BADM 495 Pioneer Academy Under Armour Case Study

Prof. S. Herman
From:
Date:
Subject:
________________________________________________________________________
Read what is given below, then delete this line and everything below, before beginning to write
your memo:
•
Change the parts of the memo header that need to be changed (To, From, Date, Subject).
Please do not reformat the memo header to make it shorter or longer.
•
Case memos are two to three typed single space pages in length, with 1 inch margins for
each page, and everything below the memo header is typed in Times New Roman 12
point font. Write in paragraph form, using bullets sparingly, if at all. Use headers to
separate sections as and when you deem appropriate.
•
You can attach as many appendices as you like, although none are required. Examples of
what might go in an appendix include a more complete presentation of a financial
analysis, a more thorough presentation of a five forces analysis, or further details for
some other kind of analysis.
•
Your written case memorandum must be carried out individually. You must submit it in
person, via hard copy, by the end of the class period it is due. Late work is not accepted,
for case assignments.
•
For the first case, you need a problem statement (one or more key strategic problems); for
the second and third cases, you need a problem statement and your strategic analysis
(and that’s all). You need a problem statement, your strategic analysis, and alternatives
and recommendations for your last case memo.
•
Begin your memo with your problem statement for all case memos. Then do your
strategic analysis. Then describe and compare alternatives and give your
recommendations (for your last case memo).
Final PDF to printer
CASE 8
Under Armour’s Strategy in 2020: Can It
Revive Sales and Profitability in Its
Core North American Market?
®
Arthur A. Thompson,
The University of Alabama
G
oing into 2020, Under Armour was headed
into its fifth consecutive year of sales difficulties in its core North American market which
accounted for over two-thirds of the company’s annual
sales revenues. The troubles began in 2016 and undermined Under Armour’s reputation as an up-and-coming
growth company in the sports apparel business. Starting
in the second-quarter of 2010 and continuing through
the third-quarter of 2016, Under Armour achieved revenue growth of 20+ percent for 26 consecutive quarters. In announcing the company’s 2016 third-quarter
financial results, Chairman and chief executive officer
(CEO) Kevin Plank said:1
Over the past 20 years, we have established ourselves as
a premium global brand with a track record of strong
financial results. Looking back over the past nine
months, it has never been more evident that we are at a
pivotal moment in time, where the investments we are
making today will fuel our growth and drive our industry leadership position for years to come. As a growth
company with an expanding global footprint and businesses like footwear and women’s each approaching
a billion dollars this year, we have never been more
focused on the long-term success of our Brand.
But despite Plank’s optimism about Under
Armour’s future prospects, he went on to announce a
reduced sales and earnings outlook for the fourth quarter of 2016 and weakening demand for Under Armour
products in North America. So far in 2016, UA’s quarterly revenue growth in North America over the same
quarter of 2015 slowed from 25.7 percent in Q1 of
2016 to 21.5 percent in Q2 to 15.6 percent in Q3.
tho35176_case08_C86-C111.indd
86
But in January 2017, Under Armour’s report
of its 2016 fourth quarter and full-year results rang
louder alarm bells, despite record annual revenues of
$4.8 ­billion for full-year 2016, up 22 percent over 2015,
and record net profits of $259 ­million, up 10.5 ­percent
over 2015. There were some obvious cracks in Under
Armour’s record-setting 2016 performance:
• Fourth-quarter revenues rose only 11.7 percent
over fourth-quarter 2105 revenues, by far the lowest percentage fourth-quarter increase since 2010,
which had ranged from a high of 35.5 percent in
2010 to a low of 25.5 percent in 2012.
• Fourth-quarter 2016 income from operations
dropped 6.1 percent from the same quarter a
year earlier and fourth-quarter 2016 net income
dropped 0.67 percent.
• Fourth-quarter 2016 revenues in North America
were up only 5.9 percent and operating income in
North America dropped 15.0 percent.
• Full-year operating income in North America
dropped from $461 ­million in 2015 to just
$411.3 million in 2016.
To make matters worse, Plank said the company’s outlook for full-year 2017 was gloomy—expected
revenue growth of 11 to 12 percent (the lowest annual
growth rate since the company became a “C” corporation in 2002) and a $97.5 ­million decline in operating income to approximately $320 ­million, attributed
mainly to “strategic investments in the company’s
Copyright ©2021 by Arthur A. Thompson. All rights reserved.
09/22/20 06:05 PM
Final PDF to printer
CASE 8
fastest growing businesses.”2 Nonetheless, Kevin
Plank reiterated his confidence that the company’s
resources and capabilities would enable it to cope
with the challenges ahead:3
We are incredibly proud that in 2016, we once again
posted record revenue and earnings; however, numerous challenges and disruptions in North American
retail tempered our fourth quarter results. The strength
of our Brand, an unparalleled connection with our
consumers, and the continuation of investments in our
fastest growing businesses—footwear, international and
direct-to-consumer—give us great confidence in our ability to navigate the current retail environment, execute
against our long-term growth strategy, and create value
to our shareholders.
Under Armour’s financial performance in 2017
turned out to be worse than expected. A year after growing North American sales from almost $1.0 ­billion in
2012 to $4.0 billion in 2016 (a compound growth rate
of 41.4 percent), Under Armour’s 2017 sales in North
America dropped $200 ­million. Total revenues worldwide were up a meager 3.1 ­percent; operating income
dropped by $290 ­million to just $27.8 ­million; and the
company reported a net loss of $48.3 ­million. The big
drops in operating income and the net loss were partly
attributable to management’s announcement in August
2017 that it would pursue a $140 to $150 ­million restructuring plan to address operating inefficiencies, transition to a product category management structure, and
reengineer the company’s go-to-market process (product innovation and design, vendor relationships, delivery times of seasonal products, inventory management,
profit margin control, and speed of response to shifting
consumer preferences and market conditions). In addition, the plan called for a global workforce reduction
of about 300 people, inventory reductions and writedowns, and charges for asset impairments, facility and
lease terminations, and contract terminations.
But part of Under Armour’s problems in North
America in 2017 stemmed from an unexpected
competitive offensive by Germany-based The adidas Group. In 2015, Under Armour overtook adidas
(pronounced ah-di-dahs) to become the second largest seller of sports apparel, active wear, and athletic
footwear in North America.4,5 But top executives at
adidas launched an unusually strong series of strategic initiatives in 2017 to increase the company’s
share of the sports apparel, active wear, and athletic
footwear market in North America from an estimated
10 percent to around 15 to 20 percent. The results
tho35176_case08_C86-C111.indd
87
Under Armour’s Strategy in 2020
C-87
were impressive, Sales of adidas-branded products in
North America grew by a resounding 25 percent in
2017, allowing adidas to reclaim second place in the
overall North American sportswear market and dropping Under Armour back into third place.
Despite the sizable restructuring efforts undertaken at Under Armour in the last four months of
2017 and continuing into early 2018, Under Armour
executives did not foresee a quick turnaround in
North America. Their 2018 outlook for North
American revenues was a mid-single-digit decline,
although international sales were expected to grow
25 percent. Operating income was projected to be
$20 ­million to $30 ­million partly because, after additional review, management decided to pursue a second restructuring plan in 2018 to further optimize
operations. This plan entailed cash related charges
of up to $150 ­million for facility and lease terminations, contract terminations, and other restructuring
charges, up to $25 ­million in non-cash charges related
to inventory write-downs and asset-related impairments that were expected to produce a minimum of
$75 ­million in savings annually in 2019 and beyond.
But, again, Under Armour failed to achieve the
modest revenue gains and return to profitability that
management expected. While revenues for 2018 rose
just over four percent to $5.2 billion, operating income
plummeted by over $50 ­million, resulting in an operating loss of $25 ­million and a net loss of $46.3 ­million.
A sizable portion of the decline in profitability
stemmed from price discounting aimed at boosting
sales volumes in North America; the price discounting
failed to attract sufficient customer purchases to prevent a further two percent erosion of North American
revenues. Nonetheless, Under Armour Chairman and
CEO Kevin Plank put a good face on the year, saying:6
Our 2018 results demonstrate significant progress
against our multi-year transformation toward becoming
an even stronger brand and more operationally excellent company,” said Under Armour Chairman and CEO
Kevin Plank. “As we look ahead to 2019, our accelerated
innovation agenda, disciplined go-to-market process and
powerful consumer-centric approach gives us increasingly greater confidence in our ability to deliver for
Under Armour athletes, customers and shareholders.”
UA management’s outlook for 2019 was flat
sales in North America, a low double-digit increase
in international revenues, a four percent increase in
total revenues, operating income in the range of
$220 ­million to $230 ­million, and earnings per
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-88
Cases in Crafting and Executing Strategy
share of about $0.33. While closer to the mark,
Under Armour’s 2019 performance remained weak,
Revenue was up one percent to $5.27 billion, revenues in North America declined a further $78 ­million
to $3.66 ­billion, operating income was $237 ­million,
and net income of $92 ­million translated in earning
per share of $0.20, after special charges equal to an
EPS impact of $0.14. In announcing the results, newly
appointed President and CEO Patrik Frisk said:7
Under Armour is an operationally better company following our transformation over the past few years, with
a clearly defined and focused strategy, enhanced go-tomarket process, cleaner inventories, and a stronger balance sheet. However, ongoing demand challenges and
the need to drive greater efficiencies in our business
requires us to further prioritize our investments to put
our company in the best position possible to achieve
sustainable, profitable growth over the long-term.
The company’s initial 2020 outlook included
an estimated negative impact of the coronavirus
outbreak in China of approximately $50 ­million to
$60 ­million in sales related to the first quarter of 2020.
A low single-digit percentage decline in total revenues
was expected, which included a high single-decline
in North America revenues and a low double-digit
increase in international revenues. Operating income
was expected to be in the range of $105 ­million to
$125 ­million, with diluted EPS of $0.10 to $0.13.
