So what does the performance apparel industry look like…
Biggest influencers on the industry are technology which is driving new product development (and enabling more environmentally sensitive manufacturing practices) and the economic down turn which is reducing the discretionary spend available and PA is very much a discretionary spend market. http://www.plunkettresearch.com/sports-recreation-leisure-market-research/industry-and-business-dataTradingeconomics.comhttp://www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htmClik clack paper references growth in market as consequence of both increased participation in sport, and also increased purchasing of performance apparel by non athletes.Athletic and outdoor products are mostly non-durable goods, with a lifetime measured in months or a few years. So far, we’ve looked at the company largely in isolation, but how is it’s position affected by the macro environment? Things changing all the time but UA is a dynamic company that finds opportunity in new technologies etc but it’s biggest external influence at the moment is the economic context – in the US and further afield less discretionary spend available, exacerbated by exchange rate fluctuations.
So in sum, the industry is dynamic and growing but there is huge rivalry and competition to stay in the industry. So how do companies in this industry set up their value chain?
So we’ve established in the main functions of the value chain, UA is very much in sync with its competitors... So what about their business model.
Big players like Nike, Adidas & Columbia involved but also lots of new entrants e.g. Skins, Saucony etcBut, need to own a specific category within the market to establish a strong, defendable competitive advantage and charge a premium price“as competition intensifies a shake out may take place leaving only the strongest. A niche player can survive this if truly niche. “
Strategic Management in a Global Context: Under Armour
UNDER ARMOUR - Agenda1.Introduction: Outline of the history and background to Under Armour, identifying the main markets where it operates, the main products/services and technologies that are used in their business.2.The Performance Apparel Industry: Brief overview of the industry and its competitive forces.3.Under Armour Value Chain: Analysis of how Under Armour is positioned in the value chain identifying which parts of the main value chain are performed within the firm, and which operations are subcontracted or outsourced.4.Under Armour Business Model: Examination of Under Armour’s current business model identifying its strengths and weakness.5.Sustainable Competitive Advantage: Is Under Armour building a sustainable competitive advantage?
“TO MAKE ALL ATHLETES BETTER THROUGH PASSION, DESIGN AND THE RELENTLESS PURSUIT OF INNOVATION” • Entrepreneurial sport venture founded in Baltimore by Kevin Plank (ex-American Footballer); generated $17,000 by word of mouth • Originator of Performance Apparel, characterised by continued innovation • $100,000 turnover • First made profit in 1998 • Featured in the movie “Any Given Sunday” • Established licensing arrangement with Dome in Japan • Publicly Traded & first entered European Market (UK) • Introduced footwear • First full price physical store (Maryland) • Passed the $1bn revenue mark • 3,300 employees worldwide1996 1997 1998 1999 2003 2005 2006 2007 2010 201231 May, 2012 Sources: Funding Universe (2003), Phung (2006), Salter (2007), Under Armour (2011). Under Armour Inc. 4
UNDER ARMOUR: LEADING DEVELOPER, MARKETER AND DISTRIBUTOR OF BRANDED PERFORMANCE PRODUCTSUNDER ARMOUR STRATEGY IS BASED UPON:• Powerful Brand Identity• Focus on Product Performance• Simple Merchandising Story• Word of mouth endorsementIT HAS ACHIEVED THIS BY:• Designing products which serve un-met needs (niche strategy) • i.e. technologically advanced products designed to wick perspiration away from the skin, regulate body temperature, enhance comfort and mobility and improve performance regardless of the weather condition.• Securing team and athlete endorsement and focusing attention on 8 to 12 year old consumers to build loyalty early.Sources: Gaebler (2010), Kraft & Lee (2009), Miloch et al (2012), Palmisano (2009), Parrish et al (2006), Under Armour (2011) 31 May, 2012 Under Armour Inc. 5
Net Revenues NET REVENUES BY PRODUCT CATEGORY Thousands, Year 2006 - 2010 2010 $1,063,927 4.1% 3.7% $856,411 12.0% Apparel $725,244 $606,561 Footwear$430,689 80.2% Acessories Licensing 2006 Revenues 2006 2007 2008 2009 2010 Nike Revenue Distribution 13% Other Business 34% U.S.A 2010 53% Intnal31 May, 2012 Sources: Nike (2011), Roberts (2011), RobinsonArmour Inc.Under Armour (2011) Under (2012), 6
UAs % Revenue Growth Compared To % Growth in Global Market 60 • UnderArmour has shown 50 substantial year on year% Growth/Reduction 40 growth in 30 UA revenues, exceeding the 20 Global growth in the global 10 apparel market 0 -10 2005 2006 2007 2008 2009 2010 • UnderArmour has also taken market share in the sportswear industry from Nike and Adidas 31 May, 2012 Sources: Daniel (2011), Under Armour (2011) Armour Inc. Under 7
