Analysis: Under Armour's poor performance is solely of own making
While there are some crumbs of comfort in the latest results from Under Armour, the numbers still give the impression of a brand that has run out of steam.
Admittedly, overall revenue looks good enough with a 5.8% increase in sales. However, all of this comes from newer markets where Under Armour is buying growth through expansion. There is nothing wrong with this strategy, but it comes with costs attached -- which means the contribution to the bottom line is less than impressive.
As it undertakes expansion, Under Armour ideally needs a strong core to stabilize performance. Unfortunately, the North American division, which should fulfill this role, remains troubled. This quarter, revenue in North America fell by 0.4%. Although this appears better than last quarter's 4.5% decline, this is only because it comes off the back of a very soft prior year comparative when regional revenue dipped by 1.1%. This dynamic also serves a reminder that growth in Under Armour's home market has been negative or virtually non-existent for well over a year.
If this were a period during which the consumer economy was sluggish, we would have some sympathy for Under Armour. However, demand is strong, and many other brands are capitalizing on dynamics like the tax windfalls and bonuses. As such, we believe that Under Armour's poor performance is solely one of the brand's own making.
Within North America, we believe that Under Armour's image is still off-pitch and that its brand strategy remains extremely muddled.
Strategically and in terms of its store and distribution footprint, it is clear that Under Armour wants to be a strong lifestyle brand with a wide reach. Indeed, recent partnerships, such as the collaboration with rapper A$AP Rocky, suggest a push to appeal to younger demographics
more interested in fashion than sports.
Unfortunately, most consumers do not see Under Armour as a lifestyle brand; they see it as a specialist sports performance brand. This limits Under Armour's ambitions and means that many of the lifestyle initiatives it pursues fall on stony ground. While we do not believe that Under Armour's desires are misplaced, we maintain our view that the brand needs to have a much clearer identity, possibility by using sub-brands, before it can gain wider acceptance. Throwing out new products and lines before this clarity is developed is folly.
Under Armour's brand issues are further exacerbated because performance sports is a segment under pressure. Heavy competition, especially in footwear and specialist segments such as yoga, limits growth. Even strong companies like Nike, which has a much clearer image, have found the going tough. Against this challenging backdrop, Under Armour makes life even more difficult for itself. In our view, there are a whole host of underlying issues which contribute to poor performance.
A lack of focus on any particular sport or area of fitness means that Under Armour is seen by many as a somewhat generic sports brand. Unlike Nike, Under Armour's range is not particularly well segmented and the lines between different products are blurred. Indeed, we would argue that Under Armor has far too many products and this makes the range confusing and hard to shop.
Distribution is also an issue. In an attempt to grow the business, Under Armour has become a ubiquitous brand that appears in too many channels, including department stores like Kohl's. In our view, for a relatively immature brand, this undermines attempts to build credibility and has also partly damaged relationships with specialist sports retailers. It also makes attempts to push into the lifestyle segment much more difficult.
Customer service also leaves a lot to be desired. At some stores it is good, at others - especially outlet stores -- it is incredibly poor. This variability in standards undermines the brand and damages customer perceptions. Our data show that compared to brands like Nike and Lululemon, Under Armour fares very badly on service. Ultimately, this damages sales -- especially in more specialist areas where advice is often needed.
The final issue is the masculine nature of the brand, which has made it hard for Under Armour to expand its reach to women. While store design, marketing, and products remain male-focused, Under Armour will continue to struggle with women. This is a lost opportunity as female sports and fitness remain a fast-growth part of the market.
Overall, we believe that Under Armour is a company that has grown too fast and has too broad a set of ambitions. The result is a company that lacks a clear vision or point of view. In today's crowded marketplace this has made it indistinct and easy to overlook. Until this is remedied, growth will remain problematic.
Admittedly, overall revenue looks good enough with a 5.8% increase in sales. However, all of this comes from newer markets where Under Armour is buying growth through expansion. There is nothing wrong with this strategy, but it comes with costs attached -- which means the contribution to the bottom line is less than impressive.
As it undertakes expansion, Under Armour ideally needs a strong core to stabilize performance. Unfortunately, the North American division, which should fulfill this role, remains troubled. This quarter, revenue in North America fell by 0.4%. Although this appears better than last quarter's 4.5% decline, this is only because it comes off the back of a very soft prior year comparative when regional revenue dipped by 1.1%. This dynamic also serves a reminder that growth in Under Armour's home market has been negative or virtually non-existent for well over a year.
If this were a period during which the consumer economy was sluggish, we would have some sympathy for Under Armour. However, demand is strong, and many other brands are capitalizing on dynamics like the tax windfalls and bonuses. As such, we believe that Under Armour's poor performance is solely one of the brand's own making.
Within North America, we believe that Under Armour's image is still off-pitch and that its brand strategy remains extremely muddled.
Strategically and in terms of its store and distribution footprint, it is clear that Under Armour wants to be a strong lifestyle brand with a wide reach. Indeed, recent partnerships, such as the collaboration with rapper A$AP Rocky, suggest a push to appeal to younger demographics
more interested in fashion than sports.
Unfortunately, most consumers do not see Under Armour as a lifestyle brand; they see it as a specialist sports performance brand. This limits Under Armour's ambitions and means that many of the lifestyle initiatives it pursues fall on stony ground. While we do not believe that Under Armour's desires are misplaced, we maintain our view that the brand needs to have a much clearer identity, possibility by using sub-brands, before it can gain wider acceptance. Throwing out new products and lines before this clarity is developed is folly.
Under Armour's brand issues are further exacerbated because performance sports is a segment under pressure. Heavy competition, especially in footwear and specialist segments such as yoga, limits growth. Even strong companies like Nike, which has a much clearer image, have found the going tough. Against this challenging backdrop, Under Armour makes life even more difficult for itself. In our view, there are a whole host of underlying issues which contribute to poor performance.
A lack of focus on any particular sport or area of fitness means that Under Armour is seen by many as a somewhat generic sports brand. Unlike Nike, Under Armour's range is not particularly well segmented and the lines between different products are blurred. Indeed, we would argue that Under Armor has far too many products and this makes the range confusing and hard to shop.
Distribution is also an issue. In an attempt to grow the business, Under Armour has become a ubiquitous brand that appears in too many channels, including department stores like Kohl's. In our view, for a relatively immature brand, this undermines attempts to build credibility and has also partly damaged relationships with specialist sports retailers. It also makes attempts to push into the lifestyle segment much more difficult.
Customer service also leaves a lot to be desired. At some stores it is good, at others - especially outlet stores -- it is incredibly poor. This variability in standards undermines the brand and damages customer perceptions. Our data show that compared to brands like Nike and Lululemon, Under Armour fares very badly on service. Ultimately, this damages sales -- especially in more specialist areas where advice is often needed.
The final issue is the masculine nature of the brand, which has made it hard for Under Armour to expand its reach to women. While store design, marketing, and products remain male-focused, Under Armour will continue to struggle with women. This is a lost opportunity as female sports and fitness remain a fast-growth part of the market.
Overall, we believe that Under Armour is a company that has grown too fast and has too broad a set of ambitions. The result is a company that lacks a clear vision or point of view. In today's crowded marketplace this has made it indistinct and easy to overlook. Until this is remedied, growth will remain problematic.