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Under Armour Case Study

Introduction

Founded in 1996 by Kevin Plank, a former football player at the University of Maryland, Under Armour is a pioneer company specializing in performance apparel. Plank designed and introduced in the market gear engineered textile that allowed athletes to stay cool, dry, and light throughout their workout or during other high-level physical activities. Plank and his partner, Kip Fulks, believed that the Under Armour could achieve long-term success as it had built a powerful and recognizable brand in quite a short time period, and being in the early stages of establishing the brand, it had significant opportunities to expand locally and internationally.

Under Armour’s mission is “to make all the athletes better through passion, design, and relentless pursuit of innovation.” Company’s principal activities include development, marketing, and distribution of branded performance apparel, footwear, and accessories designed in many styles for men, women, and youth. Despite complex technology behind Under Armour’s products that provide a performance alternative to traditional sportswear, the idea behind the company’s product lines and assortment that can be worn in nearly every climate is straightforward and simple – wear HeatGear when it is hot, wear ColdGear when it is cold, and wear AllSeasonGear during all other times.

Having introduced innovative product assortment that found demand from athletes of various professional levels, Under Armour, was able to boost its market share from 0.6 percent in 2003 to approximately 3 percent in 2011 as well as increase its revenues by 114% from about $856,5 million in 2009 to almost $1,834 million in 2012. Due to the fact that comfort and practical use of such moisture-wicking fabrications and gear technology in sportswear proved to gain recognition and popularity among amateur athletes and professional sportsmen as well as bring significant returns to the company, the concept of gear engineered performance apparel has been quickly and widely copied by other sportswear brands, including Nike and Adidas.

Strategic Issue

Under Armour’s strategic action plan for growth in 2013 included several initiatives. They are continual broadening of product offerings and assortment to athletes in a wider spectrum of sports and recreational activities; targeting new segments of customers for performance apparel; continual penetration and expansion in the athletic footwear market; ensuring there are additional distribution channels for Under Armour’s unique performance products; expansion into international global market for sports apparel, athletic footwear, and performance products and gaining significant market share on the global scale; and increasing brand awareness and recognition of Under Armour products internationally.

Currently, Under Armour positions its brand and products as the highest quality, innovative, and best available in the market. However, since major sportswear brands have copied performance product technology in their products, the ultimate goal for Under Armour now is to strengthen their competitive advantage on the basis of further differentiation and diversification of their products, expansion into new consumer segments as well as markets worldwide, and continual introduction of innovations in their products.

The management may consider outlining specific additional consumer segments in the local market to increase its market share in North America, though first, it needs to research which segments will be attracted most to company’s product lines. Within international expansion, the company needs to research and evaluate which products will be demanded in the international market and diversify its assortment with product lines that would suit local consumer preferences and needs in foreign countries. Also, the company needs to evaluate the effectiveness of various distribution channels for selling its products to end consumers with the lowest costs to the company and the highest benefits to the customers both in local and foreign markets.

Consequently, the strategic issue for Under Armour is: how to stay highly competitive in the local market of North America and become a significant market player on the global scale?

External Analysis

External environment or macro-environment of Under Armour includes the global factors influencing the state of affairs of the company. The external analysis is based on PESTEL and 5 Forces techniques that will help to determine whether Under Armour can remain competitive on the global market. PESTEL technique presupposes analysis of the technological, environmental, legal, political, economic, and sociocultural aspects that are crucial for Under Armour. The legal factors of the company are related to the intellectual property rights for their brand and their textile. The problem is that it takes time and efforts to own the rights for the brand. Moreover, tax obligations also limit the possibilities of Under Armour as taxes are high.

PESTEL Analysis

Economic factors of Under Armour are related to cotton and oil prices. As the prices for cotton are high, since they have been raised by 55%, it means that this rise influences the profitability of Under Armour negatively. Moreover, cotton is a key material used by the company. The reduction of the supply of cotton on the market can provoke the necessity of the search for another material. Another economic issue refers to oil prices. The increase of oil prices can have an impact on gross margins of Under Armour. Moreover, the company also depends on consumer buying power as its decrease leads to the loss of profitability (Thomson, 2015).

