Under Armor is a real threat to Nike. Now it struggles to stay relevant

Under Armor is a real threat to Nike. Now it struggles to stay relevant

It was once touted as a worthy rival to Nike. But right now, Under Armour, founded by a 23-year-old former college athlete, is struggling to “make it.”

Instead, the brand championed on the basketball court by Stephen Curry and on the golf course by Jordan Spieth, is now struggling — badly — to find its footing in an increasingly competitive and crowded sportswear market for the average person, where younger shoppers are more googly – keep an eye out for newer entrants like Hoka and On running shoes.

Under Armour’s annual sales were the weakest in years, while its stock plunged 88% from its all-time high in 2015. Industry experts say the company is mired in an unpleasant mix of problems, including an identity crisis, several management controversies, ignoring market trends that grow to the detriment of it, and the carousel of successive rotating CEOs.

One of them is Kevin Plank, the founder, who is back at the helm for a second time as CEO after being replaced in 2019. Just like in the past Starbucks founder Howard Schultz returned to Starbucks and Disney head Bob Iger recently returned as CEO , Plank aims to starboard in Under Armour.

“When Under Armor is growing at 20% plus volume, people see it as a legitimate competitor to Nike,” said David Swartz, senior equity analyst with research firm Morningstar, in an interview with CNN.

“It’s like On or Hoka but 10 years ago. It is a new athletic brand that is making real headway against Nike, the dominant name in the industry. People see it as a company that can actually break through and take market share from Nike among hardcore athletes,” Swartz said. “That actually happened for a while, but then that didn’t last.”

Plank launched Under Armor in 1996 to become what its name suggests – a protective layer of clothing worn by competitive athletes who sweat during the heat of the game.

The first product is a fitted T-shirt called “The Shorty,” made of moisture-wicking fabric for elite athletes to wear under their uniforms to keep them dry. Its iconic Under Armor logo interlaced “U” and “A” is strategically placed on the neckline, to ensure it’s easy to spot.

The T-shirt finally launched the brand to the public after it quickly gained fandom among professional athletes. The startup’s fast track to success led to Under Armor being announced in 2005. It’s initial slogan: “Protect This House.”

By 2010, the business had surpassed $1 billion in sales. Five years later, sales surpassed $4 billion. But then the momentum started to wane.

A prolonged period of pain
The past eight years for Under Armor have been a struggle that never seems to let up.

The company on Thursday announced a restructuring of its business as its North American sales in its most recent quarter declined 10%. Looking ahead, the company made a grim forecast for its current fiscal year, expecting sales to fall 15% to 17%. The layoffs will be part of efforts to right the ship but executives did not say how many workers would lose their jobs.

Under Armor also announced a $500 million share buyback, a move to reward shareholders.

Plank told analysts on Thursday’s earnings call that he will take back control of the business, which is focused on selling fewer but more innovative products to meet the needs of athletes, significantly speeding up product development, refocusing on the menswear category and reducing its discounts. product.

“We just do too much. There are too many products, too many initiatives. To realign this brand, we must be highly focused and prioritize what needs to be done so that our team knows exactly what needs to be done with a clear definition of success for them,” said Plank.

It can’t be ignored that management issues have also plagued the business over the years, Swartz said.

“The company has basically had five CEOs in the last five years, if you count Kevin Plank twice,” Swartz said. Plank was announced as CEO — again — in March, ending Stephanie Linnartz’s very short one-year tenure.

Plank acknowledged during an analyst call on Thursday that frequent C-suite turnover has been a serious barrier to success.

“With several CEOs and heads of product, marketing in North America over the past half decade, the constant turnover of critical leadership has been the cause of our inability to remain agile and decisive,” he said.

A string of controversies
The period from 2016 onwards is when “things really started to fall apart” at Under Armour, Swartz said. A major issue arose when a key distribution channel for the brand went bankrupt and closed shop.

Most Under Armor products are sold through sporting goods retailers and department stores, including Macy’s and Kohl’s, and online.

“When Sports Authority went bankrupt in 2016 it really hurt Under Armour. It’s a major customer of the brand, as is Dick’s Sporting Goods,” Schwartz said.

In 2020, UCLA sued Under Armor for terminating a $280 million sponsorship deal. The suit alleges that Under Armor was struggling before Covid-19 and that it used the pandemic as an excuse to get out of the deal.

The 15-year sponsorship deal, signed in 2016, was the largest in college sports history at the time. In exchange for $280 million, UCLA student-athletes and staff will wear and use products exclusively supplied by Under Armor (UA). The company reached a settlement with UCLA.

The following year, Under Armor paid $9 million to settle a multi-year investigation with the US Securities and Exchange Commission into its past accounting practices, according to Shoe News.

Outside of another bad press for Plank, competitors are gaining ground in Under Armour, whose high-performance sportswear offerings aren’t the best fit for the Lululemon-driven athleisure trend that has emerged and then dominated the way consumers dress during the pandemic.

“Under Armor has failed to capture the streetwear, or athletic style that pushed On or Hoka or Merrell,” said Zak Stambor, senior analyst, retail and e-commerce, with market research firm eMarketer, in an interview with CNN. “It needs to figure out what’s next. If it can’t do that, then it needs to quickly factor in what other brands have identified as the next big thing.”

Stambor questioned Plank’s decision to pull back from discounts at a time when consumers are so focused on value.

“It carries the risk of a drop in demand especially when you don’t have a must-have product,” he said. Stambor said the decision also stands in stark contrast to recent moves made by rival Adidas to launch cheaper versions of their must-have shoes.

Despite the significant challenges, Stambor said Under Armor can remain relevant in the market. “It’s a very big company with big results. It’s not as if the brand has completely diminished in rank. It’s a bit stuck,” he said.

“Under Armor needs to identify what consumers want and lean heavily towards that. It has not fully demonstrated the ability to do so over the past few years,” he said.

One area of strength is the brand’s long-term celebrity brand partnerships, said Eric Smallwood, president of Apex Marketing Group, a sports and entertainment firm that evaluates sponsorships and advertising campaigns.

“Under Armour’s relationship with ‘The Rock’, Dwayne Johnson, is quite effective. They have expanded into the United Football League, which is a football league that Johnson co-owns,” Smallwood said. “Their uniform is Under Armour.”

Golf is another area where the brand is making progress while the Stephen Curry partnership has kept the brand visible in the basketball world, Smallwood said.

Basketball superstar Curry, arguably the best shooter in history, famously signed with Under Armor instead of Nike in 2013. Meanwhile, the brand’s other major NBA star, Joel Embiid, quit Under Armor in 2023 months after he was named the most players in the league. valuable player.

Embiid signed a sneaker deal with Skechers last month. Under Armor is reportedly bidding hard for a sneaker deal with WNBA phenom Caitlin Clark, who many expect will sign with Nike.

“The bottom line for Under Armor is for the brand to be clear about its identity,” he said. “Are they a shoe company? Are they a clothing company? At some point everyone ditches their moisture-wicking underwear. Then maybe they have an identity crisis. It will decide whether they want to transform into a lifestyle brand or stay in performance-based products.”

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