THE PERFORMANCE APPAREL INDUSTRY Performance Apparel: garments that perform or function for a defined purpose • Growth industry: Global market ~ US$6.40bn, (19.4% growth in four years), predicted to grow to US$7.6bn by 2014 (18.75%). • Historically multi-domestic industry but now increasingly global with competition across borders • Subset of the Active and Sportswear Industry • Nike & Adidas dominate overall Sportswear Industry but UA is leader in the Performance Apparel Industry. Distribution of global growth • Growth fueled by increased participation in sport (33%), and technology developments • Market trends driven by seasonal cycles and continuous innovationSources: Aarkstore Enterprise (2008), Plunkett Research (2011), Robinson (2012), Textile Exchange (2010), Textile Intelligence (2011). 31 May, 2012 Under Armour Inc. 9
PERFORMANCE APPAREL The Industry Life CycleStrategic Positioning Performance Sportswear Apparel Industry IndustrySource: Hambrick et al: 1982
Political: PORTER’S FIVE FORCES Analysis of the performance apparel industry HIGH Threat of new entrants Ease of setting up new clothing companies (limited regulation, cheap raw materials, & manufacture clusters) MEDIUM Buyer powerMEDIUM Supplier power HIGH/INTENSE Plenty of choice overall for end Rivalry amongst firms user from low price to highlyLots of suppliers (clusters) = low differentiated prices and easy for business to Main competitors have deep switch pockets, economies of scale & strong influence over retailers *Retail buyers bargaining power Higher quality suppliers have more leverage lessened by antitrust laws. HIGH Starter (1971 – 2004) Threat of substitute Russell Athletic (1973 – 2006) products LA Gear (1979-1998) Particularly from dominant players. Manufacturers working Examples of companies that to multiple contracts either failed or were acquired. 11 31 May, 2012 Under Armour Inc. Sources: Gillispie, (2011), Porter (1985),SGMA (2011), Textile Magazine (2010) 11
Political: VALUE CHAIN GLOBAL Value Chain of the Apparel Industry Performance Apparel Industry The Global Apparel Value Chain: What Prospects for Upgrading by Developing Countries? Figure 1. The apparel value chain Textile companies Apparel manufacturers Retail outlets North America All retail outlets US garment factories Department stores (designing, cutting, sewing, buttonholing, ironing) Fabric Brand-named Yarn (weaving, apparel Natural Cotton, wool, (spinning) Specialty stores fibres silk, etc knitting, companies finishing) Domestic and Mexican/Caribbean Basin subcontractors Mass merchandise chains Asia Synthetic Asian garment OverseasSynthetic Oil, natural gas Petrochemicals fibres contractors buying offices Discount chainsfibres Domestic and All retail Off-price, factory overseas Trading companies outlet, mail order, outlets subcontractors others Raw material networks Component networks Production networks Export networks Marketing networks Sources: Appelbaum & Gereffi (1994), Cammett (2006), Industry Canada (2008) Source: Appelbaum and Gereffi (1994), p. 46. 31 May, 2012 Under Armour Inc. 13
VALUE CHAIN Under Armour Global Sourcing Securing Design And Marketing Distributing Servicing Manufacturing ClientsMain focus of Outsourced to Conducted in Conducted in- Hybrid of in- Hybrid ofUA & 3rd parties in House in House in house and outsourcingconducted in- Asia (60%) and Baltimore Baltimore outsourcing (3rd and in-househouse in Latin America party outbound depending onBaltimore (35%). logistics) retail route. Infrastructure: US and European Headquarters Human Resources: KP Leadership, Ultimate Intern Recruitment (Creative applications to identify (fit”) Technology Development: In partnership with specialist organisations (e.g. P&G, Agion) Procurement: Raw materials 31 May, 2012 14 Sources: Cole (2009), Cole, (2010), Under Armour (2011)
Business ModelKey Partners INNOVATION BRAND LOYALTYSUPPLIERS PRODUCT INTERNET ATHLETES DESIGN FOR ATHLETES3rdParty WHO SEEK COMBINE PROGRAMSuppliers and (PRO/AMATEUR) GREATManufacturers MARKETING PERFORMANCE DIRECT MARKETING (MALE/FEMALE/ YOUTH) THROUGH PASSION, SCIENRETAILERS CE, AND THE RELENTLESS MILITARY EMPLOYEES PURSUIT OF UNDER ARMOUR INNOVATION. STORES INTELLECTUAL PROPERTY SELECTED RETAIL STORES UNDERARMOUR. COMEMPLOYEES PRODUCT SALESMANUFACTURING & LOGISTICS LICENSINGFIXED PRICESMARKETING, SALES, DISTRIBUTION 31 May, 2012 Source: Business Model Generation.com Under Armour Inc. 16