Management also announced it was currently
evaluating a potential 2020 restructuring initiative
to rebalance its cost base to further improve profitability and cash flow generation. In connection with
this potential restructuring, the company was considering $325 ­million to $425 ­million in estimated
pre-tax charges for 2020, including approximately
$225 ­million to $250 ­million related to foregoing
opening a flagship store in New York City while pursuing options to sublease the space under the longterm lease already in place.
Exhibit 1 shows selected financial statement
data for Under Armour for 2016 through 2019.
Exhibit 2 shows Under Armour’s revenues and
operating income for each of its four geographic
regions and its connected fitness business for 2016
through 2019.
Company Background
Founded in 1996 by former University of Maryland
football player Kevin Plank, Under Armour was the
tho35176_case08_C86-C111.indd
88
originator of sports apparel made with performanceenhancing fabrics—gear engineered to wick moisture from the body, regulate body temperature, and
enhance comfort regardless of weather conditions
and activity levels. Plank’s initial plan was to make
a T-shirt that provided compression and wicked perspiration off the wearer’s skin, thereby avoiding the
discomfort of sweat-absorbed apparel—and sell the
T-shirt to athletes and sports teams.
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. Plank’s
sales successes were soon good enough that he convinced Kip Fulks, who played lacrosse at Maryland,
to become a partner in his enterprise. Operations
were conducted on a shoestring budget out of
the basement of Plank’s grandmother’s house in
Georgetown, a Washington, D.C. suburb. In 1998,
the company’s sales revenues and growth prospects
were sufficient to secure a $250,000 small-business
loan, enabling the company to move operations to
a facility in Baltimore. Ryan Wood, one of Plank’s
acquaintances from high school, joined the company
in 1999 and became a partner.
KP Sports’ sales grew briskly as it expanded its
product line to include high-tech undergarments tailored for athletes in different sports and for cold 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 one team at a particular school but 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, Scott Plank, Kevin’s older brother, joined
the company as Vice President of Finance and certain other operational and strategic responsibilities.
When Galyan’s, a large retail chain that has since
been acquired by Dick’s Sporting Goods, signed on
to carry KP Sports’ expanding line of performance
apparel for men, women, and youth in 2000, sales to
other sports apparel retailers began to explode. By
the end of 2000, the company’s products were available in some 500 retail locations.
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 on
January 1, 2002. The company opened a Canadian
09/22/20 06:05 PM
Final PDF to printer
CASE 8
EXHIBIT 1
Under Armour’s Strategy in 2020
C-89
Selected Financial Data for Under Armour, Inc., 2016–2019 (in m
­ illions)
Selected Income Statement Data
Net revenues
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Restructuring and impairment charges
Income from operations
Interest expense, net
Other expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Income (loss) from equity method investment
Net income (loss)
Selected Balance Sheet Data
Cash and cash equivalents
Working capital*
Inventories at year-end
Total assets
Long-term debt, including current maturities
Total stockholders’ equity
Selected Cash Flow Data
Net cash provided by operating activities
2019
2018
2017
2016
$ 5,267.1
2,796.6
2,470.5
2,233.8
—
236.8
(21.2)
(5.7)
209.8
70.0
(47.7)
92,1
$ 5,193.2
2,852.7
2,340.5
2,182.3
183.1
(25.0)
(33.6)
(9.2)
67.8

$ 4,989.2
2,737.8
2,251.4
2,099.5
124.0
27.8
(34.5)
(3.6)
(10.3)
38.0
$ 4,833.3
2,584.7
2,248.6
1831.1
—
417.5
(26.4)
(2.8)
388.3
131.3
(46.3)
$ (48.3)
$ 257.0
$ 788.1
1,280.2
892.3
4,843.5
592.7
2,150.1
$ 557.4
1,277.7
1,019.5
4,245.0
728.8
2,016.9
$ 312.5
1,277.3
1,158.5
4,006.4
917.0
2,018.6
$ 250.5
1,279.3
917.5
3,644.3
817.4
2,030.9
$ 509.0
$ 628.2
$ 234.1
$ 364.4
*Working capital is defined as current assets minus current liabilities.
Note: Some totals may not add up due to rounding and to the omission of some line items in the company’s income statement and consolidated balance sheet.
Source: Company 10-K report for 2019, pp. 28–29 and pp. 55–59.
EXHIBIT 2  Under Armour’s Revenues and Operating Income for Its Four
Geographic Regions and Its Connected Fitness Business, 2016–2019
A. Net revenues by geographic region (in ­millions of $)
North America
EMEA*
Asia-Pacific
Latin America
Connected fitness
Total net revenues
2019
2018
2017
2016
$ 3,658.4
621.1
636.3
196.1
136.4
$ 5,267.1
$ 3,735.3
591.1
557.4
190.8
120.4
$5,193.2
$3,802.4
470.0
433.6
181.3
89.2
$4,976.6
$4,005.3
330.6
268.6
141.8
80.4
$4,833.3
*Europe–Middle East–Africa.
tho35176_case08_C86-C111.indd
89
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-90
Cases in Crafting and Executing Strategy
B. Operating income (loss) by geographic region (in ­millions of $)
North America
EMEA*
Asia-Pacific
Latin America
Connected fitness
Total operating income
2019
2018
2017
2016
$ 733.4
53.7
97.6
(3.2)
17.1
$ 236.8
$ 718.2
30.4
103.5
(16.9)
5.9
$ (25.0)
$ 700.2
26.0
89.3
(14.4)
(6.5)
$ 27.8
$ 408.4
11.4
68.3
(33.9)
(36.8)
$ 417.5
*Europe–Middle East–Africa.
Note: Totals do not add because numbers for the “Corporate Other” non-operating segment were omitted; these relate to currency hedge
gains and losses, restructuring charges, and various “intersegment eliminations” not directly pertinent to UA’s net revenues and operating
income by geographic region.
Source: Company 10-K reports, 2019 and 2018.
sales office in 2003 and began selling its products
in the United Kingdom in 2005. At year-end 2005,
about 90 percent of the company’s 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 professional athletes and teams, most
notably in the National Football League, Major
League Baseball, the National Hockey League, and
some 400 men’s and women’s sports teams at NCAA
Division 1-A colleges and universities.
In late 2005, KP Sports changed its name to
Under Armour and became a public company with
an initial public offering of common stock that
generated net proceeds of nearly $115 ­million.
Under Armour immediately began pursuing a longterm strategy to grow its product line, establish a
market presence in a growing number of countries
across the world, and build public awareness of the
Under Armour brand and its interlocking “U” and
“A” logo.
Stock Price, Ownership, and
Management Changes at
Under Armour 2016–2020
Since early 2016 and continuing into early 2020,
Under Armour’s stock price remained below the
$105 per share achieved in July 2015, with most of
the decline coming in 2016—at year-end 2016, the
price was $27, and at the end of February 2020,
it was $13 per share due to the company’s weak
tho35176_case08_C86-C111.indd
90
outlook for the remainder of 2020. Aside from the
company’s poor financial performance, the stock
price declines were also a reflection of investor concerns about whether the Under Armour brand was
in deep trouble in North America—the experiences
of other troubled brands had demonstrated it was
extremely difficult to rebuild a brand once it had
fallen out of favor with the public. Investors had also
been unnerved in November 2017 when analysts at
24/7 Wall St. had ranked Kevin Plank fourth on its
list of “20 Worst CEOs in America 2017.”8 Plank
had been under the microscope since a controversial
split of the company’s stock in April 2016 into Class
A (vote-entitled), Class B, and Class C (no voting
power) shares, that resulted in Kevin Plank having
65 percent of the total shareholder voting power on
every shareholder vote taken.
Since the stock split, Plank had sold some of
his Class C shares to fund the creation of Plank
Industries, a privately-held investment company with
ownership interests in commercial real estate, hospitality, food and beverage, venture capital, and thoroughbred horse racing. Plank’s critics had claimed
the new venture was absorbing too much of his time.
In addition, Plank’s time in dealing with UA’s operating issues and sales slowdown was constrained
by his involvement in helping spearhead a 25-year,
$5.5 billion project (being partially financed with
bonds issued by the City of Baltimore’s Baltimore
Development Corp.) to develop waterfront property in South Baltimore into a mini-city called Port
Covington that would create thousands of jobs
09/22/20 06:05 PM
Final PDF to printer
CASE 8
and drive demand for office buildings, houses,
shops and restaurants. Plank Industries’ Sycamore
Development Co. was the lead private developer
of the Port Covington project. Sycamore had completed a number of properties in the project, including a $24 ­million renovation of a former Sam’s Club
into a 170,000 square-foot facility for Under Armour,
tentatively named Building 37 (Plank’s number on
his University of Maryland football jersey was 37).
Building 37 was on acreage Under Armour had purchased for $70.3 ­million in 2014 and was being leased
by Sycamore to Under Armour for $1.1 ­million
annually. Building 37 was the first phase of Under
Armour’s plan to create a 50-acre global headquarters campus that would include a new headquarters
building on the site of Building 37, additional Under
Armour facilities and manufacturing space, a manmade lake, and a small stadium—a layout designed
to house as many as 10,000 Under Armour employees (UA employed approximately 2,100 people in
Baltimore in early 2018, some 600 of which were
housed in Building 37).
To compensate for the time he was spending
on outside interests, Plank engineered the appointment of Patrik Frisk, formerly CEO of the ALDO
Group, a global footwear and accessories company,
as President and Chief Operating Officer (COO)
of Under Armour in June 2017. Frisk had 30 years
of experience in the apparel, footwear, and retail
industry, holding top management positions with
responsibility for such brands as The North Face®,
Timberland®, JanSport®, lucy®, and SmartWool®.
