under armour inc strategic outlook

Under Armour Inc.

Business Strategic Report

03/10/2014

Olusola Soeton

Aziz Mohammad Ghani

Aziz Ghani : [email protected] 1416-856-6737

1ADMN 4604 Business Strategy and Policy 1

mailto:[email protected]

Under Armour Inc.

Table of ContentsIntroduction.................................................................................................................................................3

Current performance....................................................................................................................................3

Mission........................................................................................................................................................4

Vision...........................................................................................................................................................4

Values:.........................................................................................................................................................4

Objectives:...................................................................................................................................................5

Current Strategy..........................................................................................................................................5

Corporate Governance.................................................................................................................................6

External Environment: PESTLE.....................................................................................................................7

Porters Five Forces......................................................................................................................................9

Other Environmental factors.....................................................................................................................10

External Factors Analysis Summary.......................................................................................................12

Internal Environment................................................................................................................................13

Corporate Culture..................................................................................................................................13

Corporate Resources.............................................................................................................................13

Internal Factors Analysis Summary........................................................................................................16

Strategic Alternatives................................................................................................................................17

Recommended Strategy............................................................................................................................21

Implementation.........................................................................................................................................23

Timeline.....................................................................................................................................................24

Evaluation and Control..............................................................................................................................24

Contingency Plan.......................................................................................................................................26


Under Armour Inc.

IntroductionUnder Armour was founded and incorporated in 1996 by Kevin Plank, a former captain of the

University of Maryland’s football team. The current Under Armour’s global headquarters is

located in Baltimore, Maryland. Under Armour develops, markets and distributes apparel,

footwear and accessories for men, women and youth. It currently operates in four geographic

segments: North America, Europe (includes the Middle East and Africa), Asia and Latin

America. The ideology behind Under Armour’s founding was to promote innovation and

performance to help athletes to perform its best. Under Armour continuously broadens the

products offered to its clients currently consisting of apparel, footwear and accessories for men,

women and youth. Under Armour apparel is offered in three styles and fit types. The three styles

are the Heatgear (for hot climates), Coldwear (for cold climates) and all Season Gear (for

climates between the extremes); and the fit types are compression (tight fit), fitted (athletic fit)

and loose (relaxed). Under Armour’s products are primary developed for athletes and the

company is striving to create one of the world’s most innovative performance footwear, apparel,

and accessories for their customers (Under Armour Inc., 2013, p. 1).

Current performance

Under Armour has grown so significantly in recent years that according to fortune magazine the

company ranked number 53 among the fastest growing companies in the world in 2013 (Fotune

magazine , 2013).According to the same article on a three year average Under Armour’s

revenue, profit and total return grew by 31%, 35% and 53% respectively (Under Armour Inc.,

2013, p. 5). In the fiscal year 2013 net revenues reached the $2.33 billion, an increase of 27% in

comparison with the previous year and surpassing the company’s predictions of earnings of

$2.26 billion. The net revenue of apparel increased of 27% in 2013 was originated by new

product categories such as HeatGear and Fleece and innovation platforms including Storm,

ColdGear Infrared and Charged Cotton. The footwear net revenues increased by 25% during

2013 due to expanded offerings in both the running and cleats businesses. Accessories net

revenues increased by 30% in 2013 primarily driven by increase on sales of headwear and gloves

and Ecommerce net revenues grew by 33% in 2013( Under Armour Annual Report, 2013).

Under Armour increased its outlets stores in the U.S. to 101 in 2012 and opened the next


Under Armour Inc.

generation of Under Armour Specialty store in downtown Baltimore in February 2013. As of the

last annual report Under Armour revenue per employee is $ 395,263 and employed 5,900 people

distributed among Under Armour's global headquarters located in Baltimore, Maryland, its

European headquarters located in the Amsterdam's Olympic Stadium and additional offices

located in Denver, Colorado, Hong Kong ,China, Jakarta, Indonesia, Toronto, Canada, and

Guangzhou, China.

Mission Under Armour was founded with the mission of “making all athletes better through passion,

design, and the relentless pursuit of innovation. The company’s mission is driven by Kevin A.

Plank pursue to develop shirts for athletes that would remain drier and lighter. Mr. Plank then

created a new category of sporting apparel named performance apparel therefore, it’s the brand

mission to deliver a universal guarantee of performance, with a superior product compared to its

competitors and provide an unparalleled service to its customers (Under Armour Inc., 2013, p.

6).

VisionUnder Armour’s vision is “to empower athletes everywhere” through the innovation of

revolutionary fabrics and designs that enhance athletes performance (Under Armour Inc., 2013,

p. 6).

Values: Under Armour was founded on the following core values: Innovation, Inspiration, Reliability and

Integrity. Consistent with these values, the company seeks to respect their universal guarantee of

performance and strive to build products with higher capabilities than what is available in the

market. In addition, Under Armour creates products that are the best in its class, are field tested

and guarantee to make athletes better. The company also strive for greatness by building a great

product, that tells a great story, as well as providing a great service and build a great team. The

Under Armour employees must have integrity and be humble. No one person or athlete can

become bigger than the brand and if they do, that person cannot be part of the team. Their

employees have to be creative with their available resources and have to make one dollar spent


Under Armour Inc.

count as three dollars. The company believes that volunteerism, helping and serving others are a

vital part of their mission as a corporation; and that everything that they do has to be part of a

deliberate long term strategy or vision. In addition, the company has to evolve and innovate

therefore the culture cannot be use as an excuse to not change the product, process or people.

