Under Armour Case Study

Eric Scott

MGT 425

February 23, 2017

Under Armour Case Study

1. Industry Rivalry - The industry rivalry for Under Armour is very competitive for several reasons. First, there are many large firms within the industry, increasing competition levels. Demand conditions are very high in this industry, which leads to price wars and low switching costs, increasing the rivalry between firms. With very little product differentiation, consumers have very little reason to stay loyal to a single firm. Lastly, UA’s superior competitors have larger levels of capital and have achieved economies of scale.

Bargaining Power of Suppliers – UA’s suppliers power level can be considered very moderate. UA seeks out suppliers that are able to provide materials unique to their style. This gives some power to UA as they can seek out the best suppliers for their strategy, and gives them the ability to pit suppliers against each other in order to lower costs. However, because of UA’s desire for specialized materials, the suppliers can keep costs somewhat high because of their specialized product.

Bargaining Power of Buyers – Even though UA implements a strategy that provides some differentiation to their product, there is not enough to keep the power of the buyers from being high. Low switching costs, lack of a need for brand loyalty, other established, in some cases more established, competitors, and relatively similar prices give the buyers a significant amount of power. Simply put, consumers have too many options given to them for the power to be in UA’s hands.

Threat of Subs – Competition between rival firms is so high because the threat of substitutions is very high. Nike and Adidas alone dominant the market, demonstrated by their 2015 sales numbers of over $30 billion^[1] and just under $17 billion (approximately 12% and 6.8% market shares), respectively. Compare that to UA’s almost $4 billion sales numbers (approximately 1.6% market share) in 2015 and it is easy to see how there can many substitutes within the industry.

Threat of New Entry – While a steep initial investment would need to be made to enter the sports apparel market, established clothing firms could make the jump into this market if they desired to. Because of this, the threat of new entry is a moderate one. More people are trending towards healthier lifestyles and sports apparel, thus creating a larger demand for sports apparel clothing. This may cause other firms to enter the sports apparel market, decreasing UA’s market share.

1. Under Armour does have a core competency in that it was one of the first firms to have sports apparel dedicated for certain seasons. The innovative release of their COLDGEAR, HEATGEAR, and ALLSEASONGEAR changed the sports apparel industry and forced competitors to mimic this strategy. Also, UA was an innovator in the compression shirt for sports performance apparel. It is not uncommon for people of all ages to refer to a compression shirt as an “Under Armour”, despite what the brand may be (similarly to how people refer to all tissue as Kleenex). This speaks volumes of how UA was able to introduce and capitalize on the idea of compression shirts. UA’s desire and ability to innovate is its core competency and has allowed it to become a major competitor in the market.
2. Under Armour manufactures their products through outsourcing. As of 2013, UA had 44 manufacturers, throughout 16 different countries, under contract. These manufacturers get their materials from 5 suppliers that UA preapproved themselves. Because of their decision to outsource their manufacturing process, they do not have a resource strength that would give them a competitive advantage over their competitors.
3. Under Armour’s main strengths come through their product innovation, product line breadth, and financial stability. As stated before, UA’s main core competency and competitive advantage is their desire and ability to provide the market with innovative products, giving the consumer the freshest and newest in sports apparel. Their ability to cross multiple markets within the sports industry has allowed them to become a major market competitor, as well. They have expanded from their initial stage of being a football apparel company to providing apparel for more than 10 sports, training, lifestyle clothing, and sports technology. These two strengths have led to their financial stability. UA has seen at least a 22% growth in revenue since 2013. They also have experienced a greater asset-turnover ratio than Nike, a main competitor, in every one of those years (1.69 and 1.52 on average, respectively). Despite these successes, UA’s dependence on outsourced manufacturing is a weakness. This does not allow UA to closely manage the manufacturing process, decreasing total quality assurance. Also, UA has been a strong presence in the North American market, but very quiet elsewhere. Only 11.5% of UA’s revenue was collected outside of North America in 2015. However, UA notices this and is seeking to emerge further into these markets in the near future. They planned to expand into at least 11 countries in 2016 and plan to expand into more than 15 in 2017. This combination of strengths, weaknesses, and opportunities give UA an attractive outlook for the future. With a well-designed strategy centered around product innovation and globalization, UA can gain more market share in the upcoming years.^[2]
4. From the beginning, Under Armour has sought out a strategy that allows for them to team up with sports teams and athletes. This allows for them to build their brand image through the success of these teams and athletes. They executed this strategy by becoming the apparel provider for more than 100 Division 1 men’s and women’s sports teams, numerous high school sports teams, and an apparel provider for the NFL, MLB, and other professional sports leagues. They also secured the endorsements of many professional athletes, including but not limited to, Stephen Curry, Tom Brady, Lindsey Vonn, and Buster Posey. As noted before, UA has always used a differentiation strategy with their innovative material used for their apparel. They were first-movers in the industry in regards to using technology that controlled the consumers body temperature. Lastly, UA has recently implemented a globalization strategy. They have attempted to expand into international markets, having 11.5% of their 2015 revenue made outside of North America. They also plan to expand into over 20 countries within the next two years.
5. Under Armour is implementing a differentiation strategy, using their unique product materials to create a competitive advantage. They were the first to introduce temperature specific sports apparel and continue to innovate within their broad product lineup, continuing their initial strategy of creating a unique product.
6. Under Armour has seen at least a 22% revenue growth from year to year since 2013 and at least a 26% gross profit growth since 2012.  These two numbers show that UA has seen a constant rise in demand for the products in recent years and demonstrates their ability to continually have an innovative product that can sell. They also have seen their market share, specifically in North America, go up as two of their main competitors, Nike and Adidas, haven’t had a revenue growth over 16% in the same time frame.^[3]
7. *Chart Attached*

Based on the Competitive Strength Assessment, Under Armour looks to be in strong standing in regards to their competition with Nike and Adidas. Although they are slightly weaker than both, they are a lot newer than both firms. This, along with encouraging growth from year to year, shows that UA may be able to compete more strongly and even top Adidas in upcoming years. Nike, however, seems to be much stronger rival who continues to grow, as well. For now, though, UA seems to have a net disadvantage against both firms.

...