As president and COO, Frisk was assigned responsibility for Under Armour’s go-to-market strategy and the successful execution of its long-term
growth plan. Kevin Plank’s titles were Chairman of
the Board and CEO. Then in October 2019, Under
Armour announced that Frisk would become CEO,
President, and a member of Under Armour’s Board
of Directors, effective January 1, 2020, and that
Kevin Plank would become Executive Chairman
of the Board and Brand Chief. Frisk would report
directly to Kevin Plank.
In 2008, Plank voluntarily reduced his salary
from $500,000 to $26,000,000, which was his approximate salary when he founded Under Armour. As
UA’s largest stockholder, Plank believed he should be
compensated for his services based primarily on the
company’s annual incentive plan tied to the company’s performance and on annual performance-based
tho35176_case08_C86-C111.indd
91
Under Armour’s Strategy in 2020
C-91
equity awards. Plank’s $26,000 salary remained in
place in 2020.
UNDER ARMOUR’S STRATEGY
IN 2020
Until 2018, Under Armour’s mission was “to make
all athletes better through passion, design, and
the relentless pursuit of innovation.” A reworded
mission—­“Under Armour Makes You Better”—was
publicly announced in early 2018. Kevin Plank said
the new wording was meant to better convey that “in
every way we connect, through the products we create, the experience we deliver and the inspiration we
provide, we simply make you better.”9 In late 2018,
Kevin Plank told a gathering of investors and Wall
Street analysts that Under Armour’s vision was “to
inspire you with performance solutions you never
knew you needed and can’t imagine living without.”
The company’s principal business activities in
2020 were the development, marketing, and distribution of branded performance apparel, footwear,
and related sports accessories for men, women, and
youth. The brand’s moisture-wicking apparel and
footwear products were engineered in many designs
and styles for wear in nearly every climate to provide
a performance alternative to traditional products.
Under Armour sports apparel was worn by athletes
at all levels, from youth to professional, and by consumers with active lifestyles. The company generated revenues from the sale of its products globally
through two primary channels: (1) sales to national,
regional, independent and specialty wholesalers and
distributors in many countries across the world and
(2) direct-to-consumer sales (sales at the company’s
ecommerce websites in various geographic regions
and at its company-owned brick-and-mortar Brand
Houses and factory outlet stores).
In the company’s earlier years, revenue growth
was achieved primarily by growing wholesale sales
to retailers of sports apparel, athletic footwear, and
sports equipment and accessories in North America.
Starting in 2010, Under Armour began increasing
its global footprint by expanding its wholesale and
online sales to countries in Europe, the Middle East,
and Africa (EMEA), the Asia-Pacific, and Latin
America.
In 2013, Under Armour acquired MapMyFitness,
a provider of website services and mobile apps to
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-92
Cases in Crafting and Executing Strategy
• Continuing to bring authenticity to the brand
fitness-minded consumers across the world; Under
Armour used this acquisition, along with several
­follow-on acquisitions in 2014 and 2015, to create
what it termed a “connected fitness” business offering digital fitness subscriptions and licenses, mobile
apps, and other fitness-tracking and nutritionaltracking solutions to athletes and fitness-conscious
individuals across the world. During 2016–2019, the
company’s connected fitness business experienced
strong revenue growth and strategic initiative to
become a major revenue driver in the years to come.
Exhibit 3 shows Under Armour’s revenues for
its three main product categories plus revenues associated with its licensing arrangements and its connected fitness business for 2016 through 2019.
through innovative products and providing customers with new solutions and appealing experiences that they quickly discover are so beneficial
as to merit “must have” status.
• Exerting the efforts necessary to continue to grow
Under Armour’s revenues in the Latin America,
EMEA, and Asia-Pacific regions.
• Continued emphasis on using the endorsements
of athletes and other brand influencers to enhance
global awareness of the Under Armour brand
name and strengthen Under Armour’s image as
a premium-priced provider of high-performance
apparel, footwear, and accessories.
• Growing the company’s connected fitness business via securing more digital subscriptions
and selling additional digital advertising on its
MapMyFitness, MyFitnessPal, and Endomondo
platforms.
Growth Strategy
Under Armour’s growth strategy in 2020 was centered on five strategic initiatives:
• Rejuvenating sales growth and profitability in
Product Line Strategy
North America, via an enhanced e-commerce
platform, improved shelf space visibility in retail
stores, reduced price discounting, increased support of retailer efforts to merchandise Under
Armour products without having to resort to offprice sales promotions, and greater emphasis on
brand advertising and promotional activities that
increase customer willingness to pay full price for
Under Armour products and help restore UA’s
image as a premium-priced brand.
For a number of years, expanding the company’s
product offerings and marketing them at multiple price points had been a key element of Under
Armour’s strategy. The goal for each new item
added to the line-up of offerings was to provide consumers with a product that was a superior alternative to the traditional products of rivals—striving to
always introduce a superior product would, management believed, help foster and nourish a culture of
EXHIBIT 3  Under Armour’s Revenues, by Product Category 2016–2019
(in ­millions of $)
2019
Apparel
Footwear
Accessories
Total net sales
License revenues
Connected fitness
Total net revenues
2018
2017
2016
Dollars
Percent
Dollars
Percent
Dollars
Percent
Dollars
Percent
$ 3,470.3
1,086.6
416.4
4,973.2
138.8
136.4
$ 5,267.1
65.9%
20.6
7.9
94.4%
2.6
2.6
100.0%
$ 3,464.1
1,063.2
422.5
4,949.8
124.8
120.4
$ 5,193.2
66.7%
20.5
8.1
95.3%
2.4
2.3
100.0%
$ 3,287.1
1,037.8
445.8
4,768.3
116.6
101.9
$ 4,989.2
66.4%
21.0
9.0
96.3%
2.4
2.1
100.0%
$ 3,229.1
1,010.7
406.6
$ 4,646.4
99.8
88.4
$ 4,833.3
66.1%
20.7
8.3
95.1%
2.0
1.8
100.0%
Note: Percentages do not add to 100% due to not including numbers for “Corporate Other” which relate to currency hedge gains and
losses and various “intersegment eliminations” not directly pertinent to UA’s net revenues by product category.
Source: Company 10-K reports, 2019 and 2018.
tho35176_case08_C86-C111.indd
92
09/22/20 06:05 PM
Final PDF to printer
CASE 8
innovation among all company personnel. According
to Kevin Plank, “we focus on creating products you
don’t know you need yet, but once you have them,
you won’t remember how you lived without them.”10
Apparel The company designed and merchandised
three lines of apparel gear intended to regulate
body temperature and enhance comfort, mobility, and performance regardless of weather conditions: 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 2015. 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
would 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 like snow
skiing who needed both warmth and moisture-wicking
protection from becoming overheated. ColdGear was
designed to wick moisture from the body while circulating body heat from hotspots 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 points than other Under
Armour gear lines.
AllSeasonGear. AllSeasonGear was designed to be
worn in temperatures between the extremes of hot and
cold 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). Some of Under Armour’s apparel
and footwear products contained MicroThread, a fabric technology that used elastomeric (stretchable)
thread to create a cool moisture-wicking microclimate, prevented clinging and chafing, and allowed
tho35176_case08_C86-C111.indd
93
Under Armour’s Strategy in 2020
C-93
garments to dry 30 percent faster and be 70 percent
more breathable than similar Lycra construction.
Under Armour had also introduced a collection of
workout gear, headwear, and footwear with an exclusive CoolSwitch coating on the inside of the fabric
that pulled heat away from the skin, allowing the
wearer to feel cooler and perform longer.
Most recently, Under Armour had introduced
Rush™ or Recover™ products designed to increase
blood flow.
Products within each gear line were offered in
three fit types: compression (tight fit), fitted (athletic
fit), and loose (relaxed). In 2016, Under Armour
introduced apparel items containing MicroThread, a
fabric technology that used elastomeric (stretchable)
thread to create a cool moisture-wicking microclimate, prevented clinging and chafing, allowed garments to dry 30 percent faster and be 70 percent
more breathable than similar Lycra construction,
and were so lightweight as to “feel like nothing.” It
also began using a newly developed insulation called
Reactor in selected ColdGear items and introduced a
new apparel collection with an exclusive CoolSwitch
coating on the inside of the fabric that pulled heat
away from the skin, allowing the wearer to feel cooler
and perform longer.
Footwear Under Armour began marketing athletic footwear for men, women, and youth in 2006
and expanded its footwear line every year since. Its
2019 offerings included footwear models specifically
designed for performance training, running, footwear, basketball, golf, and outdoor wear, plus football, baseball, lacrosse, softball, and soccer cleats.
Under Armour’s footwear models were light, breathable, and built with performance attributes specific
to their intended use. Over the past five years, a
stream of innovative technologies had been incorporated in the ongoing generations of footwear models/
styles to improve stabilization, cushioning, moisture
management, comfort, directional control, and performance. As of 2020, Under Armour footwear was
designed with under-foot cushioning technologies
labeled UA HOVR™, UA Micro G®, and Charged
Cushioning®, engineered to a specific sport with
advanced outsole construction.
New footwear collections for men, women, and
youth were introduced annually, sometimes seasonally. Most new models and styles incorporated fresh
technological features of one kind or another. Since
2012, Under Armour had more than tripled the
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-94
Cases in Crafting and Executing Strategy
number of footwear styles/models priced above $100
per pair. Its best-selling offerings were in the basketball and running shoe categories.
To capitalize on a recently signed long-term
endorsement contract with pro basketball superstar
Stephen Curry, Under Armour began marketing a
Stephen Curry Signature line of basketball shoes in
2014; the so-called Curry One models had a price
point of $120. This was followed by a Curry Two collection in 2015 at a price point of $130, a Curry 2.5
collection at a price point of $135 during the NBA
playoffs in May and June 2016, a Curry Three collection in Fall 2016, a Curry 4 collection at a price point
of $130 in Fall 2017, a Curry 5 collection at a price
point of $130 at the start of the NBA playoffs in May
2018, a Curry 6 collection at a price point of $130 in
December 2018, and a Curry 7 collection at a price
point of $140 in November 2019.
