Kp sports under armour

tho32789_case08_C73-C95.indd 73 12/01/16 07:25 PM

CASE 08

Arthur A. Thompson The University of Alabama

Founded in 1996 by former University of Maryland football player Kevin Plank, Under Armour was the originator of sports apparel made with performance-enhancing fabrics—gear engineered to wick moisture from the body, regulate body temperature, and enhance comfort regardless of weather conditions and activity levels. It started with a simple plan to make a T-shirt that provided compres- sion and wicked perspiration off the wearer’s skin, thereby avoiding the discomfort of sweat-absorbed apparel. Under Armour’s innovative synthetic perfor- mance fabric T-shirts were an instant hit.

Nearly 20 years later, with 2015 revenues of $3.9 billion, Under Armour had a growing brand pres- ence in the roughly $70 billion multisegment retail market for sports apparel, activewear, and athletic footwear in the United States. Its interlocking “U” and “A” logo was almost as familiar and well-known as industry-leader Nike’s swoosh. Heading into 2016, Under Armour had an estimated 16 percent share of the United States market for sports apparel (up from 12.7 percent in 2012 and 11.1 percent in 2011).1 In the synthetic performance apparel segment—a mar- ket niche with estimated U.S. sales close to $7 billion in 2015—Under Armour’s market share was thought to exceed 35 percent.

However, across all segments (sports apparel, activewear, and athletic footwear) of the $250 billion global market in which the company competed, Under Armour still had a long way to go to overtake

the two long-time industry leaders—Nike and The adidas Group. In fiscal 2015, Nike had U.S. sales of $11.3 billion and global sales of $30.6 billion, and it dominated both the U.S. and global markets for athletic footwear. In the United States, Nike’s share of athletic footwear sales approached 60 percent (counting its Nike-branded footwear and sales of its Jordan and Converse brands) versus Under Armour’s less than 3 percent share. Nike’s 2015 global sales of athletic footwear were $18.3 billion (over 1 million pairs per day), dwarfing Under Armour’s 2015 global footwear sales of $678 million. Germany- based The adidas Group—the industry’s second- ranking company in terms of global revenues—had 2015 global sales of €16.9 billion (equivalent to about $18.8 billion), which included athletic footwear sales of €8.4 billion ($9.3 billion) and sports apparel sales of €7.0 billion ($7.7 billion).

Despite having global sales much smaller than its two global rivals, Under Armour was gaining ground and making its market presence felt. In North Amer- ica, Under Armour had recently overtaken adidas to become the second largest seller of sports apparel, activewear, and athletic footwear.2 Under Armour’s 2015 North American sales of $3.56 billion were over 15 percent greater than The Adidas Group’s 2015 North American sales of €2.75 billion (equivalent to about $3.03 billion). Moreover, Under Armour was

Under Armour’s Strategy in 2016—How Big a Factor Can the Company Become in the $250 Billion Global Market for Sports Apparel and Footwear?

Copyright © 2016 by Arthur A. Thompson. All rights reserved

C-74 PART 2 Cases in Crafting and Executing Strategy

tho32789_case08_C73-C95.indd 74 12/01/16 07:25 PM

his mother, who was the town mayor of Kensington, Maryland. When he was a high-school sophomore, he was tossed out of Georgetown Prep for poor academic performance and ended up at Fork Union Military Academy, where he learned to accept discipline and resumed playing high school football. After gradua- tion, Plank became a walk-on special-teams football player for the University of Maryland in the early 1990s, ending his college career as the special-teams’ captain in 1995. Throughout his football career, he regularly experienced the discomfort of practicing on hot days and the unpleasantness of peeling off sweat- soaked cotton T-shirts after practice.

During his later college years and in classic entrepreneurial fashion, Plank hit on the idea of using newly available moisture-wicking, polyester- blend fabrics to make next-generation, tighter-fitting shirts and undergarments that would make it cooler and more comfortable to engage in strenuous activi- ties during high-temperature conditions.3 While Plank had a job offer from Prudential Life Insurance at the end of his college days in 1995, he couldn’t see himself being happy working in a corporate environment—he told the author of a 2011 For- tune article on Under Armour, “I would have killed myself.”4 Despite a lack of business training, Plank opted to try to make a living selling high-tech microfi- ber shirts. Plank’s vision was to sell innovative, tech- nically advanced apparel products engineered with a special fabric construction that provided supreme moisture management. A year of fabric and product testing produced a synthetic compression T-shirt that was suitable for wear beneath an athlete’s uniform or equipment, provided a snug fit (like a second skin), and remained drier and lighter than a traditional cot- ton shirt. Plank formed KP Sports as a subchapter S corporation in Maryland in 1996 and commenced selling the shirt to athletes and sports teams.

The Company’s Early Years Plank’s former teammates at high school, military school, and the University of Maryland included some 40 NFL players that he knew well enough to call and offer them the shirt he had come up with. He worked the phone and, with a trunk full of shirts in the back of his car, visited schools and train- ing camps in person to show his products. Within a short time, Plank’s sales successes were good enough that he convinced Kip Fulks, who played

growing at a faster percentage rate than both its big- ger rivals. From 2010 through 2015, Under Armour’s sales revenues grew at a compound annual rate of 30.1 percent. Nike’s revenues from Nike Brand prod- ucts during its most recent five fiscal years (June 1, 2010–May 31, 2015) grew at an 11.75 percent com- pound rate. Total revenues of The adidas Group grew at a compound rate of 7.1 percent during 2010–2015. But because Under Armour’s revenues were much smaller than those of Nike and The adidas Group, its faster percentage rate of revenue growth did not translate into bigger revenue gains in absolute dollar terms. Under Armour’s global revenues grew by just under $880 million in 2015. Nike’s global revenues in 2015 were $2.8 billion above the 2014 level, more than three times greater than UA’s dollar increase in revenues. The adidas Group’s 2015 revenue gain of €2.4 billion (about $2.66 billion) was three times bigger than UA’s dollar increase in revenues. So, in term of dollar revenues, Under Armour fell further behind Nike and The adidas Group in 2015. Conse- quently, it would take many years, if ever, for Under Armour’s revenues to approach those of Nike, which touted itself as a growth company and was led by top executives intent on preserving Nike’s standing as the global marker leader.

Nonetheless, founder and CEO Kevin Plank believed Under Armour’s potential for long-term growth was exceptional for three reasons: (1) the com- pany had built an incredibly powerful and authentic brand in a relatively short time, (2) there were signifi- cant opportunities to expand the company’s narrow product lineup and brand-name appeal into product categories where it currently had little or no market presence, and (3) the company was only in the early stages of establishing its brand and penetrating markets outside North America. Plank’s revenue objectives for Under Armour were global sales of $7.5 billion in 2018 and $10 billion in 2020. If these objectives were met and if Under Armour’s strategy proved powerful enough to sustain a revenue growth rate of 20 per- cent or more for another 5 to 10 years thereafter, then Plank’s vision of Under Armour becoming a major player on the global stage would be fulfilled.

COMPANY BACKGROUND Kevin Plank honed his competitive instinct growing up with four older brothers and playing football. As a young teenager, he squirmed under the authority of

CAse 08 Under Armour’s Strategy in 2016 C-75