Porter’s Five Forces is a model named after Michael E. Porter
that takes into consideration five market forces that play out
on any given company or industry. The five forces are: power
of buyers; power of suppliers; threat of substitutes; threat of
new entrants; and industry jockeying.
This model examines these forces thereby helping to
determine a given company’s strengths and weaknesses.
Porter’s Five Forces is also a way to view the potential risks to
which any given company may be exposed.
Porter’s is a valuable yet somewhat subjective tool. It is a
starting point meant to encourage further discussion.
What is Porter’s Five Forces?
Please note there is no official method to score the model.
This method is simply a way to further categorize companies.
Each market force is scored on a scale of 1 – 5 with 1
representing the lowest threat and 5 representing the highest
All five forces are totaled for a final score. The lowest possible
score is 5 and the highest possible score is 25.
implies a lower threat rating.
implies a medium threat rating.
implies a higher threat rating.
Power of Buyers
The buyers in the case of UA are consumers
like you and me.
Professional athletes are advertising. They
get the gear out there for us to see.
Athletic gear/apparel/footwear is a $200
billion-plus market opportunity.
It’s a mistake to underestimate brand power.
Look at what Nike has built over the past 50
Consumers will often pay for what they really
UA’s expanding gross margin over time helps
to substantiate this.
Score - 3
Power of Suppliers
Suppliers are those that supply the materials
and produce the goods UA sells.
Per the company’s 10-K: “In 2013,
approximately 50% to 55% of the fabric used
in our products came from six suppliers.”
“[I]n 2013, fourteen manufacturers produced
approximately 65% of our products.”
Approximately 66% of UA products are
manufactured in Asia.
UA appears to be well-diversified, however
exposure to emerging economies will quite
possibly result in higher costs of production
via wages, etc. down the line.
Score - 2
Threat of Substitutes
One of the greatest threats in virtually every
walk of retail is the threat of substitutes.
Generally speaking there are plenty of
substitutes in athletic apparel/equipment.
Materials and products exclusive to the brand
help to mitigate this threat.
Moisture wicking products, Storm Fleece,
ColdGear Infrared, these are types of
products that will continue to separate UA
from its competition.
Competition will continue to keep pace for
the most part so innovation will be key.
Score - 4
Threat of New Entrants
I’m sure back in 1996 when UA was just
getting started in Kevin Plank’s
grandmother’s basement that Nike
management more or less dismissed it as a
The UA story is a unique one and certainly
very levered to the phenomenal leadership of
Barriers to entry are tame in comparison to
energy or tech for example. No real
regulatory concerns either.
What happens if Plank leaves? Leadership is
crucial to the UA story.
Score - 4
How competitive is this industry in general?
Signs of an active and competitive industry
can be seen in innovation, SG&A costs, social
media presence, etc.
Nike and UA maintain similar levels of R&D
and SG&A as a percentage of revenue.
Constantly signing new athletes and
endorsements. For a while Nike was the big
name in the space, however UA has made a
name for itself in a short amount of time.
Given the global nature of sports and their
popularity, this industry should remain very
competitive for the foreseeable future.
Score - 5
Power of Buyers – 3
Power of Suppliers – 2
Threat of Substitutes – 4
Threat of New Entrants – 4
Industry Jockeying – 5
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