After signing pro golfer Jordan Spieth to a
10-year endorsement contract in early 2015—Spieth
had a spectacular year on the Professional Golf
Association (PGA) tour in 2015 and was named
2015 PGA Tour Player of the Year—Under Armour
promptly sought to leverage the signing by introducing an all-new 2016 golf shoe collection in April
2016. The collection had 3 styles, ranging in price
from $160 to $220. A new Spieth One Signature
collection was introduced in early 2017 with much
the same price points, followed by a Spieth Two collection in early 2018, which was accompanied by a
Spieth Tour™ golf glove, and a Spieth 3 collection
in early 2019.
Under Armour debuted its first “smart shoe”
(called the SpeedForm Gemini 2 Record Equipped)
at a price point of $150 in 2016; smart shoe models were equipped with the capability to connect
automatically to UA’s connected fitness website and
record certain activities in the wearer’s fitness tracking account.
In 2018, using freshly-developed connected fitness technologies and several other innovations,
Under Armour debuted a new, multi-featured
HOVR™ running shoe, which Kevin Plank hailed as
a new product that hit what the company called “the
trifecta—style, performance, and fit.” HOVR models were priced from $100 to $140; all models used
compression mesh and a special molded foam that
provided a “zero gravity feel,” gave the runner return
energy with each step to reduce impact, and claimed
tho35176_case08_C86-C111.indd
94
to deliver “unmatched comfort.” The higher-priced
“Connected” HOVR models had built-in Under
Armour Record Sensor™ technology that could be
paired with a mobile phone and used to track, analyze, and store almost every known running metric,
enabling runners to know what they needed to do to
get better. Plank believed the HOVR was “a home
run” and a reflection of the company’s growing capabilities to churn out innovative products. In 2020,
HOVR models were available for running, training,
basketball, golf, and casual wear; a number of the
HOVR models for running had connected technology features.
Growing numbers of Under Armour’s footwear
models in 2019–2020 featured such recently developed technologies as Anafoam (which provided a
chafe-free, body-mapped fit and lightweight structure
and support) and Charged Cushioning® (which provided stabilization, directional cushioning, and moisture management, engineered to maximize comfort
and control). UA’s Clutch Fit® technology used in
some footwear models flexed and responded “like
your second skin.”11 Shoppers could also design their
own customized footwear, using uploaded images,
customizable patterns, an assortment of styles and
technologies, and a giant array of color options.
wanted
Accessories Under Armour’s accessory line in 2019
included gloves, socks, hats and headwear, belts,
backpacks and bags, eyewear, protective gear, headphones, phone cases and mounts, water bottles and
coolers, and an assortment of sports equipment. All
of these accessories 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®, COLDGEAR®, and Clutch Fit®
technologies and were designed with advanced fabrics to provide various high-performance attributes
that differentiated Under Armour gloves from those
of rival brands.
Connected Fitness In December 2013, Under
Armour acquired MapMyFitness, which served one
of the largest fitness communities in the world at
its website and offered a diverse suite of websites
and mobile applications under its flagship brands,
MapMyRun and MapMyRide. Utilizing GPS
and other advanced technologies, MapMyFitness
09/22/20 06:05 PM
Final PDF to printer
CASE 8
provided users with the ability to map, record,
and share their workouts. Under Armour acquired
European fitness app Endomondo and food-logging
app MyFitnessPal in 2015, enabling UA to create a
multifaceted connected fitness dashboard that used
four independently functioning apps (MapMyFitness,
MyFitnessPal, Endomondo, and UA Record™) to
enable subscribers to log workouts, runs, and foods
eaten, and to use a digital dashboard to review measures relating to their sleep, fitness, activity, and
nutrition. Next, UA introduced a Connected Fitness
System called Under Armour HealthBox™ that consisted of a multifunctional wristband (that measured
sleep, resting heart rate, steps taken, and workout
intensity), heart rate strap, and a smart scale (that
tracked bodyweight, body fat percentage, and progress toward a weight goal); the wristband was water
resistant, could be worn 24/7, and had Bluetooth
connectivity with UA Record.
Kevin Plank was so enthusiastic about the longterm potential of Under Armour’s Connected Fitness
business that he had boosted the company’s team of
engineers and software developers from 20 to over
350 during 2014 and 2015. In 2016, Under Armour
organized all of its digital and fitness technologies and
products into a new business division called Connected
Fitness, under the leadership of a senior vice president
of digital revenue. By December 2018, Under Armour
believed it had created the world’s largest digital health
and fitness community. More than 250 ­million people
had downloaded one of the company’s digital fitness
apps. Many users were quite active, with more than
2 ­million workouts and 30 ­million foods being logged
daily across the world. Under Armour had learned that
members of its digital ecosystem purchased 36 percent
more Under Armour products than other consumers
and that their brand preference for Under Armour
products was significantly higher.12
While Connected Fitness sales grew rapidly, the
business initially lost ­millions of dollars annually
and achieved profitability in 2018—see Exhibits 2A
and 2B. As part of the 2017 restructuring program,
Under Armour merged its core connect fitness digital products, digital engineering, and digital media
under the direction of a chief technology officer;
this management arrangement evolved further in
early 2018 with the appointment of a new senior vice
president, digital product, who reported to the chief
technology officer and had responsibility for leading
tho35176_case08_C86-C111.indd
95
Under Armour’s Strategy in 2020
C-95
the strategy for all digital product development in
collaboration with executive management, product
category heads, marketing, and creative/design. In
Under Armour’s February 2018 earnings announcement, the Connected Fitness business reported
its first-ever positive operating income (almost
$800,000) for the fourth quarter of 2017; for full-year
2018, the connected fitness business reported operating income of $5.9 ­million. Under Armour reported
that premium subscription revenue for its Connected
Fitness business grew about 56 percent during 2018.
UA’s MyFitnessPal was the number one grossing
health and fitness app in the Apple App Store; in
2018, users of this app had over 9 billion foods and
burned more than 440 billion calories. Users of various Connected Fitness apps participated in social
media communities on Instagram, WeChat, Snap,
YouTube, Facebook, and other platforms.
Licensing Under Armour had licensing agreements
with a number of firms to produce and market Under
Armour apparel, accessories, and equipment. 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. During 2018–2020, licensees sold UA-branded collegiate, National Football
League and National Basketball Association apparel
and accessories, baby and kids’ apparel, team uniforms, socks, water bottles, eyewear, and other hard
goods equipment that featured performance advantages and functionality similar to Under Armour’s
other product offerings. Under Armour pre-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.
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
were $579.0 ­million in 2019, $543.8 ­million in
2018, $565.1 ­million in 2017, and $477.5 ­million in
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-96
Cases in Crafting and Executing Strategy
2016. These totals included the costs of sponsoring
events and various sports teams, the costs of athlete
endorsements, and ads placed in a variety of television, print, radio, and social media outlets. All were
included as part of selling, general, and administrative expenses shown in Exhibit 1.
Sports Marketing Under Armour’s sports marketing and promotion strategy began with promoting the
sales and use of its products to high-performing athletes and teams on the high school, collegiate, and professional levels. This strategy was executed by entering
into outfitting agreements with a variety of collegiate
and professional sports teams, sponsoring and hosting an assortment of collegiate and professional sports
events, entering into endorsement agreements with
individual athletes, and selling Under Armour products directly to team equipment managers and to individual athletes. As a result, UA products were seen on
the playing field (typically with the Under Armour
logo prominently displayed), giving them exposure
to various consumer audiences attending live sports
events or watching these events on television and
through other media (pictures and videos accessed via
the Internet and social media, magazines, and print).
Management believed such exposure helped the company establish the on-field authenticity of the Under
Armour brand with consumers. In addition, UA
hosted combines, camps, and clinics for athletes in
many sports at regional sites across the United States
and was the title sponsor of a collection of high school
All-America Games that created significant on-field
and media exposure of its products and brand.
Going into 2020, Under Armour was the official
outfitter of men’s and women’s athletic teams at such
collegiate institutions as Notre Dame, UCLA, Boston
College, Northwestern, Texas Tech, Maryland, South
Carolina, the U.S. Naval Academy, Wisconsin,
Indiana, California, Utah, and Auburn. All told, it
was the official outfitter of close to 100 men’s and
women’s collegiate athletic teams, growing numbers
of high school athletic teams, and it supplied sideline
apparel and fan gear for many collegiate teams as well.
Under Armour had been the official supplier of competition suits, uniforms, and training resources for a
number of U.S. teams in the 2014 Winter Olympics,
2016 Summer Olympics, 2018 Winter Olympics, and
2020 Summer Olympics.
Under Armour was quite active in negotiating agreements to supply products to high profile
tho35176_case08_C86-C111.indd
96
professional athletes and professional sports teams,
most notably in the National Football League (NFL)
and the National Basketball Association (NBA).
Under Armour had been an official supplier of football cleats to all NFL teams since 2006, the official
supplier of gloves to NFL teams beginning in 2011,
and a supplier of training apparel for athletes attending NFL tryout camps beginning in 2012. In 2011
Under Armour became the official supplier of performance footwear to all 30 MLB teams; in 2016,
Under Armour signed a 10-year deal with MLB to
extend its role as official supplier for all 30 teams
from just footwear to include uniforms, performance
apparel, and connected fitness products and to also
be an official sponsor of Major League Baseball.
However, in 2018 UA exited its 2016 agreement with
MLB, but retained its rights to supply performance
footwear and be an MLB sponsor. In 2018, Under
Armour worked with a manufacturing and distribution partner to sell MLB-licensed fan wear at retail.
