Table of Contents

Introduction..........................................................................................................................................2

Brief Background of Under Armour..................................................................................................2

Competitive Forces of the Company............................................................................................2

Positioning Strategy [Distinctive Competency of the company]...............................................2

Target Market [Core Competency for the company]..................................................................2

Macroeconomic situation analysis....................................................................................................3

Industry Outlook..............................................................................................................................3

Porter’s 5 force Analysis................................................................................................................3

Impressive Facts about Financial Performances of Under Armour.............................................4

Comparative Strength Assessment and Comparison....................................................................5

SWOT analysis of Under Armour.....................................................................................................6

Comparison of Under Armour, Nike and Adidas and their elements of Strategy.......................6

Issues to be Addressed.....................................................................................................................7

Recommendations for CEO..............................................................................................................7

References..........................................................................................................................................8

IntroductionIn this report an examination of the company Under Armour is performed from a strategic perspective and an attempt is made to understand and analyse its competitive positioning, especially with respect to its two biggest competitors, Nike and The Adidas group. The report also examines the company’s strengths and weakness, both on a stand-alone basis and relative to the competitors and contains strategic recommendations for it.

Brief Background of Under ArmourUnder Armour was established in July, 1996 in USA and it operates in the sportswear sector. It manufactures and sells high quality branded, sport clothes, footwear and other sports accessories for both men and women of all age groups (Reuters, n.d.).One of its unique features includes its range of apparels which are created from a specially created fabric that is light but helps the body in regulating its temperature in the different weather conditions and hence can be used in all seasons.(Reuters, n.d.; Under Armour, 2015).Its primary target sector is the athletes while its secondary focus is on the people interested in sports and like to maintain an active lifestyle (Soni(a), 2014). One of its major marketing tagline is that it is made for the athletes by an athlete (Advameg, Inc, 2015), which implies that the brand understands the needs and demands athletes and also the competitiveness associated with their sport and therefore they can offer superior products to bridge that gap.Under Armour is a major financial success as well. It secured overall revenue of more than USD 3 billion in 2014 and achieved a massive growth of 31% as well (McGrath, 2015).

Competitive Forces of the CompanyIts overall product portfolio is as described below (Soni(a), 2014):

Source: (Soni(a), 2014)The company ventured into business through it apparel line, where it produce Heatgear range for hot weather, Coldgear for cold weather and All season gear for mild weather(Trefis Team, 2012). Its footwear business started only in 2006 (Trefis Team, 2012). MapMyFitness is a digital program that offers many fitness tracking devices (MapMyFitness,Inc, 2014). Due to the rising popularity of this program among the athletes and fitness enthusiasts, Under Armour acquired it in 2013 (MapMyFitness, Inc, 2014).

Positioning Strategy [Distinctive Competency of the company]Under Armour has positioned itself as a brand that is solely focused on helping the athletes to improve their performance. Its mission statement is “to make all athletes better through passion, design and the relentless pursuit of innovation” (Under Armour, 2015). Through this it cleverly communicates its values of innovation, perfection and dedication to professional sports to all of its customers. It also communicates the fact that all of its products are doing something for their improvement, irrespective of the fact whether they are professionals or not. This also complements the premium appeal of its products that it has created.

Target Market [Core Competency for the company]Active athletes who are currently into professional sports, belongs mainly in the age group of 18-35 years which is the main target of Under Armour. Along with them the company also focuses on aspiring athletes, general people who are interested in sports or remaining active and belong to the middle or upper strata of the society.

Under Armour

Apparel Footwear Accessories MapMyFitness

Macroeconomic situation analysis

Industry OutlookThe US athletic apparel and footwear sector is considered among the fastest growing segments in the US retail industry. Globally, the revenue from this sector alone is expected to reach USD 171 billion (Statista, n.d.).People are getting more health-aware worldwide and this trend is expected to continue, making this sector highly lucrative.