Lastly Under Armour’s humble beginnings and the history of hard work of its funder have

embedded in the corporation’s values that to achieve something they have to earn it every day

through their hard work.

Objectives:

Under Armour objective prospects in its operation are based on a number of elements. Under

Armour anticipates maintaining its position in the industry and expects to prevail amongst

competitors. Its objectives reflect current and future goals that under Armour aspire to achieve.

The following is the list of these objectives:

Broadening Under Amour’s appeal to more consumers specially in the Women

and Youth product categories

Understanding the changing needs of athletes and use versatility and innovation to

meet those needs

Reach new department stores to offer the Under Armour products

Increase the brand international awareness and presence

Remain focused on capturing the next generation of professional athletes

Continue to employ grassroots marketing efforts but balance this with larger

brand building initiatives and digital means (ecommerce and social media).

Maintain the continued development of the Under Armour team.

Current Strategy

Under Armour’s current strategy allowed it to become one of the major players in the athletic

apparel wear. Under Armour’s innovation has made possible the successfully transition of their

brand from a compressed t-shirt company to a fully integrated athletic brand capable of servicing

the full needs of athletes. Under Armour’s strategic factors augmenting it in the industry are the

following:


Under Armour Inc.

Under Armour applies different strategies to market its products. Among the advertising

methods used by the company the grassroots marketing helps to build the brand by being

intensely focused on sport authenticity in local markets; but the company has

incorporated other methods such as larger brand building initiatives, ecommerce and

social media

Under Armour’s constant improvement and creation of innovative technologies for their

products remains the main strategy of the company

The company has broadens its appeal and product offerings to meets the needs of new

consumers in the female and youth segment. The company has also reduce their

dependency on weather extreme products

Under Armour has been growing ever since its foundation and intends to increase its

market share by increasing the number of retail locations that offer their products

In 2014 Under Armour plans to increase its presence internationally in a conservative

fashion.

Corporate Governance

The Board of Directors elected by stockholders makes significant decisions in the company. The

board is responsible for hiring senior management, and making sure they lead the company

towards achieving its goals. It is the duty of the Board of Directors to serve as a prudent

fiduciary for shareholders and to oversee the management of the Company's business. The Board

of Directors members must be qualified and independent in its decision making. A Lead Director

is elected from the Board to directly work with the CEO and senior management to set agendas

and goals for the company. Currently approximately 20% of the common outstanding stock is

owned by Mr. Kevin Plank founder and CEO, who has major influence in decisions that require

shareholders vote.


Under Armour Inc.

External Environment: PESTLE

Political Factors

Under Armour does not own any of the manufacturing facilities, instead it outsources its

merchandise production to manufacturers in 14 countries outside of the United States. Most of

the production is outsourced to countries with unstable political environment. Under Armour is

exposed to trade embargos and increase in tariff rates. The company does business in countries

that have no counterfeit laws. This allows competitors to easily replicate and sell products under

Under Armour’s brand name, which may negatively impact Under Armours brand image and

bottom line. Under Armour operates in countries with different tax regulations, exposing it to

double taxation if the countries do not have respective treaties in place to avoid double taxation.


Under Armour Business Model

Under Armour: Core Capabilites(1)

Under Armour core capabilities lies on the company's ability to innovate high quality apparel and sporting gears. The company has shown its excellence in innovating new products as required by professionals and other end users. The Company's core business activities are the development, marketing and distribution of branded apparel, footwear and accessories for men, women and youth.

Partner Network(2)Under Armour products are sold worldwide to athletes, professional and consumer with active life style. Also company has wholesale distribution channels and independent and specialty retailers.

Customer Relationship(4)

Under Armour maintains its relationship with its customers through telemarketing , direct mail and email. The Company uses direct marketing to communicate with its potential consumers

Target Customers(5)

Atheletes

ProfessionalsCollege teams

Youth Men

Women

Value Proposition(3)

Offering high quality goods for a fair cost. The design and brand image of the goods are attrative, comfortable,and durable. Hence, the value is favourable.

Revenue Stream(6)Selling final products to its target customers.

Under Armour Inc.

Yet governments of these countries may have incentive programs applicable for Under Armour

as an employer of local labor.

Economic factors

Under Armour operates in different economies, some of which are declining, increasing or are in

a stagnation stage, but no one can foresee the future of a market. Under Armour purchases and

sells its merchandise in different currency affecting the cost of importing and sales, which may

serve as advantage and disadvantage for Under Armour. The company is also exposed to

inflation that can have an adverse effect if operating cost increases while selling price remains

the same. The company is also exposed to unpredictable cost of raw materials and shipping

costs, however recent trend in the global market is bringing the cost high due to developing

countries experiencing growth.

