTEL - Consumers trends towards more athletic lifestyles and technological advances increase the need for
high performance sports apparel products. Also, political and economic changes globally can affect industry
profitability
SWOT - While UA has numerous strengths, the company must overcome problems relating to inventory
management and increase its brand awareness to capitalize on opportunities to increase its foreign market
shares
Financial Analysis -UA continues to have high return on sales and ROE but there could be savings available in
inventory management as well as cash management.
There are three alternatives being presented for UA, which are: large scale expansion into international market;
purchase/develop an advanced inventory management system; and acquire other companies.
It is recommended UA purchase/develop the inventory management system. The new system can be leveraged
into reducing costs and undercutting competitors prices to gain more market shares. This would be enhanced
with push advertising across all mediums and followed up with more athlete endorsements. The footwear
market would also be aggressively targeted. The action plan provides a structure for implementing this
recommendation over a two year period. Should this alternative not be successful, it is recommended that UA
proceed with large scale expansion in global markets as detailed under alternative one.
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Identification
Background
In 1996, Under Armour (UA) founder, Kevin Plank, formed KP Sports and seized the opportunity to
produce and sell an innovative, high performance t-shirt that was cooler, drier and more comfortable for
athletes and sports teams.
Over the next 13 years, UA evolved its product line to include shirts, shorts, underwear, outerwear, gloves
and other offerings for men, women and children. It also expanded its marketing and distribution and was
successful at becoming the outfitter of various colleges and professional sports teams. In late 2005, KP
Sports changed its name to Under Armour and became a public company.
Current Issues
UAs strategy in 2014 may not be potent enough to win market share from Nike and AG
Page 3 of 20
UA had difficulties forecasting number of units to order which resulted in inventory amounts
External Analysis
Industry Overview
The multi-segment global market for sports apparel, athletic footwear, and related accessories has been
divided among 25 brand-name competitors, with multiple product lines and varying geographic regions.
There are many small competitors with specialized-use apparel lines that usually operated within a single
country or geographic region. In 2012, the global market for athletic footwear was about $75 billion and
was forecasted to reach about $85 billion in 2018. Athletic and fitness apparel, estimated to be $135
billion in 2012 was forecasted to grow about 4% annually and reach about $178 billion by 2019.
Nike was the global market leader in the sporting goods industry, with a global market share in athletic
footwear of about 21% and a sports apparel share of about 4.8%. In 2013, Nikes global sales were
approximately $25.3 billion, including its footwear sales of approximately $16 billion. AG was the
second-largest global competitor in the sporting goods industry, with business that produced athletic
footwear, sports apparel and sports equipment that was marketed globally. Its brands consist of Adidas,
Reebok, TaylorMade-Adidas Golf, Rockport and Reebok-CCM Hockey. In 2013, AG had global sales of
14.5 billion, including 6.9 billion in athletic footwear.
UA was positioned third in the sporting goods industry and offered high quality, technologically
innovative products to keep up with its competitors and meet its customer demands. The company
designed and merchandised three lines of apparel: HotGear, ColdGear and AllSeasonGear. It also
marketed footwear and accessories. Its 2013 global sales were approximately $2.3 billion, of which $299
million was attributed to footwear.
their products
Advanced research and development activities to provide technologically innovative products that
benefit customers
Effective distribution networks to minimize costs and adequately stock stores
Customer loyalty high performance and good quality products
Brand awareness established brand in the athletic apparel industry
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UA is currently well positioned in the market to chip-away at the market leaders in an effort to
gain market share in the global stage with their well-recognized, quality product that is
competitively priced.
The market leaders are taking note of UAs threat and taking actions to safe guard their market
share; UA should look for ways to increase the presence at a global level in the emerging markets
such as Asia to increase their own market share.
Page 6 of 20
PESTEL Analysis
Political Factors
Risk from change of political landscape in all geographic areas that they operate in
66% of manufacturing outside of US which is subject to import restrictions and laws controlled by the
government
Economic Conditions
Majority of UA global sales are in European market where the Euro has been stressed by economic
failure within the European nation
UA will likely experience a drop in sales due to European consumers choosing to save disposable income
(Inman)
Sociocultural Forces
Change in trends towards living healthy active lifestyle supports UAs marketing campaign and current
strategy
Technological Factors
Similar strategy as Nike who has the chip Nike+ for their footwear to track footsteps (McClusky)
Environmental Factors
Use of cargo ships and air transportation at risk from bad weather or environmental disasters, which
could lead to lost cargo or lengthened shipping periods.