Political factors of Under Armour are related to the laws and regulations in a country where the company operates. FDI policies can prevent Under Armour from the successful operations. Many foreign countries have policies that prohibit 100% ownership of retail stores. Moreover, Under Armour should respond to the government demands to develop on the domestic and international markets. The company should follow all obligations and pay taxes to open new possibilities and provide stability and profitability.

Sociocultural factors of Under Armour are related to the consumers’ focus more on the quality than prices. Consequently, the company should provide the most qualitative goods. Demographic issues also refer to sociocultural factors as they lead to a decrease in the consumer base. The advantage of sociocultural aspects refers to the direction of the sport of the company, which is actually due to sports participation as the aspect of the American culture. The disadvantage of this direction is that many people suffer from obesity; therefore, they are not physically active. One recommends manufacturing more goods for women as they become more physically active. All these social factors can be the driving forces for organizational development (Thomson, 2015).

Technological factors are related to the necessity of the implementation of e-commerce. Under Armour has such service as online shopping. However, it should develop it and improve its returns policy. It is a must for the company to use innovative ways of improving the quality of the products and services. Moreover, one recommends increasing m-commerce. M-commerce presupposes the digital connection with the customer. Furthermore, Under Armour should improve its payment operations making them safer and more effective. The Internet can be the best way of advertising and development of public relations.

Porter’s 5 Forces Analysis

To understand the peculiarities of the external environment, one should use Porter’s 5 Forces model. It presupposes the analysis of the competitive rivalry, supplier power, the threat of new entrants, the threat of substitutes, and the power of buyers. The power of buyers determines the sales and profitability of Under Armour. As the buyers of the company are physically active people or sportsmen, then Under Armour should satisfy their demands. Moreover, it is obligatory for the company to enhance customers’ performance. One should say that the power of buyers is high. However, it is only high for teams and athletes. For non-professional athletes, the power is moderate.

As for supplier power, Under Armour uses third party suppliers. Their force is moderate. One should say that Under Armour has many different suppliers, especially for cotton. Moreover, it uses different channels of distribution to access the necessary products. The switching of supplier costs is moderate. Product of uniqueness is moderate. One should mention that the use of third party suppliers can provide the lowest production cost and highest quality. Moreover, third party suppliers have high bargaining power. Consequently, they can bring benefit to such companies as Under Armour. However, the company should retain them as they can choose other organizations. It is evident that Under Armour does not depend completely on suppliers as it can manufacture its products. The company has 24 primary suppliers from 16 different countries. The diverse base of suppliers proves that the company relies on reliability and experience (Thomson, 2015).

The threat of new entrants is high as new companies specializing in sports goods emerge every day. Moreover, the apparel industry is highly profitable and successful; therefore, it attracts new entrants. One should say that not only domestic but also global companies threaten Under Armour. However, it is evident that not all new entrants can become successful and profitable immediately. First, there are high barriers to entry. Secondly, existing brand loyalty prevents them from entering the performance apparel industry. For example, such companies as Sugoi, Velocity, and New Balance have not managed to overcome those barriers. The barriers to entry are strong. However, the brand loyalty of Under Armour does not allow them to be under the threat of decline. Nevertheless, it is obligatory for the company to develop patent rights to manufacture other goods that are sold by Nike and Adidas. The lack of patents can make Under Armour less competitive.

As for the threat of substitutes, it is high for professional athletes and moderate for non-professional athletes. One cannot say that there is no direct competition, except for Adidas and Nike. It is evident that professional athletes deal with a large number of substitutes to choose from. It means that Under Armour should not copy its competitors but offers its unique services and products. Moreover, it is evident that substitutes are possible not only for conventional apparel but for other products as well. The state of affairs of Under Armour shows that switching costs are low, and potential substitute products’ costs are also low. It is evident that many companies manufacture sports apparel. As a result, Under Armour can be easily substituted without its brand loyalty and experience on the market. Consequently, there is a competitive gap between Under Armour and other apparel companies.

The competitive rivalry is high on the market even for such a company as Under Armour. Moreover, brand loyalty is high. It means that the organization should reinforce its image among its competitors. Furthermore, the industry growth rate is high. One should say that the quality differences between competitors range from moderate to high. The state of affairs in the market shows that the performance of apparel industry grows at 15%. As a result, this allows the rivalry to grow more rapidly. It is evident that the competition is high. However, Under Armour, Adidas, and Nike are the strongest ones. Nike is the biggest rival as it controls 7% of the market. As to Adidas, it controls 5.4% of the market. Under Armour has less influence. Consequently, it controls only 2.8% of the market. Lack of patent on some products proves that the company is not so experienced and successful as Nike and Adidas (Thomson, 2015).