Social factors

Under Armour delivers sporting wear and accessories to all age groups, in today’s society

awareness towards living a healthy life is emphasized, the population is more aware of the

advantages that living an active lifestyle can bring to one’s life. Expenditure in athletic goods is

on the rise in North America, according to Euro monitor it is estimated that the market for

sportswear will increase to $220 billion US by 2014. According to a recent survey done by

IHRSA the number of gym membership has increased from 41.3 million in 2005 to 50.2 million

in 2012. The health and fitness industry is going to experience a rise from the baby-boomer

generation, it is estimated that 76 million Americans fall under that age group, and they tend to

be financially able to spend towards recreational activities.

Technology factors

Under Armour is operating in an era where 2.4 billion people surf the Internet causing the spread

of globalization. This allows Under Armour to have access to different manufacturers to support

it in outsourcing efficiently. The Internet also allows customers to shop more confidently as they

can compare competing products of different producers. Retailers can take advantage of selling

through e-commerce due to low operating cost. Statistics have shown the amount spent on online

shopping was $763 billion dollars in 2011. The Internet has enabled advertising to be done

through social media, via mobile means and search engine marketing making it one of the

cheapest and efficient ways to market a product.


Under Armour Inc.

Legal factors

Under Armour gets involved in legal matters with its customers, employees, competitors and

suppliers due to disagreements and damages caused while doing business. Recently Adidas filed

a suit against Under Armour in the amount of $150million for infringing their patent, this is due

to a recent acquisition of MapMyFitness. During the acquisition, Under Armour was aware of

the potential lawsuit from Adidas which made it incorporate a broad “hold back” clause in its

purchase agreement in case of any potential payouts, however disagreements of such matters

does not have any adverse effect in the operation of the company

Environment

Under Armour is currently not affecting the environment directly. This is due to outsourcing all

their products through third party manufacturers. Third party suppliers are mainly located in

Southeast Asia where pollution regulation is becoming stricter.

Porters Five Forces

Threat of new entrants

The threat of new entrants is high due to low entry of barriers within the industry. Under

Armours competitor can easily replicate their product. Under Armour’s wear is supplied through

third party manufacturers and since the company has no long-term contract, manufacturers can

easily supply other retailers under their brand name. The profit margin can attract investors due

to it being high when compared to other industries, and the trend in people becoming exercise

conscious in on the rise. Factors such as brand equity and retail presence can be hard for new

competitors due to Under Armour having a strong position in retail locations and a strong brand

image.

Bargaining power of buyers

Bargaining power of buyers is medium due to Under Armour’s distinctive design and material

when compared to competitors’ product. However, customers can give preference to

competitor’s product due to brand image or discount and allowance pricing. The market Under

Armour is currently operating in will always be competitive and Under Armour is not the only

player dominating the industry.


Under Armour Inc.

Bargaining power of suppliers

Bargaining power of suppliers is low due to Under Armour not having a long term contract with

its suppliers, even though 49% of its merchandise comes from only 10 suppliers and

approximately 55% of its fabric comes from 5 suppliers. Still Under Armour is confident of

being able to get its merchandise from other suppliers in case of any disruption from current

ones, but it may be at a higher cost.

Threat of substitute products

The threat of substitute products is high. Although the high quality and materials used in the

Under Armour apparel is difficult to replicate there are many other brands that cater to active

individuals. However, the lower performance and feel of their materials used by the competition

give Under Armour an advantage since the customers are less likely to switch to products of less

quality.

Rivalry among existing competitors

The rivalry among competitors in the apparel industry is high. Under Armour’s main competitors

are Nike, Adidas and Columbia Sportswear. The competitors have access to a great amount of

resources as compared to Under Armour. The competitors have been established for a longer

period, they have a larger and broader customer range, greater financial capabilities, and stronger

brand image and a broader retail presence.

Other Environmental factors

Customers

Under Armour 2 largest customers are Dick’s Sporting Goods and The Sports Authority. These

two customers accounted for a total of 22% of sales in 2012, 26% of sales in 2011 and 27% of

sales in 2010. (Under Armour Inc., 2013, p. 4)Apart from these two customers, no other single

customer accounted for up to 10% of sales. Other portion of sales is generated by direct sales to

consumer primarily through the Company specialty and factory house stores and websites. In

recent years, Under Armour has expanded its market to offer products for women. Under

Armour serves customers in four geographic segments which are North America, Asia, Latin

America, and Europe the Middle East and Africa (EMEA). The company does not have any long


Under Armour Inc.

term sales contracts with any of its customers instead it relies on its relationship with these

customers and on its position in the marketplace.

Competitors

The market for performance apparel, footwear and accessories is highly competitive.

Competitors only survive in the market through their brand image, price and marketing of

performance products. Under Armour top competitors are large companies including, Adidas

AG, Nike Inc. and Columbia Sportswear Company.These competitors have enough resources to

dominate and gain more market in the performance apparel, footwear and accessories industry.

In order to market its products, Under Armour differentiates itself in the market through brand

image and recognition, the performance and quality of its products, and its selective distribution

policies.