Source: (Headwaters, 2014)In 2013, the overall US apparel retail market was valued at USD 263 billion and sport apparel constituted a major share of 15%, which amounted to almost USD 40 billion(Headwaters, 2014).While the US apparel industry grew by 5.1%, the sportswear industry in US outpaced it by registering a growth of 6.9% in 2013 (Headwaters, 2014).

Source: (Headwaters, 2014)

Porter’s 5 force AnalysisIntensity of rivalry - HighThe US sportswear and footwear industry is highly competitive because it is still highly fragmented. The sneaker market in US is the largest in the world (Harwell, 2015). Therefore, there is a stiff competition among the players in the market so as to gain a larger market share. Nike, Under Armour and Adidas are the top three companies in the athletic gear sector in US and news of their squabbling over sponsorship deals, endorsements and events are rife in the media.News of these companies trying to outbid each other in order to have successful sports professional endorse their brands (Goodkind, 2014), their rigorous attempts to overshadow the sporting event sponsored by the other company and highlight their own (O'Donnell, 2015), and their endeavours to positively influence an ever larger customer base at the cost of the other, are already well-known.Nike is the overall market leader among the three companies holding 46% market share with sales of USD 8.9 billion (Mirabella, 2014), followed by Under Armour, with sales of USD 1.2 billion in 2014 and Adidas having total sales of USD 1.1 billion (Mirabella, 2014).Threat of new Entrants- ModerateFollowing the high potential of the sportswear market, large numbers of participants are entering in the sector. While there are no significant barriers on entering into the industry, the

barriers are significantly high when it comes to compete with the established players like Nike and Under Armour. Innovation and technology have also become extremely important to succeed in this sector. The established companies have invested heavily in research and development and are coming up with newer offerings to enhance the performance of athletes, which is somewhat of an entry barrier for the new entrepreneurs and companies.Threat of Substitute Products – LowThe sports gear and the footwear market have created a niche for itself which is highly popular among the people. Therefore, the threat from other products and apparels outside of this segment do not pose any major threat to the companies in this segment.Bargaining power of Suppliers – ModerateSuppliers and manufacturers are the backbone of this industry and therefore exert a significant force on the participants. However, the supply chain in the industry is largely dispersed. For example, the top five players in this sector have their manufacturing facilities outsourced to third parties and present in third world countries, where the cost of manufacturing is sufficiently low (Soni(b), 2014). Since these companies are creating job opportunities in the third world countries, it is a win-win for all.Bargaining power of Customers – HighThe customer switching cost is extremely low in this sector and there is also not a great level of brand loyalty among the people as well. Although people have a propensity towards leaning towards the bigger names and brands, their buying decision is ultimately derived from the advertising efforts of the companies and their purchasing power.

Impressive Facts about Financial Performances of Under ArmourThe historical financial performance of the company is shown in the chart below.

Source: (Soni(c), 2014)The steady, double-digit growth of the revenues, EBITDA and EPS since 2008 is indicative of a strong financial performance displayed by UnderArmour.The company has also been successful in reducing their Selling, General and Administrative (SGA) costs, as its SGA s have come down from being 28.4 % of revenue to 28.10%(Bloomberg Business, n.d.), which is a high cost saving considering that the overall revenue of the firm was more than USD 3 billion.Comparison of financial ratios (MarketWatch, Inc. (a), 2015; MarketWatch, Inc.(b), 2015):Liquidity Ratio

UA NikeCurrent Ratio 3.67 2.52Quick Ratio 2.4 1.84Cash Ratio 1.41 0.94

Profitability Ratio

UA NikeGross Margin 48.77 45.42Operating Margin 11.51 13.19Net Margin 6.75 10.66Return on Assets 11.33 16.15Return on Equity 17.31 27.82

The above financial ratios show that Under Armour is maintaining sufficient liquidity; which are better than those of Nike. This indicates a scope for Under Armour to use its assets more in order to generate more cash. However, Nike seems to be a lot more profitable as seen from the profitability ratios. While the gross margin of Under Armour is higher, all its other financial ratios are lower than those of Nike.