Internationally, Under Armour sponsored and
sold its products to several Canadian, European, and
Latin American soccer and rugby teams to help drive
brand awareness in various countries and regions
across the world. In Canada, it had been the official
supplier of performance apparel to Rugby Canada and
Hockey Canada. In Europe, Under Armour was the
official supplier of performance apparel to two professional soccer teams and the Welsh Rugby Union.
In 2014 and 2015, Under Armour became the official
match-day and training wear supplier for the ColoColo soccer club in Chile, the Cruz Azul soccer team
in Mexico, and the São Paulo soccer team in Brazil.
In addition to sponsoring teams and events,
Under Armour’s brand-building strategy in the
United States was to secure the endorsement of individual athletes. One facet of this strategy was to sign
endorsement contracts with newly emerging sports
stars—examples included Jacksonville Jaguars running back Leonard Fournette, Milwaukee Bucks
point guard Brandon Jennings, Philadelphia 76ers
center Joel Embiid, Charlotte Bobcats point guard
Kemba Walker, 2012 National League (baseball)
Most Valuable Player Buster Posey, 2012 National
League Rookie of the Year Bryce Harper, tennis
phenom Sloane Stephens, WBC super-welterweight
boxing champion Camelo Alvarez, and PGA golfer
Jordan Spieth. But the company’s endorsement roster also included established stars: NFL football players Tom Brady, and Anquan Boldin; Golden State
09/22/20 06:05 PM
Final PDF to printer
CASE 8
Warriors point guard Stephen Curry; professional
baseball players Ryan Zimmerman and Clayton
Kershaw; U.S. Women’s National Soccer Team players Heather Mitts and Lauren Cheney; U.S. Olympic
and professional volleyball player Nicole Branagh;
and U.S. Olympic swimmer Michael Phelps. In 2015,
Under Armour negotiated 10-year extensions of its
endorsement contracts with Stephen Curry and
Jordan Spieth; both deals included grants of stock
in the company. Recently, Under Armour had signed
celebrities outside the sports world to multi-year contracts, including ballerina soloist Misty Copeland
and fashion model Giselle Bündchen; wrestler, actor,
and producer Dwayne “The Rock” Johnson; and rapper A$AP Rocky (Rakim Mayers). Copeland was
featured in one of Under Armour’s largest advertising campaigns for women’s apparel offerings.
Johnson was playing an integral role in promoting
UA’s connected fitness, apparel, footwear, and accessory products. Mayers was expected to have his own
line of premium clothing in a forthcoming Under
Armour Sportswear collection. In addition to signing endorsement agreements with prominent sports
figures and celebrities in the United States, Under
Armour had become increasingly active in using
endorsement agreements with well-known athletes
to help build public awareness of the Under Armour
brand in those foreign countries where it was striving
to build a strong market presence. As of early 2019,
Under Armour had signed endorsement agreements
with several hundred international athletes in a wide
variety of sports.
Under Armour’s strategy of signing high-profile
sports figures to endorsement contracts, sponsoring
a variety of sports events, and supplying products to
sports teams emblazoned with the company’s logo
had long been used by Nike and The adidas Group.
Both rivals had far larger rosters of sports figure
endorsements than Under Armour and supplied
their products to more collegiate and professional
sports teams than Under Armour.
Nonetheless, Under Armour’s aggressive entry
into the market for securing such endorsement agreements had spawned intense competition among the
three rivals to win the endorsement of athletes and
teams with high profiles and high perceived public
appeal had caused the costs of winning such agreements to spiral upward. In 2014, Under Armour
reportedly offered between $265 ­million and
$285 ­million to entice NBA star Kevin Durant, who
tho35176_case08_C86-C111.indd
97
Under Armour’s Strategy in 2020
C-97
plays for the Golden State Warriors, away from Nike;
Nike matched the offer and Durant elected to stay
with Nike.13 In 2015, adidas bested Nike in a bidding war to sign Houston Rockets star and runnerup NBA most valuable player James Harden to a
13-year endorsement deal, when Nike opted not to
match adidas’ offer of $200 ­million. The deal with
Harden was said to be a move by adidas to reclaim
its ­number- two spot in sports apparel sales in North
America behind Nike, months after being surpassed
by Under Armour.14 In 2016, it took $280 ­million for
Under Armour to secure a 16-year deal with UCLA
to outfit all of UCLA’s men’s and women’s athletic
teams. In 2018, Under Armour enticed Joel Embiid
to switch from adidas to Under Armour for a fiveyear apparel and footwear endorsement deal that
made him the highest-earning center in the NBA (the
exact terms were not disclosed).
Under Armour spent roughly $120 ­million
for athlete and superstar endorsements, various
team and league sponsorships, athletic events, and
other marketing commitments, compared to about
$126.2 ­million in 2018, $150.4 ­million in 2017, and
$176.1 ­million in 2016.15 The company was contractually obligated to spend about $350 ­million
for endorsements, sponsorships, events, and other
marketing commitments from 2020 to 2023.16
Under Armour did not know precisely what its
future endorsement and sponsorship costs would be
because its contractual agreements with most athletes were subject to certain performance-based variables and because it was actively engaged in efforts to
sign additional endorsement contracts and sponsor
additional sports teams and athletic events.
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 point of sale displays and Under
Armour “concept shops”—including flooring, lighting, walls, displays, and images—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 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
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-98
Cases in Crafting and Executing Strategy
establish sales-enhancing placement of its products
and various point-of-sale displays. In “big-box” sporting goods stores, it was important to be sure that
Under Armour’s growing variety of products gained
visibility 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 in-store fixtures, life-size mannequins, and
displays that highlighted the UA logo and conveyed
a performance-oriented, athletic look. The merchandising strategy was not only to enhance the visibility
of Under Armour products and drive sales but also
grow consumer awareness that Under Armour products delivered performance-enhancing advantages.
Media and Promotion Under Armour advertised
in a variety of national digital, broadcast, and print
media outlets, as well as social and mobile media.
Its advertising campaigns were of varying lengths
and formats and frequently included prominent athletes and personalities. Advertising and promotional
campaigns in 2015–2017 featured Michael Phelps,
Stephen Curry, Jordan Spieth, Tom Brady, Lindsey
Vonn, Misty Copeland, and Dwayne Johnson. In
2018, UA had a digitally-led marketing approach for
the launch of its UA HOVR™ running shoe models,
which included a variety of content on various social
media platforms.
Distribution Strategy
Under Armour products were available in roughly
17,000 retail store locations worldwide in 2018–2019.
In many foreign countries, Under Armour relied on
independent marketing and sales agents, instead of
its own marketing staff, to recruit retail accounts and
solicit orders from retailers for UA merchandise.
Under Armour also sold its products directly to consumers through its own Brand House stores, factory
outlet stores, and various geographic websites.
Wholesale Distribution In 2018, Under Armour
had about 13,500 points of distribution in North
America, just under 40 percent of the 35,000 places
that consumers could buy athletic apparel and footwear.17 The company’s biggest retail account was
Dick’s Sporting Goods, which in 2018 accounted
for 10 percent of the company’s net revenues. Until
its bankruptcy and subsequent store liquidation in
tho35176_case08_C86-C111.indd
98
2016, The Sports Authority had been UA’s second
largest retail account; the loss of this account was
a principal factor in Under Armour’s struggle to
grow wholesale sales to retailers in North America.
Other important retail accounts included Academy
Sports and Outdoors, Hibbett Sporting Goods,
Modell’s Sporting Goods, Bass Pro Shops, Cabela’s,
Footlocker, The Army and Air Force Exchange
Service, and such well-known department store
chains as Macy’s, Nordstrom, Belk, Dillard’s, and
Kohl’s. In Canada, the company’s important retail
accounts included Sport Chek and Hudson’s Bay.
Roughly 75 percent of all sales made to retailers were
to large-format national and regional retail chains.
The remaining 25 percent of wholesale sales were to
lesser-sized outdoor and 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 2018, about 38 ­percent
of Under Armour’s net revenues were generated
through direct-to-consumer sales, versus 23 percent in
2010 and six percent in 2005; the ­direct-to-consumer
channel included sales of discounted merchandise at
Under Armour’s factory outlet stores and full-price
sales at Under Armour Brand Houses, and various
country websites. The factory outlet stores gave
Under Armour added brand exposure and helped
familiarize consumers with Under Armour’s product lineup while also functioning as an important
channel for selling discontinued, out-of-season, and/
or overstocked products at discount prices without undermining the prices of Under Armour merchandise being sold at retail stores, Brand Houses,
and company websites. Going into 2020, Under
Armour was operating 169 stores in factory outlet
malls in North America; these stores attracted about
75 ­million shoppers in 2018.
During the past several years, Under Armour
had opened company-owned Brand House stores in
high-traffic retail locations in the United States to
showcase its branded apparel and sell its products
direct-to-consumers at retail prices. In early 2020,
the company was operating 19 Under Armour Brand
House stores in North America.
UA management’s e-commerce strategy called
for sales at www.underarmour.com (and 26 other
09/22/20 06:05 PM
Final PDF to printer
CASE 8
in-country websites as of 2016) to be one of the
company’s principal vehicles for sales growth in
upcoming years. To help spur e-commerce sales, the
company had enhanced its efforts to drive traffic to
its websites, improve its online merchandising techniques, and do a better job of storytelling about the
many different Under Armour products sold on its
sites. In 2017–2019, UA had made frequent use of
discounted price promotions to spur online sales, but
top executives decided that discount-pricing had been
overdone and damaged the company’s image as a
premium brand. In 2020, the strategy at UA websites
was to cut back on discounted price promotions and,
instead, utilize marketing and advertising efforts that
portrayed Under Armour as a premium brand with
an attractive line-up of top-quality, high performance
products well worth paying a premium price to own.
To begin reshaping its marketing approaches, in
2019 and early 2020 Under Armour started including
much more user-generated content on its e-commerce
website to help tell the story about UA products.