The table below provides comparison of Under Armour with some of its top competitors

Direct Competitor Comparison

UA ADDYY COLM NKE Industry

Market Cap: 11.35B 24.24B 2.53B 63.94B 516.09M

Employees: 5,900 42,540 4,166 48,000 2.30k

Qtrly Rev Growth (yoy): 0.35 -0.07 -0.04 0.08 0.16

Revenue (ttm): 2.33B 18.62B 1.65B 26.29B 833.61M

Gross Margin (ttm): 0.49 0.49 0.43 0.44 0.36

EBITDA (ttm): 315.65M 1.78B 172.85M 4.09B 64.82M

Operating Margin (ttm): 0.11 0.08 0.08 0.14 0.05

Net Income (ttm): 162.33M 678.42M 97.10M 2.68B N/A

EPS (ttm): 1.50 1.62 2.81 3.13 0.08

P/E (ttm): 71.40 35.73 26.13 23.03 14.45

PEG (5 yr expected): 2.52 -4.44 3.05 1.97 1.41

P/S (ttm): 4.95 1.31 1.54 2.45 0.76

ADDYY = Adidas AG


Under Armour Inc.

COLM = Columbia Sportswear Company

NKE = Nike, Inc.

Industry = Textile - Apparel Clothing

(Yahoo Finance , 2013)

External Factors Analysis Summary

External Factors Weight RatingWeighted

ScoreComments

Opportunities

Masstige market0.15 4.00 0.60

The company can target different customers

Global expansion0.15 3.00 0.45

There are other countries that can be served with current product

Lifestyle changes0.20 4.00 0.80

The society is becoming more health conscious

Acquire a third party supplier0.00 0.00 0.00

A booming market segment with lots of future potential

Innovative designed products 0.10 3.00 0.30Create patents on its design, to achieve competitive advantage

Threats

Pricing pressure from customer0.10 3.00 0.30

High bargaining power of 3 large customers

Availability of substitutes for most products.0.10 2.00 0.20

High chances of losing current market share

High inflation rates 0.05 2.00 0.10 Negative impact revenue

Nike and Adidas have high presence 0.15 2.00 0.30The competition is more established, and have a strong international presence.

Total Scores 1.00 3.05


Under Armour Inc.

Internal Environment

Corporate Culture Under Armour established a unique corporate culture with the vision of empowering athletes

everywhere and a mission of making all athletes better through passion, design and the relentless

pursuit of innovation. Under Armour culture according to their web site is “FAST, HARD-

HITTING, STRONG, PASSIONATE, DYNAMIC, UNIQUE, SPECIAL – it’s the ultimate

experience.” (Source: Under Armour, 2012)

Corporate ResourcesMarketing

The success of Under Armour can be traced to its unique approach of creating consumer demand

by building brand equity. The company spent $128.2 million in advertising as the fiscal year

2012. Under Armour promotes its products by making people aware about the benefits of using

their product. The company also promotes its products through grass root levels. The company

uses three types of marketing means; Sport Marketing, Media, and Retail Presentation. Under

Armour’s initial stage marketing starts with providing and selling products to high-performing

athletes, high school teams, collegiate and professional levels. The company sells and creates

special deals with athletes and teams and provides products directly to teams. This has enabled

Under Armour to expose its products directly to its potential consumers. In North America,

Under Armour has been an official supplier of footwear to the National Football League Since

2006. The company also became the Official Performance Footwear Supplier of Major League

Baseball.

In international perspective, in 2012 Under Armour successfully became the technical

partnership of Tottenham Hotspurs Football Club of the Barclays Premier League providing

performance apparel, including training kit. (Under Armour Inc., 2013)

Under Armour also uses different forms of media like digital broadcasting, print media and

social networking site to advertise and promote its products.

The final stage of the company’s marketing strategy is Retail Presentation. Under this segment,

Under Armour tends to increase floor space and secure prime location.

Finance


Under Armour Inc.

Under Armour's revenue over the trend of the last five year has increased. In FY 2013, the

company experienced the highest profitable year. Under Armour made total Revenue of $ 2.33

billion during the fiscal year 2013.The quarterly revenue growth for the fiscal year 2013 was

35%. During the fiscal year ended December, 2013 the company made total net income of

$162.33 million. The total current liabilities for the fiscal year 2013 which is comprised of

Accounts Payable, Short Term Debt, and Other Current Liabilities was reported to be 426.63

million, this was 252.23 million in the fiscal year 2012. Similarly the Long Term Debt accounted

for 97.76 million compared to 87.93 million in fiscal year 2012.The continuous growing

financial strength of the company has helped achieved its expansion strategy and delivery of

outstanding Total Shareholders Return .Analysis of its key ratios over 5 years term shows that

EPS has significantly increased as a result of growth in net profit each year. The total Basic EPS

for the fiscal year 2013 is 1.54. The company's latest financial statements dated 31 December,

2013 shows a cash and cash equivalents of $ 347.49 million which implicates $3.29 per share.