Driving Forces of Under Armour

The current state of affairs of Under Armour shows that the company has the driving forces that encourage it for the development and growth. First of all, it is the necessity of apparels and gears on the domestic and global markets. The increased demand in footwear makes Under Armour compete with Nike and Adidas. Moreover, the popularity of sports activities increases the volume of the target audience. It means that Under Armour should develop their assortment of products and services to fulfill customers’ demands. Another factor that drives the company to the development is the obsession of the population with an active and healthy lifestyle.

Growing buyer preferences in apparel is another driving force of Under Armour. However, one should mention that customers have become more critical and demanding due to the current weak economy. Armour provides a superior product that distinguishes it from its competitors. Assuring a better brand quality, the company wins its target audience from the USA and Europe. The modern market suggests Under Armour the chance to occupy a leading place even among such companies as Nike and Adidas. The main thing is to remain attentive to the customers’ demands.

Employing technological innovation is another aspect that drives Under Armour to development. Changing trend in fitness makes the company produce apparel for this sports direction. Innovation will help Under Armour be more competitive and profitable. For example, the company uses Business Intelligence System and Balanced Scorecard to control their sales, achieve more profits, and use the data efficiently. These innovations are necessary to predict possible threats and weaknesses, reinforce strengths, and open new opportunities. Consequently, technological innovations are ways to progress. To fulfill the global presence and cultural accommodation, Under Armour, applies Twitter and Facebook to target wider audience (Thomson, 2015).

The competitive advantage and future moves of Under Armour prove that the company has a favorable external environment that drives it to further development and growth. Nike and Adidas can be the driving forces of Under Armour as their success encourages this company to innovations and changes. Specialization in apparel, sports accessories and footwear as well as and equipment is necessary to achieve the same success as Adidas and Nike. The list of sports is not limited only to soccer as Under Armour provides its products for running, basketball, training, baseball, golf, cheerleading, lacrosse, football, wrestling, walking, volleyball, tennis, outdoor activities, and skateboarding. It means that Under Armour takes care not only about sportsmen but other customers who do sports.

Company Situation

Under Armour is a strong company that has an excellent variety of products, excess of momentum, low production cost, room for growth, and significant brand recognition. The financial ratio of the organization demonstrates its financial success.

Financial Ratio

The financial ratio (Appendix 1) proves that Under Armour shows the tremendous development and further perspectives of growth. It is evident that the dramatic increase in revenue displays that the external environment is beneficial and favorable for Under Armour. The cost of goods sold shows that the company has chosen the right business strategy that increases profitability. It is evident that revenues and profits of Under Armour constantly grow as there are many factors that drive the company to success (Thomson, 2015).

Resources and Competencies

It is evident that Under Armour has expanded with the help of core competencies, unprecedented expertise, and its human and financial resources. The business strategy of the company is to satisfy customers’ needs. Consequently, Under Armour develops its internal environment to increase productivity and performance. Moreover, the company takes into consideration changes in the global market to remain highly competitive and implement innovations. The strength of the working strategy of Under Armour is that it is based on innovative technologies. It is suggested that the development of strategic management, implementation of innovations and changes, and incorporation of international marketing will help Under Armour to move forward.

SWOT-Analysis

Under Armour as other companies have its strengths, weaknesses, opportunities, and threats. The strengths of this organization are related to its possibility to apply the Hi-Tech technologies for the manufacturing of the apparel and sports equipment. Product technology innovation drives Under Armour and reinforces its competitive advantage. The strength of this company is its brand awareness. This strong point proves that Under Armour can compete with Adidas and Nike on equal terms. High-quality apparel increases the number of customers and reinforces the company’s popularity worldwide. Moreover, Under Armour provides a wide range of products and services that are the base for high profitability. One should say that Under Armour has a comfortable returns policy that proves that the company prioritizes the customers’ interests. Quick production and customized products are available to all customers. Such strengths of Under Armour underline its importance and value in the market. The main thing is to reinforce these strengths as they are the basis for development and growth (Thomson, 2015).