This user-generated content included customer ratings and reviews, Instagram snapshots and videos of
shoppers and well-known athletes wearing UA products, feedback from prelaunch “wear-­testers”, and
quotes from athletes and spokespeople like Stephen
Curry, Dwayne Johnson, and other endorsers of the
company’s products. Management believed that the
opinions of what shoppers and athletes said about
Under Armour’s performance-driven products carried more weight with prospective buyers than what
Under Armour said in its product descriptions.
To better compete with Amazon and other
online sellers of performance sports apparel and
athletic footwear, the company offered free three to
five business day shipping on orders over $60 and
free three business day shipping on orders over
$150. From time-to-time, free limited-time shipping
was offered on overstocked items. Free shipping on
returns within 60 days was standard.
Distribution outside North America Under Armour’s
first strategic move to gain international distribution
occurred in 2002 when it established a relationship
with a Japanese licensee, Dome Corporation, to be
the exclusive distributor of Under Armour products in
Japan. The relationship evolved, with Under Armour
making a minority equity investment in Dome
Corporation in 2011 and Dome gaining distribution
rights for South Korea. Dome sold Under Armour
tho35176_case08_C86-C111.indd
99
Under Armour’s Strategy in 2020
C-99
branded apparel, footwear, and accessories to professional sports teams, large sporting goods retailers,
and several thousand independent retailers of sports
apparel in Japan and South Korea. Under Armour
worked closely with Dome to develop variations of
Under Armour products to better accommodate the
different sports interests and preferences of Japanese
and Korean consumers.
In 2006, Under Armour opened a headquarters in Amsterdam, The Netherlands, 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. By year-end 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
who resold Under Armour products to retailers
in Italy, Greece, Scandinavia, and Spain. Sales in
EMEA countries in 2019 totaled $621 ­million (see
Exhibit 2A). Adidas strongly defended its industryleading position with European retailers, and Under
Armour frequently found itself embroiled in hotly
contested price-cutting battles with adidas and Nike
to win orders from retailers in many EMEA locations.
In 2010 and 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 who then were
responsible for securing sales to retailers. In 2014,
Under Armour launched efforts to make Under
Armour products available in over 70 of Brazil’s premium points of sale and e-commerce hubs; expanded
sales efforts were also initiated in Chile and Mexico.
While sales were trending upward in Latin America,
the company had reported operating losses in the
region each of the past four years (see Exhibit 3).
In 2011, Under Armour opened a retail showroom in Shanghai, China—the first of a series of steps
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-100
Cases in Crafting and Executing Strategy
to begin the long-term process of introducing Chinese
athletes and consumers to the Under Armour brand,
showcase Under Armour products, and learn about
Chinese consumers. Additional retail locations in
Shanghai and Beijing soon followed (some operated
by local partners). By April 2014, there were five
company-owned and franchised retail locations in
mainland China that merchandised Under Armour
products; additionally, the Under Armour brand had
been recently introduced in Hong Kong through a
partnership with leading retail chain GigaSports.
Under Armour began selling its branded apparel,
footwear, and accessories to independent distributors in Australia, New Zealand, and Taiwan in 2014;
these distributors were responsible for securing retail
accounts to merchandise Under Armour products to
consumers. The distribution of Under Armour products to retail accounts across Asia was handled by
a third-party logistics provider based in Hong Kong.
In 2013, Under Armour organized its international activities into four geographic regions—
North America (the United States and Canada),
Latin America, Asia-Pacific, and Europe/Middle
East/Africa (EMEA). In the company’s 2013 Annual
Report, Kevin Plank said, “We are committed to
being a global brand with global stories to tell, and
we are on our way.”18 Sales of Under Armour products in EMEA, the Asia-Pacific, and Latin America
accounted for 27.6 percent of Under Armour’s total
net revenues in 2019, up from 15.3 percent in 2016,
and 8.7 percent in 2014 (Exhibit 2A). Under Armour
saw growth in foreign sales as the company’s biggest market opportunity in upcoming years, chiefly
because of the sheer number of people residing outside the United States who could be attracted to
patronize the Under Armour brand. In 2019 Nike
generated just over 57 percent of its revenues outside
North America, and adidas got about 77 percent
outside of North America—these big international
sales percentages for Nike and adidas were a big reason why Under Armour executives were confident
that growing UA’s international sales represented
an enormous market opportunity for the company,
despite the stiff competition it could expect from its
two bigger global rivals.
One of Under Armour’s chief initiatives to build
international awareness of the Under Armour brand
and rapidly grow its sales internationally was to
open growing numbers of stores in popular factory
outlet malls and to locate Brand Houses in visible,
tho35176_case08_C86-C111.indd
100
high-traffic locations in major cities. UA had 104 factory outlet stores and 96 Brand House stores in international locations as of year-end 2019, up from 37
factory outlet and 35 Brand House stores in various
international locations at year-end 2017. In October
2018, UA sold its Brazilian subsidiary and entered
into a license and distribution agreement with a third
party to continue to sell UA products in Brazil.
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.
UA 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 in UA’s products 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 three recently launched product lines and fabric
technologies:
• 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.
09/22/20 06:05 PM
Final PDF to printer
CASE 8
• COLDGEAR® Infrared, a ceramic print technol-
ogy applied to the inside of garments that provided wearers with lightweight warmth.
• UA HOVR™, a proprietary underfoot cushioning wrapped in a mesh web, equipped with a
MapMyRun powered sensor designed to deliver
energy return and real-time coaching.
In 2017, Under Armour opened its newest center for footwear performance innovation located in
Portland, Oregon, bringing together footwear design
and development teams in a centralized location.
Sourcing, Manufacturing,
and Quality Assurance
Many of the high-tech specialty fabrics and other
raw materials used in UA products were developed
by third parties and sourced from a limited number
of pre-approved specialty fabric manufacturers; no
fabrics were manufactured in-house. Under Armour
executives believed outsourcing fabric production
enabled the company to seek out and utilize whichever fabric suppliers were able to produce the latest and best performance-oriented fabrics to Under
Armour’s specifications, while also freeing more
time for UA’s product development staff to concentrate on upgrading the performance, styling, and
overall appeal of existing products and expanding the
company’s overall lineup of product offerings.
In 2019, approximately 42 percent of the fabric
used in UA products came from five suppliers, with
primary locations in Malaysia, Taiwan, Vietnam,
China, and the United States. Because a big fraction
of the materials used in UA products were petroleumbased 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 2019, substantially all UA products were
made by 37 primary contract manufacturers,
operating in 156 countries; 10 manufacturers produced approximately 55 percent of UA’s products.
Approximately 55 percent of UA’s apparel and
accessories products were manufactured in Jordan,
Vietnam, China, and Malaysia. Under Armour’s
footwear products were made by six primary contract manufacturers operating primarily in Vietnam,
China, and Indonesia; these five manufacturers
tho35176_case08_C86-C111.indd
101
Under Armour’s Strategy in 2020
C-101
produced approximately 96 percent of the company’s footwear products.
All contract manufacturers making Under
Armour apparel products purchased the fabrics they
needed from fabric suppliers pre-approved by Under
Armour. All of the makers of UA products across
all divisions were evaluated for quality systems,
social compliance, and financial strength by Under
Armour’s quality assurance team, prior to 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 UA 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 UA on
a long-term basis. UA had subsidiaries strategically
located near its manufacturing partners to support
its manufacturing, quality assurance, and sourcing
efforts for its products.
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 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.
Inventory Management
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 rapid delivery requirements of 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
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-102
Cases in Crafting and Executing Strategy
space productivity of retail customers, the need
to adequately stock its Factory House and Brand
House stores, and the need to fill customer orders.
Excess inventories of particular products were either
shipped to its Factory House stores or earmarked for
sale to third-party liquidators.
However, the growing number of individual
items in UA’s 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. New inventory management practices
were instituted in 2012 to better cope with stocking
requirements for individual items and avoid excessive inventory buildups. Year-end inventories of
$1.16 billion in 2017 equated to 154.6 days of inventory and inventory turnover of 2.36 turns per year.
UA’s description of its restructuring plans in 2017
signaled that inventory reduction initiatives were
included. Year-end inventories of $892.3 ­million in
2019 equated to 116.5 days of inventory and inventory turnover of 3.13 turns per year.
impacts anticipated in the upcoming two quarters,
management began a series of initiatives to reduce
its planned operating expenses by $325 ­million;
these included cutting back on marketing expenditures, temporarily laying off workers in Under
Armour’s retail stores, and U.S.-based distribution
centers, reducing incentive compensation, postponing $60 ­million in planned capital expenditures, and
curtailing hiring, travel and contract services.
Investors’ response to the report of the company’s Q1 2020 performance was understandably
negative; the price of the company’s Class A shares
dropped from about $20 in mid-February to $7.80 in
mid-May 2020. One Wall Street analyst said:19
UNDER ARMOUR’S WEAK
PERFORMANCE IN THE FIRST
QUARTER OF 2020
The analyst lowered his price target for the stock
price to $4 per share.
Under Armour reported revenues of $930 ­million
for the first quarter of 2020, down 23 percent
from the first quarter of 2019, with approximately
15 ­percentage points of the decline related to
COVID-19 impacts. North American revenues
decreased 28 percent to $603 ­million (compared to
the same quarter in 2019), but international revenues
fell only 12 percent to $287 ­million. Revenues fell in
all three product categories, with apparel revenues
down 23 percent to $598 ­million, footwear revenues
down 28 percent to $210 ­million, and accessories revenue down 17 percent to $68 ­million. The company
reported an operating loss of $558 ­million, of which
$446 ­million was due to the impact of the company’s
restructuring plan, and a net loss of $590 ­million,
which included restructuring and other charges—the
adjusted net loss was $152 ­million.