The net profit margin for the fiscal year 2013 was reported to be 6.96% whereas this figure was

6.88% in the fiscal year 2012. The current ratio for the fiscal year 2013 was reported to be 2.65

times as compared to 3.58 times for the fiscal year 2012. (Under Armour Inc., 2013, p. 22) This

represent that the company's ability to pay current obligation has declined. Overall, Under

Armour's financial health has shown a significant increase in efficiency ratios and profitability.

The following tables summarize the major ratios of Under Armour for the fiscal years 2009-

2013.

Profitability 2009-10 2010-11 2011-12 2012-13 2013-14

Return on Assets 9.06 11.22 12.16 12.40 11.87

Return on Equity 12.80 15.27 17.10 17.72 17.36

Debt/ Equity 0.02 0.11 0.06 0.05 0.04

Current Ratio 3.73 3.73 3.76 3.58 2.65

Diluted EPS 0.46 0.63 0.93 1.21 1.5

Operating Margin 9.96% 10.56% 11.05% 11.37% 11.37%

Profitability 2009-12 2010-12 2011-12 2012-12 2013-12

(Morning Star , 2013)


Under Armour Inc.

Research and Development

Under Armour’s product development in conjunction with third parties, manufactures the

products. Superior quality and long lasting characteristics are always the focus of the company.

Majority of the raw materials and fabrics used in the manufacturing process are technically

advanced products developed by the third parties. In order to limit the number of suppliers and

control over the quality of products, Under Armour gets its supplies from five countries; China,

Malaysia, Mexico, Taiwan and Vietnam. The company product development and design team

always work to deliver the improved and innovative products to meet the needs of athletes. The

company in partnership with Swiss Company, Schoeller, in 2012, launched coldblack technology

which repels heat and keeps the user of the product cooler.

Operation and Logistics

The wholesale channels which comprise of national and regional sporting goods chains,

independent and specialty retailers, department store chains, institutional athletic departments

and leagues and teams makes the majority of the company's sales. In addition, the company also

sells its products to independent distributors. The company also sells its products directly to

consumers through its own network of specialty and factory house stores in the North American

Operating Segment and through the company website operation in the United States, Canada and

certain countries in Europe. The factory house stores helps the overall inventory management .

The factory house stores helps Under Armour to sell most of the excess and discontinued

products.

The company operates in four geographic segments which are North America, Europe, the

Middle East and Africa ("EMEA"). The entire operation in EMEA is supported by the

distribution center (DC) in Venlo which is run by global third party logistics DSV. 36 countries

within the EMEA region gets Under Armour's performance sport apparel and footwear

accessories through distribution center (DC).

Under Armour also uses Manhattan's web based Extended Enterprise Management (EEM)

solution to facilitate accurate, real- time data sharing with its suppliers. The EEM software helps

the company to track the status of inbound products and deliveries and also allows to update

these information by suppliers without the occurrence of additional cost.


Under Armour Inc.

Human Resources

As of December 31st, 2012, Under Armour had about 5900 employees in which approximately

3200 employees are working in the company’s factory houses in North America (Canada and

USA) and 900 at the company’s distribution facilities. The Company has approximately 1900

employees working on full-time. Most of its employees are located in the United States and none

of its employees are covered by a collective agreement. The company growth has largely been

impacted by the contribution from current senior management, product design teams and other

key employees. Therefore, Under Armour future success is substantially dependent on the senior

management team and other key employees. Also the Company need to attract, retain and

motivate highly talented management and other employees with variety of skills and experience

in order to continue to grow its business. (Under Armour Inc., 2013)

Information System

Under Armour relies on its information systems to operate e-commerce websites, respond to

customers enquiries, inventory management, process transactions, and cost efficient operations.

Any disruption in these information systems will lead to delay in product delivery to its stores

and this will have a negative effect on company’s sales and reputation.

Internal Factors Analysis Summary

Internal Factors Weight RatingWeighted

ScoreComments

StrengthsHighly innovative research and development

0.11 5 0.55 Fast at designing new products

Effective and efficient inventory management

0.09 4 0.36 Sophisticated inventory system

Retentive Customer service 0.08 5 0.40 Excellent knowledge of sports and retail

Strong information and technology systems

0.11 3 0.33 Rely heavy information system for E –commerce and inventory management

Financial strength 0.09 4 0.36 High profit margin on products

Long-lasting products 0.09 4 0.36 The products are very durable

Sponsorship programs 0.06 3 0.18 Sponsors soccer teams


Under Armour Inc.

High level of customer satisfaction0.11 5 0.55 Customers are satisfied with

the prices paid for products

WeaknessesNarrow focus 0.06 2 0.12 Focuses on sporting products

Marketing 0.05 4 0.20 Marketing strategy is not so efficient when company to competitors

Weak global positioning 0.08 3 0.24 It's products are not recognized in some markets

Limited resources when compared to competitors

0.07 3 0.21 Low resources

Total Scores 1.00 3.86

Strategic Alternatives Alternative 1

Under Armour Creating a luxury brand to target high end consumers, creating a high-end brand

will satisfy the needs of customers that wear clothes to make them feel superior in wealth, and

the sense of having money. The markets for high-end brands have been experiencing growth

even during recessions, and extremely high profit margins. Luxury high-end products have been

experiencing a dramatic growth, the industry is estimated to be worth $285 US billion dollars in

2012 and it is forecasted that it will rise more in the coming years.

