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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


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not just to provide gear for a particular team 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, Galyan’s, a large retail chain since acquired by Dick’s Sporting Goods, signed on to carry KP Sports’s expanding line of performance apparel for men, women, and youth. Sales to other sports apparel retailers began to explode, quickly making the retail segment of the sports apparel market the biggest component of the company’s revenue stream. KP Sports had revenues totaling $5.3 million in 2000, with operating income of $0.7 million. The company’s products were avail- able in some 500 retail stores. Beginning in 2000, Scott Plank, Kevin’s older brother, joined the com- pany as vice president of finance, with operational and strategic responsibilities as well.


Rapid Growth Ensues Over the next 15 years, the company’s product line evolved to include a widening variety of shirts, shorts, underwear, outerwear, gloves, and other offerings. The strategic intent was to grow the busi- ness by replacing products made with cotton and other traditional fabrics with innovatively designed performance products that incorporated a variety of technologically advanced fabrics and special- ized manufacturing techniques, all in an attempt to make the wearer feel “drier, lighter, and more com- fortable.” In 1999 the company began selling its products in Japan through a licensee. On January 1, 2002, prompted by growing operational complex- ity, increased financial requirements, and plans for further geographic expansion, KP Sports revoked its ‘‘S’’ corporation status and became a ‘‘C’’ cor- poration. The company opened a Canadian sales office in 2003 and began efforts to grow its market presence in Canada. In 2004, KP Sports became the outfitter of the University of Maryland football team and was a supplier to some 400 women’s sports teams at NCAA Division 1-A colleges and univer- sities. The company used independent sales agents to begin selling its products in the United Kingdom in 2005. SportsScanINFO estimated that as of 2004, KP Sports had a 73 percent share of the U.S. market for compression tops and bottoms, more than seven times that of its nearest competitor.7


lacrosse at Maryland, to become a partner in his enterprise. Fulks’s initial role was to leverage his connections to promote use of the company’s shirts by lacrosse players. Their sales strategy was predicated on networking and referrals. But Fulks had another critical role—he had good credit and was able to obtain 17 credit cards that were used to make pur- chases from suppliers and charge expenses.5 Opera- tions were conducted on a shoestring budget out of the basement of Plank’s grandmother’s house in Georgetown, a Washington, DC, suburb. Plank and Fulks generated sufficient cash from their sales efforts that Fulks never missed a minimum pay- ment on any of his credit cards. When cash flows became particularly tight, Plank’s older brother Scott made loans to the company to help keep KP Sports afloat (in 2011 Scott owned 4 percent of the company’s stock). It didn’t take long for Plank and Fulks to learn that it was more productive to direct their sales efforts more toward equipment managers than to individual players. Getting a whole team to adopt use of the T-shirts that KP Sports was selling meant convincing equipment managers that it was more economical to provide players with a pricey $25 high-performance T-shirt that would hold up better in the long run than a cheap cotton T-shirt.


In 1998, the company’s sales revenues and growth prospects were sufficient to secure a $250,000 small business loan from a tiny bank in Washington, DC; the loan enabled the company to move its basement operation to a facility on Sharp Street in nearby Baltimore.6 As sales continued to gain momentum, the DC bank later granted KP Sports additional small loans from time to time to help fund its needs for more working capital. Then Ryan Wood, one of Plank’s acquaintances from high school, joined the company in 1999 and became a partner. The company consisted of three jocks trying to gain a foothold in a growing, highly competitive industry against some 25+ brands, including those of Nike, adidas, Columbia, and Patagonia. Plank functioned as president and CEO; Kip Fulks was vice president of sourcing and quality assurance, and Ryan Wood was vice president of sales.


KP Sports’s sales grew briskly as it expanded its product line to include high-tech undergarments tailored for athletes in different sports and for cold temperatures as well as hot temperatures, plus jer- seys, team uniforms, socks, and other accessories. Increasingly, the company was able to secure deals


C-76 PART 2 Cases in Crafting and Executing Strategy


tho32789_case08_C73-C95.indd 76 12/01/16 07:25 PM


entities. Wood decided to leave his position as senior vice president of sales at Under Armour in 2007 to run a cattle farm. Fulks assumed the position of chief operating officer at Under Armour in September 2011, after moving up the executive ranks in several capacities, chiefly those related to sourcing, qual- ity assurance, product development, and product innovation. In November 2015, following several changes in title and responsibility, Fulks was named chief marketing officer. In September 2012, Scott Plank, who was serving as the company’s executive vice president of business development after hold- ing several other positions in the company’s execu- tive ranks, retired from the company to start a real estate development company and pursue his passion for building sustainable urban environments.


Exhibit 1 summarizes Under Armour’s financial performance during 2011–2015. Exhibit 2 shows the growth of Under Armour’s quarterly revenues for 2010 through 2015. The company’s strong financial per- formance propelled its stock price from $46 in early January 2013 to a high of $124 in March 2014; the stock split 2-for-1 in April 2014. The stock price was trading in the split-adjusted range of $80–$85 in March 2016, up over about 365 percent since March 2010.

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