To counter the impact of COVID-19, which
accelerated dramatically in mid-March 2020 in
North America and the EMEA region (partly due
to retail store closures) and the ongoing negative
The $280 billion global market for sports apparel,
athletic footwear, and related accessories was fragmented among some 25 brand-name 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. The global market for athletic footwear was projected to reach $114.8 ­billion by 2022,
growing at a CAGR of 2.1 percent during the period
2016 to 2022.20 The global market for sports apparel
was forecast to grow about 5.1 percent annually from
2019 to 2026 and reach about $248 billion by 2020.21
Exhibit 4 shows a representative sample of the bestknown companies and brands in selected segments
of the sports apparel, athletic footwear, and sports
equipment industry.
tho35176_case08_C86-C111.indd
102
The Covid-19 crisis has exacerbated the existing problems facing the Under Armour brand. UA does not
have the brand consideration or compelling product
assortment necessary to reaccelerate sales post the current crisis. Elevated inventory levels should pressure
the gross margin for the balance of the year and stymie
UA’s ability to introduce new product. UA could continue to lose market share to Nike, adidas, and others
who garner greater brand consideration and have more
financial flexibility.
COMPETITION
09/22/20 06:05 PM
Final PDF to printer
CASE 8
In 2017–19, consumers across the world shopped
for the industry’s products digitally (online) or physically in stores. And they shopped either for a favorite brand or for multi-brand. The trend was for more
consumers to shop digitally and for a brand deemed
to be the best or their favorite. Multi-brand shoppers
typically wanted to explore and compare the options,
either through a dot.com experience or in stores
where shoppers could view the products firsthand,
get advice or personalized assistance, and/or get the
product immediately.
As Exhibit 4 indicates, the sporting goods industry consisted of many distinct product categories and
market segments. Because the product mixes of different companies varied considerably, it was common
for the product offerings of industry participants to be
extensive in some segments, moderate in others, and
limited to nonexistent in still others. Consequently,
the leading competitors and the intensity of competition varied significantly from market segment to
market segment. Nonetheless, competition tended
Under Armour’s Strategy in 2020
C-103
to be intense in almost every segment with ­substantial
sales volume and typically revolved around performance and reliability, the breadth of product selection, new product development, price, brand name
strength and identity through marketing and promotion, the ability of companies to convince retailers
to stock and effectively merchandise their brands,
and the capabilities of the various industry participants to sell directly to consumers through their own
retail/factory outlet stores and/or at their company
websites. It was common for the leading companies
selling athletic footwear, sports uniforms, and sports
equipment to actively sponsor sporting events and
clinics and to contract with prominent and influential athletes, coaches, professional sports teams, colleges, and sports leagues to endorse their brands and
use their products.
Nike was the clear global market leader in the
sporting goods industry, with a global market share
in athletic footwear of about 25 percent and a sports
apparel share of five percent. The adidas Group, with
EXHIBIT 4  Major Competitors and Brands in Selected Segments of the Sports
Apparel, Athletic Footwear, and Accessory Industry, 2019
Performance Apparel for Sports (baseball, football,
basketball, softball, volleyball, hockey, lacrosse,
soccer, track & field, and other action sports)
•
•
•
•
•
Nike
Under Armour
adidas
Eastbay
Russell
Performance-Driven
Athletic Footwear
Training/Fitness
Clothing
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Nike
adidas
New Balance
Reebok
Saucony
Puma
Rockport
Converse
Ryka
Asics
Li Ning
Nike
Under Armour
adidas
Puma
Fila
Lululemon athletica
Champion
Asics
Eastbay
SUGOI
Li Ning
Performance Activewear and Sports-Inspired
Lifestyle Apparel
Performance
Skiwear
Performance Golf
Apparel
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Polo Ralph Lauren
Lacoste
Izod
Cutter & Buck
Timberland
Columbia
Puma
Li Ning
Many others
tho35176_case08_C86-C111.indd
103
Salomon
North Face
Descente
Columbia
Patagonia
Marmot
Helly Hansen
Bogner
Spyder
Many others
Footjoy
Nike
adidas
Under Armour
Polo Golf
Ashworth
Cutter & Buck
Greg Norman
Puma
Many others
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-104
Cases in Crafting and Executing Strategy
businesses that produced athletic footwear, sports
uniforms, fitness apparel, sportswear, and a variety
of sports equipment and marketed them across the
world, was the second largest global competitor.
These two major competitors of Under Armour are
profiled as follows.
Nike, Inc.
Incorporated in 1968, Nike was the dominant global
leader in the design, development, and worldwide
marketing and selling of footwear, sports apparel,
sports equipment, and accessory products. Nike
was a truly global brand, with a broader and deeper
portfolio of products, models, and styles than any
other industry participant. The company had global
sales of $39.1 billion and net income of $4.0 billion
in fiscal year ending May 31, 2019. Nike was the
world’s largest seller of footwear with Nike-branded
sales of $24.2 billion and Converse-branded sales of
$1.9 ­billion; it held the number one market share in
all markets and in all categories of athletic footwear.
Nike’s footwear line included some 1,500 models/
styles. Nike was also the world’s largest sports apparel
brand, with 2019 sales of $11.6 billion. Sales of Nike
products to women reached $7.4 billion in 2019.
Nike’s strategy in 2019–2020 was driven by three
core beliefs. One was that the growing popularity of
sports and active lifestyles reflected a desire to lead
healthier lives. As a result, companies like Nike were
becoming more relevant for more moments in people’s lives because of their growing participation in
calorie-burning, wellness, and fitness activities and
because active lifestyles stimulated greater interest in
sports-related activities and sports events. Moreover,
streaming of sports events and social media were
changing the ways people consumed sports content.
The NBA, for example, had over 1.3 billion social
media followers across the league, teams, and player
pages. The growth of watching streamed events on
mobile phones was exploding. Second, in a connected, mobile-led world, consumers had become
infinitely better informed and, thus, more powerful because of the information they could access in
seconds and the options this opened up—“powered
consumers” were prone to consult their phones (or
conduct Internet searches on other devices) for price
comparisons and availability before deciding where
to shop or what to purchase online. Third, the world
was operating at faster speeds and the numbers of
tho35176_case08_C86-C111.indd
104
powered consumers was about to explode. Nike’s
CEO expected over 2 billion digitally connected people in markets in China, India, and Latin America
would join the middle class by 2030. In North
America, Nike estimated that its primary consumer
base was 50 ­million people, but that if population
trends in China continued at the expected rate,
Nike’s projected consumer base in China would be
more than 500 ­million people by 2030.
For years, the heart and soul of Nike’s strategy
had been creating innovative products and powerful storytelling that produced an emotional connection with consumers and caused them to gravitate to
purchase Nike products. But at the same time Nike
executives understood that brand strength had to
be earned every day by satisfying consumer needs
and meeting, if not exceeding, their expectations.
Exhibit 5 shows Nike’s worldwide retail and distribution network at the end of fiscal 2019.
In October 2017, Nike CEO Mark Parker provided
a brief overview of the company’s “Triple Double”
strategy that had three components: 2X Innovation,
2X Speed, and 2X Direct:
In 2X Innovation, we will lead with more distinct platforms, moving from seeding to scaling a lot faster.
We’ll . . . give consumers better choices to match their
preferences. And we’ll set a new expectation for style,
creating a new aesthetic to wear in all moments of their
lives. To the consumer, there is no trade-off between
sport and style. We know that more than half of the
EXHIBIT 5  Nike’s Worldwide
Retail and Distribution
Network, 2019
United States
Foreign Countries
• 
~15,000 retail accounts
•  217 Nike factory outlet
stores
•  29 Nike and NIKETOWN
stores
•  109 Converse retail and
factory outlet stores
•  29 Hurley stores
•  6 Primary distribution
centers
•  Company website
(www.nike.com)
• 
~15,000 retail accounts
•  648 Nike factory outlet
stores
•  57 Nike and NIKETOWN
stores
•  63 Converse retail and
factory outlet stores
• —
•  67 Distribution centers
•  Independent
distributors and
licensees in over 190
countries
•  Websites in 45 countries
09/22/20 06:05 PM
Final PDF to printer
CASE 8
athletic footwear and apparel is bought for non-sport
activities, and we have even more room to grow in this
market.
In 2X Speed, we’re investing in digital end to end
to serve this insatiable consumer demand for new and
fresh products. To use a sports analogy, you can’t run
an up-tempo offense if only half your plays are designed
for speed. So we’re building new capabilities and analytics to deliver personalized products in real time,
and we’re engaging with more partners companywide
to move faster against our goals. In our supply chain,
we’ve joined forces with leading robotics and automation companies, and we’re serving ­millions of athletes
and sports fans faster through manufacturing bases that
are closer to our North American consumer. 2X Speed
is really all about delivering the right product in the
moment, 100 percent of the time.
We never ever take the strength of our brand and
premium product for granted. They are indeed our
most valuable assets. With 2X Direct [to Consumer],
we want as many Nike touch points as possible to live
up to those expectations, and that’s why we are investing heavily in our own channel and leading with digital.
And with our strategic partners, we’ll move resources
away from undifferentiated retail and toward environments where we can better control with distinct consumer experiences.22
Principal Products Nike’s 1,500 athletic footwear
models and styles were designed primarily for specific athletic use, although many were worn for casual
or leisure purposes. Running, training, basketball,
soccer, sport-inspired casual shoes, and kids’ shoes
Under Armour’s Strategy in 2020
C-105
were the company’s top-selling footwear categories.
It also marketed footwear designed for baseball, football, golf, lacrosse, cricket, outdoor activities, tennis, volleyball, walking, and wrestling. The company
designed and marketed Nike-branded sports apparel
and accessories for most all of these same sports categories, as well as sports-inspired lifestyle apparel,
athletic bags, and accessory items. Footwear, apparel,
and accessories were often marketed in “collections”
of similar design or for specific purposes. It also marketed apparel with licensed college and professional
team and league logos. Nike-brand offerings in sports
equipment included bags, socks, sport balls, eyewear,
timepieces, electronic devices, bats, gloves, protective
equipment, and golf clubs. Nike was also the owner
of the Converse brand of athletic footwear and the
Hurley brand of swimwear, assorted other apparel
items, and surfing gear.