Pros

Increase revenue and customer base.

Under Armour possess the infrastructure required for startup.

High differentiation amongst competitors.

No price war involved between competitors.

Customers are up market clientele

Higher profit margin.

Customers have already had a connection with Under Armour and know the product.

Entering a niche market is easily manageable than a mass market.

Reduce dependence from the Under Armour brand

Cons


Under Armour Inc.

Customer target is limited to high income earners.

Under Armour customers might feel they’re not getting the best.

Retail location set up will be expensive, due to location, and store design.

Under Armour doesn’t have experience in the high-end apparel wear.

Rank 1st, This strategy would go with the mission very well due to them still catering to athletes,

and the resources needed to implement this alternative is available. Overall, this alternative pros

outweighs the cons and will allow Under Armour to compete in the market with brands such as

Icebreaker, Canada Goose, North Face and Moose Knuckle.

Alternative 2

Under Armour diversifying its offering to larger selection of athlete products, currently Under

Armour offers apparel, footwear and accessories, they can extend their product offerings to

fitness equipment for households and gyms.

Pros

Increase revenue and customer base.

Differentiate from its current competitors.

The market for fitness equipment is not penetrated by many companies.

Can easily implement the strategy due to having the required infrastructure to implement.

Reduce dependence from apparel, footwear and accessories.

Fitness equipment have high profit margins, due to consumers willing to pay premium

amounts.

Cons

Store locations will need to accommodate space to display and sell fitness equipment.

A large investment is required.

Will need to source the required technology and engineering to manufacture the

equipment.


Under Armour Inc.

Not all locations of Under Armour or Under Armour resellers have space or the store

layout to be able to sell fitness equipment.

Rank 2nd, this alternative will allow it to differentiate amongst competitors like Nike, Adidas, and

Columbia Sportswear, this strategy also fits with the companies mission and vision, however

with fitness equipment they will be a new entrant in a market that is already being dominated by

companies such as Brunswick corporation. The established companies have already registered

patents to most of the exercise machinery, this can be put Under Armour in a challenging

position when designing fitness equipment.

Alternative 3

Acquire a third party supplier or a manufacturer that is compatible in manufacturing the same

amount and quality as the current one. Under Armour gets a third party to manufacture for the

many products it carries and backward integration will increase the existing positive profit

margin. Also Under Armour has a team that design, develop and test product, acquiring one of

its third party manufacturers in order to produce product that meet the needs of its consumer will

differentiate from its competitors and give it a stepping stone into manufacturing. Under Armour

has the necessary infrastructures and human resources experience needed to implement this

backward integration.

Pros

This will allow it to reduce dependence on third party suppliers and instead take control

of the manufacturing.

Positions Under Armour in a competitive advantage amongst competitors that outsource

their products to third party manufacturers.

Consistency in the quality of the product, due to having direct control and full control of

the whole manufacturing process.

The risk of losing money is low, this is due to its manufacturing products that it currently

sells, allowing it to maximize its profit, by taking the manufacturers share of profit as

well.

Communication with the manufacturing department will be more efficient, allowing

R&D, Marketing, and the many departments to communicate and execute actions faster.


Under Armour Inc.

Innovation and product design will be kept confidential and not exposed to the risk of

competitors replicating it.

Gives it a more secure distribution channel.

More control over price, and eliminates transaction costs.

Cons

Acquiring a manufacturer will require large investment.

There will be dependence only from one manufacturer. In a situation of disruption it

won’t be supplied with products.

The company can be distracted from its main operation by learning how to operate and

manage the manufacturing plant.

The organization will need to integrate the manufacturing with its current operations, the

implementation will require system changes, and staff training.

Rank 3rd This alternative has pros but the cons offsets it due to the severity of the commitment

required from Under Armour, manufacturing would be a new direction for the company which

puts them in a position where they are taking high investment risks with a low return on

investment.

Alternative 4

Under Armour expanding to countries where its competitors do not have presence in, although

the political scene in most parts of the Middle East and Africa is unstable, countries like Jordan,

Morocco and Algeria have their political situation under control and the economic growth is

above average when compared to the neighbouring countries. Competitor presence is also weak

in those countries due to distributing through a licensed reseller.

Pros

Under Armour will have a competitive advantage of expanding internationally.

Increase recognition of its brand internationally.

Revenue and customer base will increase.

Economies of scale by purchasing more quantities from its current suppliers.


Under Armour Inc.

Reduces dependence from its current market.

Under Armour possesses the required experience and infrastructure.

Developing countries are experiencing higher growth in their economy when compared

to developed economies.

No price war involved between competitors.

Cons

The political situation in developing countries is not as stable as it is in developed ones.

Being a first mover can have risks, due to being the first one in expanding to countries

were major sportswear apparel companies have not.

Under Armour can lose focus on its current market.

Currencies fluctuations can affect profitability and cost.

Under Armour may need to modify their products to meet the preference of the

consumers in the international market.