Strengths of Business Model Product PerformanceKey Partners INNOVATION BRAND LOYALTYSUPPLIERS PRODUCT Design/style is INTERNET ATHLETES DESIGN FOR ATHLETES differentiating factor3rd Party WHO SEEK COMBINE PROGRAMSuppliers and (PRO/AMATEUR) GREATManufacturers MARKETING PERFORMANCE DIRECT MARKETING (MALE/FEMALE/ YOUTH) THROUGH PASSION, SCIENRETAILERS CE, AND THE RELENTLESS Superior MILITARY EMPLOYEES PURSUIT OF UNDER ARMOUR technologies INNOVATION. Increase in STORES Powerful brand – INTELLECTUAL 3D design factory stores “buzz” PROPERTY Rapid prototype SELECTED from 54 to 80 in Biometric designs RETAIL STORES 2011 reduces Material price for engineering discretionary UNDERARMOUR. COM spend consumer (which has reduced by 6%EMPLOYEES in economic Management Team PRODUCT SALES downturn) and culture of MANUFACTURING & LOGISTICS innovation & LICENSINGFIXED PRICES commitment MARKETING, SALES, DISTRIBUTIONSource: Cole (2009), Daniel (2011), Duffield & Portus (2007), Marketwatch (2012), Monroe (2008), UnderArmour (2011) 31 May, 2012 Under Armour Inc. 17
Weaknesses of Business Model No long-term contracts with suppliers or manufacturing sources, and compete with other companies for fabrics, rawKey Partners materials, production and import quota capacity. INNOVATION BRAND LOYALTYSUPPLIERS PRODUCT INTERNET ATHLETES DESIGN FOR ATHLETESOnly just creating a 3rd Party WHO SEEK strong differentiatedPROGRAM COMBINE Suppliers and (PRO/AMATEUR) GREAT women’s Manufacturers MARKETING PERFORMANCE range, footwear MARKETING DIRECT (MALE/FEMALE/ YOUTH) THROUGH range not taken off PASSION, SCIEN (%revenue stalled atRETAILERS CE, AND THE 12%), and not seen Endorsements and RELENTLESS growth outside of MILITARY designations as an EMPLOYEES PURSUIT OF USA (%revenue from UNDER ARMOUR official supplier INNOVATION. overseas market STORES may become more INTELLECTUAL dropped by 0.1% in 1/3 of sales expensive and this PROPERTY SELECTED 2011). via two could impact the RETAIL STORES distributors value of the brand image. UNDERARMOUR. COM Fabrics and manufacturing technology EMPLOYEES are not patented or copyrighted and can be PRODUCT SALES Kevin Plank Legacy imitated by competitors. MANUFACTURING & LOGISTICS Lack of female and International LICENSINGFIXED PRICES presence in Senior Management MARKETING, SALES, DISTRIBUTION and strategic positions. 31 May, 2012 Under Armour Inc. Sources: Joly (2011), Berdine et al (2008), Salter (2007), Under Armour (2011), 18
Under Armour in summary:• Entrepreneurial company operating in highly competitive but growth industry• Operates the industry norm value chain, keeping its core competencies of design and marketing in house.• Weaknesses: Limited IP protection, supplier contracts, and distributors; reliance on KP leadership, and limited expertise to diversify into footwear and female markets or to develop overseas markets• Strengths: Brand, culture, superior product performance, innovation and design (leading to greater customer satisfaction)
Conclusions – Sustainable Competitive Advantage? Strong brand loyalty will Requires continued lead to sustainable innovation to serve un-met advantage. Success of Superior brand (for needs and maintain“tweenies” campaign will be niche segments) technology edge – part of key. Need to stick to core UA’s core competence. brand values Superior Unique innovation & culture design Very valuable (close to Superior product consumer needs) and performance Independent hard to research has proved replicate, but…limits effectiveness but growth in certain lack of IP protection markets e.g. women. = not sustainable 31 May, 2012 Adapted from Hill and Jones (2001) 21
Conclusions: sustainable competitive advantage forgrowth?Market penetration – UA already maximise their penetration by bringing out updated ranges on short cycles but products become obsolete quickly so MUST continue to innovate new onesProduct development – this has led to early growth of company but heavy competition in US marketDiversification – UA have tried this with limited success and risk damaging core strengths of brand and niche …Currently UnderArmour has problem solver limited expertise and capabilityMarket development – UA need to grow to serve these markets, their Overseas, & Female particularly when Nike, Adidas markets, and extend the number of and other competitors are sports they serve BUT…. already established. Sources: Underarmour (2010)
Conclusions – What next, Our view:UnderArmour is unlikely to be able to sustain growth trajectory with existingcompetences, value chain, and business model.UA needs to develop new markets: • Overseas, Women, and new sportsNeed to acquire capabilities to successfully operate in thesemarkets, How? • Merger with other “small” players • Acquisition by bigger firm • Licensing (but major quality/brand risk associated with this) • BUT need to maintain brand and cultural congruenceMost likely outcome: acquisition by Nike, Adidas or similar • Acquirer gets manufacturing synergies and removal of competition • Acquirer uses infrastructure and money to expand UA in Europe, Asia… Sources: Rubin (20120), Sun (2011), Underarmour (2010) 31 May, 2012 23
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