CASE 30 CASE 29 China’s Home Improvement Under … 2008, Under Armour, Inc., Form 10-K 2007 Annual Report, December 31, 26. ... Case 29: Under Armour: Working to Stay on Top of Its

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C A S E 3 0China’s Home Improvement Market: Should Home Depot Enter or Will it Have a Late-Mover (Dis)advantage?

Mark Brewer, Brandi Chauvin, Eric Mitchell,Eric Partington, Mark Rade, Don Riddle, Yinghong (Sara) Song, Robin Chapman

Arizona State University

Millions of people each year try to come up with a “million dollar” idea. Many believe that it requires an “unfathomable” idea, but sometimes going back to the basics is the key. That’s what allowed Kevin Plank, the founder of Under Armour performance apparel, to find success. The task at hand was to simply make a superior T-shirt and nothing more. It all began in 1996 when the former University of Maryland football player wanted to create a shirt that would help control the temperature of an athlete’s body, not just soak up the sweat during intense activities. He wanted a shirt that enhanced performance rather than detracted from it. As a result, Plank created a synthetic shirt made of high-tech material that had a snug fit designed to feel like a second skin.

The technology behind Under Armour’s diverse product lines for men, women, and youth is complex, but the message is simple: wear HeatGear when it’s hot, ColdGear when it’s cold, and AllSeasonGear between the extremes. Under Armour’s mission is to enhance the experience for all athletes by applying passion, science, and the relentless pursuit of innovation to create cloth-ing with temperature control, comfort, and flexibility.1

Under Armour’s stated goal is to be “a leading developer, marketer, and distributor of branded performance products.” It has been able to successfully penetrate the sports apparel market by using the image and influence of: domestic and international professional teams, collegiate teams, Olympians, and individuals.

Utilizing broad-based, frequently free endorsements and well-received publicity, Under Armour has also reached regular athletes, active outdoor enthusiasts, elite tactical professionals, and active lifestyle consumers.

Under Armour is quickly becoming a leader in the sports apparel industry, and it could be argued that it is an opposing force to Nike in sports apparel, with its widespread popularity amongst top-name athletes and sports programs and teams. This is further evidenced by a 133 percent compound annual growth rate and an equally enormous increase in operating income from $5.7 million to $52.5 million between the years 2003 and 2007. As of 2007, Under Armour had $606 million in sales revenue, far surpassing its first year’s revenue in 1996 of $17 thousand (see Exhibits 1 and 2).

Under Armour’s products are sold worldwide, with the company’s headquarters located in the United States and support offices in Hong Kong and Guangzhou, China. Primary sales are achieved through wholesale distribution and licensing to distributors. Products are offered through the company website and retailers, and company stores in the United States, Europe, Japan, Canada, South Africa, Australia, and New Zealand (see Exhibit 3). Under Armour operates in a highly competitive industry where the dominant competitors have significant breadth of market coverage that it is difficult to find an entry point. The main competitors have been advertising and establishing distribution channels, marketing agreements,

C A S E 2 9Under Armour: Working to Stay on Top of Its Game

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Exhibit 1 Under Armour Net Revenue: 2003–2007

Year Ended December 31

(In thousands, except per share amounts) 2007 2006 2005 2004 2003

Statements of Income data:

Net revenues $606,561 $430,689 $281,053 $205,181 $115,419

Source: 2008, Under Armour, Inc., Form 10-K 2007 Annual Report, December 31, 26.

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ame Exhibit 2 Under Armour Income Growth from 2005 to 2007

Under Armour, Inc. and Subsidiaries Consolidated Statements of Income

(In thousands, except per share amounts)


2007 2006 2005

Net revenues $606,561 $430,689 $281,053

Cost of goods sold 301,517 215,089 145,203

Gross profi t 305,044 215,600 135,850

Operating expenses

Selling, general and administrative expenses 218,779 158,682 100,040

Income from operations 86,265 56,918 35,810

Other income (expense), net 2,778 2,169 (2,836)

Income before income taxes 89,043 59,087 32,974

Provision for income taxes 36,485 20,108 13,255

Net income 52,558 38,979 19,719

Accretion of and cumulative preferred dividends on Series A Preferred Stock — — 5,307

Net income available to common stockholders $52,558 $38,979 $14,412


Exhibit 3 Net Revenue by Geographic Region


(In thousands) 2007 2006 2005

United States $562,439 $403,725 $266,048

Canada 23,360 16,485 9,502

Subtotal 585,799 420,210 275,550

Other foreign countries 20,762 10,479 5,503

Total net revenues $606,561 $430,689 $281,053


and recognition for many years. Thus the battle for Under Armour was much more uphill than most other new entrants to an established market. However, Under Armour has succeeded in breaking into a mature market and is no longer simply an amateur player in the sports apparel arena. The question is: “How does the company stay on top of its game?”