The weaknesses of Under Armour are related to the lack of individual customization. It is evident that the company should have an individual approach to every customer to make him/her feel unique and special. The weak point of Under Armour is that many customers complain about the quality of services and products. The company needs to arrange the product lines as they are disorganized and many customers cannot be aware of the presence of some products. Expensiveness can also be a weakness as it scares customers. Consequently, the prices should be reasonable and available. Under Armour concentrates its attention on the focused segment like athletes. As a result, they should target different segments of customers. The limited number of distributors influences negatively the company. As a result, Under Armour should increase their number. Most of the customers of Under Armour are male. As a result, Under Armour should manufacture sports goods for females.

The threats of Under Armour are related to the necessity of differentiation that demands time and efforts. Under Armour needs differentiation in products and customers. Moreover, the company can deal with the lawsuits because of the imperfection of products and services, low quality, and high prices. It means that the organization should do its best to avoid lawsuits to save its brand and reputation on the market. The apparel industry is highly competitive. Consequently, one should be successful and efficient to survive there. Adidas and Nike threaten Under Armour as they are the most experienced companies on the market. It is evident that violation of customers’ rights and manufacturing goods without the necessary patents can lead to a compromised reputation. The emergence of the substitute products can also threaten Under Armour as it leads to the losses of uniqueness. Consequently, the company should improve its quality and prioritize customers’ interests to save its reputation.

The opportunities for Under Armour are endless. First of all, the company can win new European and Asian markets. They are necessary to find new customers and increase sales and profits. The current state of affairs shows that the company has no perfect distribution channels. Consequently, Under Armour should find new distribution channels to be more effective. Need for innovation is another opportunity for the company. First, it is justified by the events on the global market. E-commerce and m-commerce will be more comfortable for the customers (Thomson, 2015). Under Armour can develop new products. However, at first, it should get the patents. Collaboration with other apparel customers is necessary to strengthen brand awareness and find new partners. The primary target market of Under Armour includes the European customers. First, these are teenagers and young people who like to do sports. However, Under Armour should segment its target market, suggesting the products according to age and gender by offering male, female and children clothes, apparel, equipment, and accessories.

Value chain analysis includes activity analysis, value analysis, and evaluation of changes. The activities of Under Armour are related to manufacturing, distribution, and promotion of sports goods, apparel, and equipment. One should say that the activities of the company are similar to its competitors. All products of the organization are valuable as they benefit the development of a healthy and active lifestyle. Moreover, they benefit the growth of sports. The company performs its operations efficiently due to its policy and efficient business strategy. One should mention that the value proposition of this company is related to the growth of the domestic and foreign markets.

Benchmarking of Under Armour includes improving performance, increasing productivity, understanding relative cost positions, incorporation innovations, gaining the strategic advantage, implementation of changes, and the increase of the rate of organizational learning. Improving performance is done through management information systems like Business Intelligence System and Balanced Scorecard. Understanding relative cost positions can be achieved through information management systems and financial evaluation operations.

4Ps Marketing Mix

Product

Sports apparel, equipment, and goods are the key groups of products of Under Armour. The organization should change them according to the situation on the market and its competitors’ changes.

Price

The prices of Under Armour should be reasonable. Consequently, their prices should be justified by the economic processes in the world.

Promotion

Under Armour uses direct and indirect ways of promotion. The company has sponsorship agreements with many celebrity athletes like Lindsey Vonn, Jordan Spieth, Bryce Harper, Stephan Curry, and Tom Brady. One can say that it is an indirect way of promotion but the most effective. Under Armour is involved in different community events. For example, it is part of such organizations as UA Win Global, UA Freedom, and UA Power in Pink.

Place

The company operates in America and Europe.

Recommendations

Having analyzed the internal and external environments of Under Armour, one can see that it needs further improvements. First, one recommends strengthening the current weaknesses of Under Armour by differentiating product variety and customer segments. Moreover, the company should make patents for new products to adapt them in the future. Within the next year, Under Armour should achieve such short-term goals as product differentiation, providing needs-based segmentation and collaboration with other apparel companies to retain its competitive advantage on the domestic and global markets.

During the next five years, Under Armour should achieve such long-term goals as getting new patents, creating future development plans, and overcoming weaknesses related to the quality and expensiveness of the items.