Under Armour does not possess any experience in the market they will be entering

Rank: 4th This alternative is attractive, however Under Armour is currently operating in major

international markets, it cannot enter every market due to logistics, political instability, human

resources, trade restrictions and embargo. The company might lose focus from its current market

which can make it lose its competitiveness in the industry.

Recommended Strategy

Under Armour has grown at the rate of 150% since its IPO in 2006, making investment in

sportswear one of the most profitable industries. Under Armour has return on assets of 11.87%

which is above industry average giving investors the confidence that they are in growth stage,

and the hopes of maximizing shareholder wealth. The company has accumulated a vast amount

of knowledge, experience and resources to expand within the sportswear industry. Under Armour

currently has cash and cash equivalent of $347.49 million and it entered into a new $325 million

credit facility with certain lending institution in 2011 allowing it to undertake many business

opportunities in the industry. Undertaking new business opportunities give advantages of

diversifying the business by reducing reliance on current offerings and it maximizes shareholders

wealth.


Under Armour Inc.

The strategic recommendation that is most feasible and viable for Under Armour is to create a

masstige brand to target high-end customers. Under Armour started as a company targeting a

niche market of athletes that play football however over the years Under Armour has transform

from targeting a niche market to offering products to the mass market. The sportswear industry is

currently dominated by companies such as Adidas AG and Nike Inc. with annual revenues

almost ten times more than Under Armour. When companies are competing in the mass market,

they focus on high sales and low prices although there are many benefits to mass marketing such

as lower production cost, wide market and high revenues. The trend in the market is shifting

towards a high-end or low-end product. Retail companies over the year have created brands that

cater for both markets such as La Senza & Victoria Secret and Gap & Banana Republic. Under

Armour creating a masstige brand will allow it to compete in both markets and differentiate from

its competitors, brands such as Canada Goose, Moose Knuckle and North Face are examples of

the success that can be achieved in a masstige market. Analysis of the retail market indicates that

the percentage of household that make more than US $75,000 is going to rise up to 50% by the

end of 2013. By the year 2017 this percentage is expected to increase up to 60%. Due to this

predicted increase in income, household will have disposable income to spend on commodities.

This factor has contributed to the success of companies catering to the masstige market and it is

also projected that the masstige market will continuously grow in the future.

Under Armour currently possesses the required skills and resources which will ease and

accelerate the implementation of this strategy in comparison to a new entrant to the industry, the

other advantage to masstige brands is that they compete in quality and design and not in price

and majority of the consumers that purchase masstige brands are high income earners. Under

Armour should not compete in price but rather should differentiate itself from its competitors

through its products, entering the masstige market will not only make their profit margin higher

but also make them capture another market segment.

The proposed strategy falls under the business strategic type. It focuses on improving

competitive position of Under Armour by catering to the masstige market segment. This strategy

will allow Under Armour to compete in the apparel industry through product differentiation.

Implementation Under Armour has adequate capital and resources needed to start a brand aimed towards high

income customers. Under Armour can implement the recommended strategy in nine stages.


Under Armour Inc.

Stage 1: Will be to first create a brand name, logo and slogan under which it will be operating.

This is one of the most important stages in the business because your product will be identified

by its brand and it is something it will remain with the business for the life of the product. The

brand, logo and the slogan must integrate with the company's mission and vision.

Stage 2: At this stage, team of designers who are experienced in masstige brand designing and

make them collaborate with Under Armour's current existing design team. With the experience

of two diverse design team they must be able to create distinctive masstige apparel, that will

make it stand out and fit in a masstige category athletic store.

Stage 3: The third stage of strategic implementation will be locate where the product will be

outsourced from . The manufacturer's that the company will be using should meet the standards

recognized by various quality control firms. This will help the company to mitigate the risk

associated of manufacturing products which will fail to compete with other companies' products.

Stage 4: During this stage, the company should modify to accommodate the new product into its

supply chain. The supply chain should be efficient and be able to meet the demand of customers

in appropriate time. This will help the company by avoiding the tie down of the resources.

Stage 5: Fifth stage of the strategic implementation is to find appropriate location where the

products will be retailed to target customers. Commonly masstige brands are sold from stores

where high income households are located. For example, in Toronto, the location that will be

must suitable is Yorkville, Toronto. This is where the majority of all the masstige retailers are

situated. Under Armour must first implement the strategy in five major cities that are populated

with most high income households.

Stage 6: Sixth stage is to put together a team of interior designers to layout the store for the

products. The layout of the store will a physical representation of the product. Therefore, the

store design must be elegant and architecturally luxurious.

Stage 7: This stage will be to establish a marketing team solely for the masstige brand. Under

Armour can still use its current marketing strategy, adopting different sources of marketing such

as elite magazines, annual fashion events and also appoint a celebrity brand ambassadors.

Stage 8: This stage will basically focus on hiring and training employees to work at retail

locations, employees must be trained to assist the customers in best manner.

Stage 9: This stage will be the final part of the implementation process. This can only happen

when the product, store, marketing and the work force have been successfully established. The

launch of the new product must be grand with media coverage to publicize the product.


Under Armour Inc.