Comparative Strength Assessment and Comparison  Competitive Strength Assessment

(1= poor 5 = high RemarksUnder Armour Nike Adidas

Key Success Factor

Weight

Rating

Score Rating

Score Rating

Score

Product Innovation

0.2 5 1 5 1 4 0.8 All the three brands are known for their product innovations, but, due to their specific appeal Nike and Under Armour score higher

Marketing 0.26 5 1.3 5 1.3 4 1.04 Marketing, advertisements and celebrity endorsements are extremely important in this sector to capture customers’ attention

Distribution Network

0.26 3 0.78 5 1.3 5 1.3 Distribution through internet, wholesalers and retailers all are important. Under Armour’s is highly dependent on its wholesale networks, unlike its competitors.

Wide Product Portfolio

0.1 3 0.3 4 0.4 5 0.5 Reebok has largest product portfolio due to its wider target base, while Under Armour focusses on a niche.

Research and Development

0.1 4 0.4 4 0.4 4 0.4 All the brands are equally committed towards research and development.

Geographic Spread

0.05 2 0.1 5 0.25 5 0.25 Under Armour is primarily based in US, while the other two are globally present.

Price Point 0.03 4 0.12 5 0.15 3 0.09 Nike and Under Armour have a more premium appeal than Adidas

Weight sum

1            

Overall     4   4.8   4.38

SWOT analysis of Under ArmourStrengthsThe Under Armour brand is highly visible and has a strong presence in the market, especially among the sportspersons and athletes, which is the primary target market of company. Its advertising and marketing campaigns are well received by the public. It also has the range of products which are accepted by the customers, which is another major

strong point for the company. It is also heavily invests in the research and development, which enables them to make new and better products. Its eco-friendly operations are also one of its strengths as it shows awareness towards environment protection.Weakness It has a very small presence in the footwear segment, and almost all of its revenues come from the apparel segment, as seen from the chart below.Under Armour is highly dependent on the US markets, which makes it extremely susceptible to the economic cycles. As already highlighted in the chart above, Under Armour revenues and profits took a deep fall in the years 2007 and 2008, when the US economy was witnessing a recessionary phase.

Source: (Under Armour, 2014)

OpportunitiesUnder Armour is largely focused in the North American markets, which account for almost 90% of its revenues (Soni(c), 2014). It can use the globalization so as to expand in other potential economies beyond the borderlines. The company can also take advantage of rapid advancement of e-commerce, especially in order to assist its geographic expansion. Digital innovation in the field of sports is yet another promising field for Under Armour, in which it has already entered through the acquisitions of MapMyFitness and MyFitnessPal (Lorenz,2015). This will enable it to create a fitness community and thus, propel brand loyalty.ThreatsThe biggest threat that Under Armour faces is stiff competition in US market. As the company recently overtook Adidas for the number 2 spot in terms of revenue in US markets the market leader, Nike, also took its notice, which started market rivalry among them. At the lower end of the spectrum, it faces threat from the newer entrants in the markets, who are offering value oriented line in the market. Although, their product offering is not of as high quality as that of Under Armour, these brands are still getting quite popular among the value customers and are gaining market share gradually. The multi-brand retailers also pose a major threat to Under Armour. The new entrants and more aggressive players in the market are offering increased commissions to these retailers to offer them a larger and better floor space. This tactic has the potential to negatively impact the revenues of Under Armour.