History of Under ArmourAs previously mentioned, when Plank was a football player he grew tired of having to change his damp, heavy

t-shirt under his jersey, so he set out to create a unique product that would meet the needs of all athletes. His laboratory was his grandmother’s basement in Maryland. After many prototypes, Plank created his first shirt; it was a shiny tight shirt made of high-tech fibers that wicked away moisture, keeping athletes cool, dry, and feeling “light.”2 Plank’s shirts truly did regulate athletes’ body temperatures, lending to improved performance.3

Starting SmallPlank believed that he could make a profitable apparel business with his advanced feature shirts, so he used


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$20,000 of his savings and ran up $40,000 in credit card debt to launch Under Armour.4 Success was initially slow in coming, but once Plank made his first big sale to Georgia Tech University,5 Under Armour grew rapidly. Plank marketed his product by focusing on the value-added concept, and now many high school, college, and professional teams use Under Armour athletic gear.

At the end of its first year of operations, Under Armour had five lines of clothing made for every climate, and the company’s operations were moved out of Plank’s grandmoth-er’s basement into a manufacturing warehouse in Maryland.

Growing into a Recognized BrandIn the late 1990s, Under Armour achieved national recognition. By 1998, it was the official supplier of per-formance apparel to NFL Europe. In 1999, it signed a contract to feature Under Armour in Warner Brothers’ movies. By 2000, Under Armour had become a glob-ally recognized brand and was supplying performance apparel to the National Football League, National Hockey League, and Major League Baseball, USA Baseball, and the U.S. ski team as well as other professional leagues abroad.6 Currently players from 30 of 32 NFL teams wear Under Armour products.

As of 2005, Under Armour was supplying over 100 NCAA Division 1A football programs and thirty NFL teams, but it was still looking for other areas to branch into within the performance apparel industry.7 Consequently, Under Armour introduced a loose-fit clothing line and added women’s clothing to its product line.8 Also in 2005, the company went public, seeking to sell as much as $100 million in shares of common stock. Ben Sturner, president of Leverage Sports Agency, a New York–based sports marketing firm, said, “Under Armour is no longer an up-and-coming brand. [It] [has] positioned [itself] as a real player in the industry and in the eyes of consumers in only a few years’ time.”9

During 2007, Under Armour increased its marketing initiatives by opening self-owned retail and outlet stores. Plank recognized that “You can’t be a world-class ath-letic brand without the ability to outfit the athlete head to toe,”10 so Under Armour developed athletic footwear. As of the first quarter of 2008, Under Armour had 43 percent of the total U.S. performance apparel business sold through sporting goods stores, versus 32 percent for Nike and 5.1 percent for Adidas.11 A marketing consul-tant has said, “Under Armour is identified with perfor-mance the way Starbucks is identified with better coffee, and that is a huge advantage in entering new categories.”12 Plank attributes the company’s success to the fact that “[it] ha[s] grown and reinforced [its] brand name and image through sales to athletes and teams at all levels, from youth to professional, as well as through sales to consumers with active lifestyles around the globe.”13

Current Product and Sales ProfileGeographic DistributionApproximately 93 percent of sales in 2007 were in the United States. with the remaining 7 percent split between Canada [4 percent] and all other international markets [3 percent] (see Exhibit 3). Under Armour sells products in 13 countries, including in-house distribution in the United Kingdom, Germany, and France. Sales in other Western European and Asian countries are done through partnerships and third-party distributors. The limited sales outside of the North American market were primar-ily the result of an emerging international penetration plan that received new emphasis in 2006 with the opening of a European headquarters. In an effort to increase the geo-graphic diversity of sales, these headquarters were opened to manage sales and distribution channels, and additional experienced industry talent was brought on board in 2007 (Exhibit 4 shows where offices and stores are located).