Legal/Regulatory Conditions
Risk of law suit because of third party manufactures not abiding by local labour laws
**Scrutiny is required to ensure manufacturers are accountable and adhere to local laws
Internal Analysis
Key Elements of Current Strategy
SWOT Analysis
Strengths:
Weaknesses:
Opportunities:
Threats:
This SWOT analysis shows that UAs situation is very attractive. They have great strengths; primarily the
quality and functionality of its products, to be able sustain the rapid growth and opportunity to expand into
international markets. UA is taking measures to deal with weaknesses and is capable of taking appropriate
actions to overcome the threats.
UAs core competencies include strong distribution channels, innovative R&D, and efficient marketing
strategies to always strive to offer the best product and bring it to the market first. UA has a distinctive
competence because of the proprietary fabric used in performance apparel creating competitive advantage.
Financial Analysis
After review the financial data including the key financial ratios, it revealed the following.
Page 8 of 20
Return on sales is strong at the end of fiscal year 2013 however there is no improvement from 2012;
UA is performing well but still has room to improve. Their stockholders should be happy overall as the
company continues to have high return on sales and ROE. Evidence suggests that there could be savings
available in inventory management as well as cash management.
See appendix for Key Financial Ratios analysis
Page 9 of 20
Concentration on domestic sales accounted for UAs smaller sales volume and net income. Most of UAs
income was generated from wholesale to domestic, regional, independent and specialty retailers. By
comparison, in 2013, Nike generated about 55% of its revenue outside the United States, and AG, earned
60% of its sales outside its home market of Europe.
Develops innovatively designed apparel, footwear and accessories with special fabric to enhance
the comfort and performance of athletes/consumers with active lifestyles in various climates
Works with fabric suppliers to ensure functionality and high quality is maintained and upgraded
when new product trends and market needs are identified.
UA sources its specialty fabrics and other raw materials from a limited number of specialty fabric
manufacturers outside North America. Fabric costs are subject to crude oil price fluctuations and
cotton availability.
UAs products are manufactured by 26 manufacturers with approximately 66% manufactured in
Asia, 14% manufactured in Central and South America, 15% in the Middle East and 5% in
Mexico. UAs quality assurance team evaluates all manufacturers for quality systems, social
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UA has in-house marketing and promotion departments that produce most of its ad campaigns.
UA markets its products through TV, print, radio and social media ads, as well as, through
sponsorship of events, sports teams and athlete endorsements. Social media, taglines, slogans and
Distribution
UAs distribution channel includes sales to retailers and directly to consumers via UA Factory
Overall UA brings superior value to its customers with its innovatively designed products but improving
its supply chain management and distribution channels may be able to achieve cost savings to better
compete with the industry leaders.
Alternatives
1. Expand into International Market
Target international markets and focus resources on opening large scale distribution warehouses at
strategic locations. At the same time, reinforce these with strengthened push into both independent
and chain retail stores and open both company and outlet stores. Once the infrastructure is in place,
follow up with advertising through traditional mediums as well as endorsements with local athletes
and sports clubs.
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Brings UA directly into a vast market that has a lot of sales potential
Focuses on building up fixed assets which will have less of an effect on net income
Cuts down on some of the shipping costs from international manufacturers.
Raises international brand awareness
Cons
Very expensive
Long term plan that will likely carry deficits for the first few years
Raises the effects of foreign exchange
Cons
Little control over main component of strategy (i.e.; depends mainly on the developers abilities
whether off the shelf or by a contracted developer)
Cons
across borders
Consolidated financial reports are exponentially more expensive and regularly audited
Alternatives
Total
1.
2.
10
3.
Recommendation
It is recommended that UA choose option 2 which is to purchase and develop an inventory management
system because it not only can boost the current market share substantially, but can also bring products to
a portion of the market that was not available previously. There are difficulties to overcome, mainly
consumers perception, but a well thought out and executed advertising plan can counter most of these
issues. Top tier celebrity athlete endorsements would be a good advertising vehicle but will also be costly.
