Under armour challenging nike in sports apparel case analysis

Final PDF to printer CASE 7 Under Armour’s Turnaround Strategy in 2018: Efforts to Revive North American Sales and Profitability Arthur A. Thompson The University of Alabama F ounded 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 compression and wicked perspiration off the wearer’s skin, thereby avoiding the discomfort of sweatabsorbed apparel. Plank formed KP Sports as a subchapter S corporation in Maryland in 1996 and commenced selling a performance fabric 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. tho75109_case07_C56-C79.indd C-56 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 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, Scott Plank, Kevin’s older brother, joined the company in 2000 as Vice President of Finance and certain other operational and strategic responsibilities. When Galyan’s, a large retail chain since 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 sales office in 2003 and began selling its products Copyright ©2019 by Arthur A. Thompson. All rights reserved. 12/14/18 05:20 PM Final PDF to printer Case 7 Under Armour’s Turnaround Strategy in 2018: Efforts to Revive North American Sales and Profitability 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 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 team s 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 long-term 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. Under Armour quickly earned a reputation as an up-and-coming company in the sports apparel business, achieving sales of $1 billion in 2010 and $3 billion in 2014. Starting in the second-quarter of 2010 and continuing through the third-quarter of 2016, Under Armour cemented its status as a growth company by achieving revenue growth of 20 + percent for 26 consecutive quarters (see Exhibit 1). In announcing the company’s 2016 third-quarter financial results,