Moreover, one recommends increasing research and development to study the situation on the market and customers’ preferences about products and services. Furthermore, Under Armour should expand their products into international markets like Asian ones to target the new segment of customers. It is obligatory to focus attention on the differentiation strategy as it will allow creating an individual approach to every customer. The development of new product lines will be the base for appealing more customers. Moreover, it is a must for Under Armour to find the products for the usual people who want to be active and sporty.

The short-term and long-term goals of the company can be defined with the help of SWOT analysis, evaluation of website visiting, sales, and profits. Porter’s Five Forces model or PESTEL analysis can also be recommended for determining short-term and long-term goals. Such metrics as increases in market share, customer value, and rate of growth can be the indicators of the success of the company. Consequently, they should be used from time to time to have an objective picture of the state of affairs in the company.

One recommends also increasing foreign market share to have the opportunity to compete internationally. Such an expansion will prove that Under Armour is ready for any kind of competition. Moreover, to save its competitive advantage the company should develop its marketing strategy. It is evident that the organization depends on the foreign markets as they generate significant revenues. To overcome the weaknesses and predict possible threats, Under Armour needs financial, human, and physical resources. The financial resources are necessary to solve the problem of a lack of qualified employees. The human resources are needed to achieve a competitive advantage and help the company become more creative and unique. The physical resources are necessary to implement the innovations.

For substantive growth, Under Armour should use such alternative strategies as horizontal and vertical integration, related and unrelated diversification. Horizontal integration can be used for new markets as it presupposes merging with competitors for increasing the market share. Consequently, Under Armour can merge with Adidas or Nike to achieve some common objectives. Vertical integration can be applied to the domestic market because it presupposes linking with another company that has the same supply chain. Consequently, it means that Under Armour should link with the less competitive companies. In any case, the partnership is a good way of retention of the competitive advantage.

One should say that even such an experienced and profitable company Under Armour demands changes and improvements due to the high competition in the apparel industry. It is a must to transfer to strategic management as it will help to be more successful in the global market. Moreover, strategic management will help Under Armour to achieve more sustainable advantage and become more competitive. Furthermore, Under Armour needs the changes in the marketing strategy that should be based on the employees’ and customers’ interests. Moreover, new marketing strategy should respond to the global aspects and innovation processes and be perfect than competitors’.

To sustain its business, Under Armour should increase employee productivity through training and learning. The low employee engagement can lead to poor productivity and failure of communication due to possible misunderstandings and conflicts. Moreover, the company should follow ethical principles in the attitude to the customers and employees to save its positive reputation on the market. High conflict level and team-related issues can be solved only with the help of ethical and moral decision-making processes.

Under Armour should cooperate with other companies, create new products and services, lower prices, and increase quality to become more reputable and popular among customers. The introduction of new services and products and their further distribution are the key aspects that need the biggest improvements and changes. The company should work on improving the quality of its products and services, as high-quality products and services are always competitive on the market. The implementation of a management control system will simplify all operations and help to control them in a proper way.

Appendix 1. Financial Ratio

2012

2011

2010

Revenue

$1, 834, 921

$1, 472, 684

$1, 063, 927

Cost of Goods Sold

$955, 624

$759, 848

$533, 420

Gross Profit

$879, 297

$712, 836

$530, 507

Net Income

$128, 778

$96, 919

$68, 477

Income from Operations

$208, 695

$162, 767

$112, 355

Cash

$341, 841

$175, 384

$203, 870

Working Capital

$651, 370

$506, 056

$406, 703

Appendix 2. SWOT-Analysis

Strengths

1. High-quality apparel.

2. Wide range of products and services.

3. Brand awareness.

4. Product technology innovation.

5. Returns policy.

Weaknesses

1. No individual customization.

2. Complaints of customers.

3. Product lines.

4. Expensiveness.

5. Focused segment.

6. A limited number of distributors.

7. Lack of female customers.

Threats

1. The necessity of differentiation.

2. Lawsuits.

3. High competitive industry.

4. Compromised reputation.

5. Substitute products.

Opportunities

1. Foreign market.

2. Development of distribution channels.

3. Need for innovation.

4. Development of new products.

5. Collaboration with other customers.

6. Customer differentiation.

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