To fund this strategy, they have to use debt financing and the cash stockpile but it should find returns well
over expectations, as price conscious shoppers will grow UAs market share. The best aspect of this
strategy is that it has a relatively short turnaround of less than five years. This will give added stability to
UA which will allow more security if they decide to pursue option 1 afterwards.
Page 13 of 20
Page 14 of 20
Action Plan
Date
Immediately
Item
Set the objectives of
Description
Senior management will determine what
Immediately
1-2 weeks
Improvement Team
2-4 months
Weaknesses in current
team.
Inventory Improvement Team - look at all facets
4-5 months
development method
same system(s).
Inventory Improvement Team - a vendor will be
inventory management
system
software.
6 months 18
Inventory management
months
system created/purchased
6 months
10 months
operating procedures
Senior Management: Set the business strategy for
footwear market.
Develop plan
12 months
advertising campaigns.
Plant Managers, Mgr. of Distribution &
18 months
18-20 months
24 months
materials, etc.
Applicable functional managers: training and
system
system.
Functional & operation managers: set applicable
expansions
24 months
24 months
the environment.
Senior mgmt. team: Evaluate the new inventory
system
Contingency Plan
Should the above recommendation not be successful, it is recommended that UA follow alternative #1
which is to focus on expansion into international markets. This alternative is more of a long-term plan
than the original recommendation. This involves opening large-scale distribution warehouses while
pursuing entrance into both independent and chain retail stores simultaneously. The warehouses would be
strategically placed to see reductions in shipping costs from international manufacturers. Once this
infrastructure is in place, advertisements and athlete endorsements would follow to bring international
brand awareness to consumers. Hedging should be considered to minimize foreign exchange risk.
Page 17 of 20
Appendix
Weighted Competitive Strength Assessment
Key Success
Factors/
Strength
Measure
Quality/ Product
performance
Reputation/
Image
Technological
Skills
Dealer network/
Distribution
capability
New product
innovation
capability
Financial
resources
Relative cost
position
Sum of
importance
weights
Overall weighted
competitive
strength rating
Imp.
Weight
0.20
8.50
1.70
9.00
1.80
7.00
1.60
0.20
8.50
1.70
10.00
2.00
9.00
1.80
0.10
10.00
1.00
9.00
0.90
7.00
0.15
6.50
0.98
10.00
1.50
8.00
1.20
0.05
8.00
0.40
9.00
0.45
7.00
0.35
0.10
6.50
0.65
9.00
0.90
8.00
0.80
0.20
7.50
1.50
8.00
1.60
7.00
1.40
0.85
1.00
7.93
9.15
8.00
Page 18 of 20
Profitability Ratios
Return on sales
Net return on total assets (ROA)
Return on stockholder' equity
(ROE)
Leverage Ratios
Total debt-to-assets ratio
Debt-to-equity ratio
Activity Ratios
Days of Inventory
Inventory Turnover
15.76%
15.23%
13.78%
11.55%
3.35%
5.02%
5.35%
7.58%
8.46%
12.21%
2.36%
3.21%
9.35%
13.77%
143.2
2.549
122.0
2.993
155.8
2.342
147.4
2.477
178.7
2.042
References
Inman, Phillip. Eurozone consumer spending slows but exports rise. 6 09 2016. Web. 22 10 2016.
<https://www.theguardian.com/business/2016/sep/06/eurozone-consumer-spending-slows-butexports-rise>.
Morgan Stanley. Research: Athletic Lifestyles Keep Apparel Sales Healthy. 30 10 2015. Web. 22 10 2016.
<http://www.morganstanley.com/ideas/global-athletic-wear-geared-for-growth>.
Office of the United States Trade Representative. U.S.-APEC Trade Facts. 2016. Web. 22 10 2016.
<https://ustr.gov/trade-agreements/other-initiatives/asia-pacific-economic-cooperation-apec/usapec-trade-facts>.
Shaw, Hollie. Joe Fresh, lawsuit must answer arms-length legal questions. 01 05 2015. Web. 22 10 2016.
<http://business.financialpost.com/news/retail-marketing/joe-fresh-lawsuit-must-answer-armslength-legal-questions>.
Thompson, Arthur; Peteraf, Margaret; Gamble, John; & Strickland III, A.J. (2016). Crafting and
Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. (Twentieth
edition). Canada: McGraw-Hill Ryerson Ltd.
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