The total cost of this strategic implementation is approximately $26,758,000. This strategy will

be financed from the Cash and Cash Equivalents available to the company.

Timeline

StagesTask Estimate

d TimeEstimated

Cost

1Finalize proposed strategy with relevant departments

4 weeks $ 4,000

2 Seek Board of Directors approval 1 week $ -3 Create brand name, logo and slogan 6 weeks $ 1,000,0004 Recruitment of design team and Product design 12 weeks $ 5,000,0005 Calibration with third party manufacturer 12 weeks $ 5,000,0006 Modification of supply chain 6 week $ 2,500,000

7Market research, locating suitable store locations and signing of lease agreement

8 weeks $ 550,000

8 Construction of store layout 12 weeks $ 2,500,0009 Formulate marketing strategy 8 weeks $ 10,000,00010 Recruitment, selection and training of employees 4 weeks $ 150,00011 Grand opening 1 day $ 50,000

Total Cost $ 26,758,000

Evaluation and Control

Once the strategy has been executed, Under Armor must assess if the new strategy is taking the

corporation in the right direction. Under Armor must make sure that the new brand is earning the

expected amount, because at the end it all comes down to return on investment. A survey must

be completed by the company to see the level of satisfaction with the new brand amongst

customers. New customers must be offered a questionnaire to get feedback of the quality of the

product sold to them. Financial statements must be analyzed to see if profit and revenues is in an

upward trend. return on investment, net income and revenue must also be compared with the

industry average. the overall outlook of the organization must be on a track to achieve their short

term and long term forecast.

Pro Forma

Under Armour Pro Forma


Under Armour Inc.

Year 1 Year 2 Year 3

Revenue $ 12,775,000 $ 14,600,000 $ 18,250,000

Cost of goods sold 2,550,000 2,920,000 3,650,000Gross Profit $ 10,225,000 $ 11,680,000 $ 14,600,000

Operating expenses:

Salaries and wages 1,350,000 1,350,000 1,350,000

Advertising 500,000 500,000 500,000

Rents 3,500,000 3,500,000 3,500,000

Other expenses 1,000,000 1,000,000 1,000,000EBITA $ 3,875,000 $ 5,330,000 $ 8,250,000

Revenue: sales per store in the first year is anticipated to be $7000/day. It is anticipated to grow

to $8000 in year 2 and $10000 in Year 3.

Calculations: Year 1= Revenue ($7,000 X 5 stores X 365 days) = $12,775,000

Year 2 = Revenue ($8000 X 5 stores X 365 days) = $14,600,000

Year 3 = Revenue ($10,000 X 5 stores X 365 days)= $18,250,000

Cost of Goods sold: The gross margin on masstige products is 500%. Therefore COGS is 20% of

net revenue.

Operating Expenses: This include

Advertising Expenses Advertising expense per store is an average of $100,000 annually

Other expenses: This is estimated to be 1 million annually.

Rent Expense: The rent expense per store is $700,000 annually.

Wages and Salary Expense: Each store will employ 6 staff with an average pay of $45000

annually.

Cost of implementation: The cost of implementation is a onetime cost and due to the nature of

the expenses incurred for the implementation, we are amortizing this cost as most of it are capital

cost.


Under Armour Inc.

Contingency Plan If in case in the future company's strategy fails and is unable to lead the company towards

desired corporate objective. The company should focus on the company’s current strategy and

continue with current strategic posture. (Status Quo).


Under Armour Inc.

References

(2013). World Class Athletes Battle The Elements In Newest Chapter Of Under Armour's Global I Will(TM) Campaign. PR Newswire.

CASE STUDY: UnderArmour Is a Work in Progress. (2007). Business Finance, 13(7), 19.

Cutting-Edge Cotton. (2012). Wearables, 16(7), 39.

Fotune magazine . (2013). Retrieved from FORTUNE Magazine:Archieves .

Morning Star . (2013). Retrieved from Growth, Profitability, and Financial Ratios for Under Armour, Inc. Class A(UA) from Morningstar.com.

PR, N. (2013, July 18). DC Comics And Under Armour Give Athletes A New Alter Ego. PR Newswire US.

PR, N. (2013, September 4). NFL, Under Armour and GE Seek Ideas to Accelerate Concussion Research, Prevention, Diagnosis & Treatment. PR Newswire US.

PR, N. (2014, February 21). Under Armour Elevates Commitment to US Speedskating and Extends Partnership Through 2022. PR Newswire US.

PR, N. (2014, January 21). Under Armour And Notre Dame Fighting Irish Join Forces. PR Newswire US.

PR, N. (2014, January 30). Under Armour Reports Fourth Quarter Net Revenues Growth of 35% and Full Year Net Revenues Growth of 27%; Raises Full Year 2014 Outlook. PR Newswire US.

PR, N. (2014, January 9). Under Armour, Inc. To Report Fourth Quarter 2013 Earnings and Webcast Conference Call. PR Newswire US.

Under Armour Inc. (2013). Under Armour Inc Form 10K.

Yahoo Finance . (2013). Retrieved from UA Competitors, Under Armour, Inc. Class A Comm Stock-Yahoo!Finance .


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