Exhibit 6 shows a breakdown of Nike’s sales
of footwear, apparel, and equipment by geographic
region for fiscal years 2017 to 2019.
Marketing, Promotions, and Endorsements Nike
responded to trends and shifts in consumer preferences by (1) adjusting the mix of existing product
offerings, (2) developing new products, styles, and
categories, and (3) striving to influence sports and
fitness preferences through aggressive marketing,
promotional activities, sponsorships, and athlete
endorsements. Nike spent $3.75 billion in fiscal 2019
(as compared to $2.75 billion in 2013 for) what it
EXHIBIT 6  Nike’s Sales of Nike Brand Footwear, Apparel, and Equipment, by
Geographic Region and by Wholesale and Nike Direct, Fiscal Years
2017–2019
Fiscal Year Ending May 31
Sales Revenues and Earnings (in ­millions)
North America
Revenues—Nike Brand footwear
   Nike Brand apparel
   Nike Brand equipment
Total Nike Brand revenues
   Sales to Wholesale Customers
   Sales through Nike Direct
Earnings before interest and taxes
Profit margin
tho35176_case08_C86-C111.indd
105
2019
2018
2017
$ 10,045
5,260
597
$ 15,902
10,875
5,027
$ 3,925
24.7%
$ 9,322
4,938
595
$ 14,855
10,159
4,696
$ 3,600
24.2%
$ 9,684
4,866
646
$ 15,216
10,756
4,460
$ 3,875
25.6%
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-106
Cases in Crafting and Executing Strategy
Fiscal Year Ending May 31
Sales Revenues and Earnings (in ­millions)
Europe, Middle East, and Africa
Revenues—Nike Brand footwear
   Nike Brand apparel
   Nike Brand equipment
Total Nike Brand revenues
   Sales to Wholesale Customers
   Sales through Nike Direct
Earnings before interest and taxes
Profit margin
Greater China
Revenues—Nike Brand footwear
   Nike Brand apparel
   Nike Brand equipment
Total Nike Brand revenues
   Sales to Wholesale Customers
   Sales through Nike Direct
Earnings before interest and taxes
Profit margin
Asia Pacific and Latin America
Revenues—Nike Brand footwear
   Nike Brand apparel
   Nike Brand equipment
Total Nike Brand revenues
   Sales to Wholesale Customers
   Sales through Nike Direct
Earnings before interest and taxes
Profit margin
All Regions
Revenues—Nike Brand footwear
   Nike Brand apparel
   Nike Brand equipment
   Global Brand Divisions
Total Nike Brand revenues
   Sales to Wholesale Customers
   Sales through Nike Direct
Corporate expenses
Total Nike earnings before interest and taxes
Profit margin
Converse
Revenues
Earnings before interest and taxes
Profit margin
2019
2018
2017
$ 6,293
3,087
432
9,812
7,076
2,736
1,995
20.3%
$ 5,875
2,940
427
9,242
6,765
2,477
1,587
17.2%
$ 5,192
2,395
383
$ 7,970
5,917
2,053
$ 1,507
18.9%
$ 4,262
1,808
138
$ 6,208
3,726
2,482
$ 2,376
44.1%
$ 3,496
1,508
130
$ 5,134
3,216
1,918
$ 1,807
35.2%
$ 2,920
1,188
129
$ 4,237
2,774
1,463
$ 1,507
35.6%
$ 3,622
1,395
237
$ 5,254
3,746
1,508
$ 1,323
25.2%
$ 3,575
1,347
244
$ 5,166
3,829
1,337
$ 1,189
23.0%
$ 3,285
1,185
267
$ 4,737
3,631
1,106
$ 980
19.8%
$ 24,222
11,550
1,404
42
$ 37,218
25,423
7,127
(1,810)
$ 4,850
13.0%
$ 22,268
10,733
1,396
88
$ 34,485
23,969
6,332
(1,456)
$ 4,379
12.7%
$ 21,081
9,654
1,425
73
$ 32,233
23,078
9,082
(724)
$ 4,945
15.3%
$ 1,906
303
15.9%
$ 1,886
310
16.4%
$ 2,042
477
23.4%
Note: The revenue and earnings figures for all geographic regions include the effects of currency exchange fluctuations. The Nike Brand
revenues for equipment include the Hurley brand, and the Nike Brand revenues for footwear include the Jordan brand. The earnings
before interest and taxes figures associated with Total Nike Brand Revenues include those for the Hurley and Jordan brands.
Source: Nike’s 10-K Report for Fiscal Year 2019, pp. 727–31 and 10-K Report for Fiscal Year 2018, pp. 22, 27–31.
tho35176_case08_C86-C111.indd
106
09/22/20 06:05 PM
Final PDF to printer
CASE 8
termed “demand creation expense” that included
the costs of advertising, promotional activities,
and endorsement contracts. Well over 500 professional, collegiate, club, and Olympic sports teams
in football, basketball, baseball, ice hockey, soccer,
rugby, speed skating, tennis, swimming, and other
sports wore Nike uniforms with the Nike swoosh
prominently visible. There were over 1,000 prominent professional athletes with Nike endorsement
contracts in 2011–2019, including former basketball
great Michael Jordan, NFL player Drew Brees, NBA
players LeBron James, Kobe Bryant, Kevin Durant,
and Dwayne Wade; professional golfers Tiger Woods
and Michelle Wie; soccer player Cristiano Ronaldo;
and professional tennis players Venus and Serena
Williams, Roger Federer, and Rafael Nadal. When
Tiger Woods turned pro, Nike signed him to a 5-year
$100 ­million endorsement contract and made him
the centerpiece of its campaign to make Nike a
factor in the golf equipment and golf apparel marketplace. Nike’s long-standing endorsement relationship with Michael Jordan led to the introduction of
the highly popular line of Air Jordan footwear and,
more recently, to the launch of the Jordan brand of
athletic shoes, clothing, and gear. In 2003 LeBron
James signed an endorsement deal with Nike worth
$90 ­million over 7 years, and in 2015 he signed a
lifetime deal with Nike. Because soccer was such a
popular sport globally, Nike had more endorsement
contracts with soccer athletes than with athletes in
any other sport; track and field athletes had the second largest number of endorsement contracts.
Resources and Capabilities Nike had an incredibly
deep pool of valuable resources and capabilities that
enhanced its competitive power in the marketplace
and helped spur product innovation, shorten speedto-market, enable customers to use digital tools to
customize the colors and styling of growing numbers
of Nike products, and thereby drive strong brand
attachment and sales growth. Examples of these
included the following:23
• The company’s Nike APP and the SNKRS app
were in more than 20 countries across North
America and Europe, plus China and Japan,
countries that drove close to 90 percent of Nike’s
growth. These apps provided easy access to Nike
products and were becoming a popular way for
customers to shop Nike products and make online
purchases. The Nike App was the number one
tho35176_case08_C86-C111.indd
107
Under Armour’s Strategy in 2020
C-107
mono-brand retail app in the United States. Nike’s
apps and growing digital product ecosystem were
key components of the company’s 2X Speed strategy to operate faster and get innovative products
in the hands of consumers faster.
• The creation and ongoing enhancement of the
NikePlus membership program which in 2017 connected 100 ­million consumers to Nike—NikePlus
members who used the company’s mobile apps
spent more than three times as much time on
nike.com as other site visitors. Starting in 2018,
NikePlus members were entitled to “reserved-foryou service” that used machine learning-powered
algorithms to set aside products in a member’s size
that the algorithms predicted members would like.
Members could also use a “reserved-by-you” service
to gain guaranteed access to products they wanted;
this newly developed capability was deemed especially valuable to members wanting a recentlyintroduced product in high demand. In 2018, Nike
began accelerating invitations to NikePlus members to personalized events and experiences and
extending benefits and offers from NikePlus partners like Apple Music, Headspace, and Class Pass.
Special Nike Unlock offers were sent to members
once a month. Nike expected that NikePlus membership would triple over the next five years. Nike
executives anticipated that converting consumers
into NikePlus members would heighten their relationship to and connection with Nike.
• The establishment of an Advanced Product
Creation Center charged with keeping the pipeline flowing with product innovations, new digital
products, and manufacturing innovations to make
2X Speed a reality. Nike was aggressively investing
in 3D modeling and other related technology to
quickly create prototypes of new products; with traditional technology, it often took four-to-six months
to go from new idea to design to product prototype.
So far, Nike had been able to go from design, to prototyping, to manufacturing, to delivery in less than
months, as compared to nine to 12 months. Nike’s
goal was to improve its rapid prototyping capabilities to the point where 100 percent of new product innovations could be rapid-­prototyped at the
Advanced Product Creation Center in Portland,
Oregon. Employee athletes, athletes engaged under
sports marketing contracts, and other athletes weartested and evaluated products during the development and prototyping process.
09/22/20 06:05 PM
Final PDF to printer
PART 2
C-108
Cases in Crafting and Executing Strategy
• A relaunch of all 40+ nike.com websites in late
2017 that featured a new design with better visual
appeal and functionality, more storytelling, eyecatching product displays, and better product
descriptions—all aimed at generating more visitor
traffic, longer shopping times, increased online
sales, and achieving 2X Direct.
• Implementing robot-assisted manufacturing capabilities and other recently-developed manufacturing innovations (such as oscillating knives, laser
cutting and trimming, phylon mold transfer, and
computerized stitching) on a broad scale. In one
instance, the use of advanced robotics and digitization techniques was generating a continuous,
automated flow of the upper portion of a footwear
model with 30 percent fewer steps, 50 ­percent less
labor, and less waste in just 30 seconds per shoe—a
total of 1,200 automated robots had been installed
to perform an…
Purchase answer to see full
attachment