Comparison of Under Armour, Nike and Adidas and their elements of StrategyThe 2014 revenues for Nike and Under Armour have been USD 7.4 billion (Nike, Inc, 2014), 3.08 billion (Under Armour, 2015), respectively. While the Europe base Adidas group has overall higher revenue, it has moved down to number three spot in the American markets based on its sales in the last year (Germano, 2015).2015)Nike maintains its strong position due to factors like extensive innovation, strong marketing efforts and low cost manufacturing and extensive distribution facilities. Innovation has always been at the core of Nike. Its various technologies like Air cushion, Shoes +, Air Max etc. have been extremely innovative and have produced some of the high-performing footwear of their time (Germano, 2015). The products and marketing of company is also customer oriented. Nike has shown immense adeptness in utilising its innovations in its product lines effectively. Nike also has a global presence and is well respected all over the world. Its main revenue segment is its footwear segment, unlike Under Armour which is primarily driven by its apparel range. Besides being a sports apparel and footwear manufacturer, Nike is not solely targeted on athletes. Instead it targets all the people who

want to pursue sports or an active lifestyle. It propagates a message “If you have a body, you are an athlete” (Nike, Inc, 2015). Another major strength of Nike is stable financial position that enables it to sail through rough periods like recession much smoothly than its other competitors.In spite of operating in the same sector, Nike and Under Armour have different focus. Under Armour’s key has a narrower and more specific focus, both in terms of its product range and target audience. Its appeal lies largely among the young, male athletes. Also, as opposed to Nike’s focus on the mainstream sports like running, football, basketball etc., Under Armour focusses on other competitive sports as well, like surfing, boxing, skiing etc. The Adidas group on the other hand is slightly different. Its major market is Europe, unlike both Nike and Under Armour. It is clear from its mission statement itself that its focus is less on the athletes and more on the sporting goods industry ingeneral. Its mission statement is “The Adidas Group strives to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle. We are committed to continuously strengthening our brands and products to improve our competitive position” (Adidas,n.d.).Therefore, its target market also comprises not only of athletes, but of any person who is interested in sporting activities. This gives the brands, relatively, a more generic appeal than its competitors, making it accessible to a larger audience. Its major strength is its long heritage and strong position in the European markets, along with a wide range of products.

Strategy on the basis of five Generic competitive strategiesHence on the basis of the above mentioned facts and five generic competitive strategies the Under Armour strategy is focused differentiation as it focuses mainly on the needs of athletes.

Issues to be Addressed The US markets are witnessing a surge in the participation of females and this is having

a significant impact on the market dynamics (Headwaters, 2014).In fact, the rising trend in the number of people participating in sports in US is largely driven by women. The National Sporting Gods Association has reported that out of the 47 activities that it tracks, 40 are witnessing ever increasing participation from women, while only 11 of these activities showed higher participation of men (Headwaters, 2014).

Under Armour does not have any patents for its fabrics or processes, hence implying that they can be easily copied by its competitors.Most of itstechnically advanced fabrics are developed by third party companies (Mirabella, 2014).Its biggest competitor, Nike, has a huge list of patents for the various designs or technologies that it has developed and making its competitive advantage more sustainable (MarketWatch, Inc. (a), 2015).

Over dependence on a single geographic market (US) might prove somewhatdetrimental for UnderArmour.

Under Armour is highly dependent on the wholesale retailers for the sale of its products, which increases the bargaining power of the retailers and in future might have a negative impact on its revenues, especially with the stiffening of competition.

Recommendations for CEO Under Armour should expand its product portfolio to include more product categories,

especially those which are targeted at women athletes. More gears and apparels targeted at women should be launched, coupled with an updated marketing campaign that addresses women equally.

Under Armour should focus on obtaining intellectual property rights on at least some of its business critical innovative products and fabrics, so that not only it can charge a premium for it, but it can also ensure that its competitors find it hard to imitate in future.

Under Armour should focus on developing itself into a global brand and increasing its presence in other markets as well, for instance European and Asian markets.

Under Armour should also focus on launching a value-line especially for these emerging markets, as the people there could be price sensitive.

Under Armour shall take advantage of the e-commerce potential for its expansion. Not only can it help in getting rid of the over-reliance on retailers, but this could prove immensely useful for it in expanding its presence in other geographies as well.

Under Armour should focus on outsourcing more to the low cost manufacturing countries, in order to reduce its costs and increase its profits. Both Nike and Adidas have also employed a similar approach and have been quite successful with it.

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