Exhibit 4 Geographic Diversity

Location Use

Baltimore, MD Corporate headquarters

Amsterdam, The Netherlands European headquarters

Glen Bumie, MD Distribution facilities, 17,000 square foot quick-turn, Special Make-Up Shop manufacturing facility, and 4,500 square foot retail outlet store

Denver, CO Sales offi ce

Ontario, Canada Sales offi ce

Guangzhou, China Quality assurance & sourcing for footwear

Hong Kong Quality assurance & sourcing for apparel

Various Retail store space



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ame Product Segment Distribution

Under Armour’s sales results are broken into apparel, footwear, accessories, and licensed products (see Exhibits 5 and 6). Apparel dominated in 2007 with 84 percent of total sales. Men’s apparel made up the “lion’s share” of Under Armour’s business, representing 68 percent of apparel sales and 57 percent of total sales. The second largest apparel segment was women’s with 23 percent of apparel sales and 19 percent of total sales, represent-ing a significant growth and diversification opportunity. Youth products made up the balance of apparel sales.

Under Armour’s non-apparel product segments made up the remaining 16 percent of sales: footwear (7 percent), accessories (5 percent), and licensed prod-ucts (4 percent). Footwear is a new product line that was launched in fourth quarter of 2006. Initially this line only offered baseball, softball, and lacrosse cleats designed for high performance through a highly breathable and light-weight design. The footwear line now includes shoes for golf, football, running, and cross-training. In the near future it will likely introduce basketball shoes and soccer cleats. It captured 20 percent of the U.S. football

Exhibit 5 Net Revenue by Product Category


(In thousands) 2007 2006 2005

Men’s $348,150 $255,681 $189,596

Women’s 115,867 85,695 53,500

Youth 48,596 31,845 18,784

Apparel 512,613 373,221 261,880

Footwear 40,878 26,874 —

Accessories 29,054 14,897 9,409

Total net sales 582,545 414,992 271,289

License revenues 24,016 15,697 9,764

Total net revenues $606,561 $430,689 $281,053


Exhibit 6 Net Revenue by Product in 2007

Source: 2008, Under Armour, Inc., Form 10-K 2007 Annual Report, December 31, Intro.

4.0%4.8%

6.7%

8.0%

19.1%

57.4%


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shoe market in the first year.14 The company’s 2009 first quarter earnings beat analysts’ expectations, which the company attributes largely to the new running shoe.15

Under Armour’s accessories category is developed and managed directly by Under Armour. The primary accesso-ries products are performance gloves for football, baseball, running, and golf aligned to the Heatgear and Coldgear product lines with unique performance features.

Under Armour also licenses its brand name to independent manufacturers for other miscellaneous products such as bags, socks, headwear, eyewear, and watches. The company works with multiple licensees directly throughout the product development process to ensure that the products are aligned with its brand and quality expectations.

SeasonalityThere appears to be a trend that sales are higher in the third and fourth quarters of each year, aligning with the football and basketball seasons and the traditional holiday gift-giving season in the United States. Under Armour has contemplated putting more emphasis on its baseball product line to improve the sales balance and reduce the seasonal variability in sales, inventory efforts, and distribution.

Operations and Distributions/DistributorsUnder Armour possesses an efficient operations and distribution network. As with any corporation, this requires a blend of physical-location metrics and stra-tegic qualities.

By leveraging its licensing partners (JR286, Inc. and USG), Under Armour can provide a wider range of branded products to its customers. This broader range of products adds value by reinforcing the brand and generating revenue without having to organically develop capabilities in these adjacent product categories. Through keen selection and effective partner relation-ships, Under Armour has developed unique products that consumers value.

For the first ten years of its existence, the company was able to sustain operations by using “off the shelf” software programs, but after it went public in 2006, Under Armour invested in a new SAP system. This system is key to the company’s ability to add products to its list of offerings, as it allows Under Armour to manage a more diverse inventory and to ship directly to distributors.16

Under Armour does not have a patent on any of the materials17 used in its products. Therefore, it needs to be cautious in its licensing agreements so companies do not steal its know-how and introduce their own versions. Though the materials and technology used to create its

products are not exclusive, by implementing an effective corporate strategy Under Armour has been able to fashion itself as a profitable business and remain a key player among competitors.

Major CompetitorsThere is stiff competition in the athletic apparel indus-try with companies of various sizes employing different strategies in order to attract consumers to their product and brand. The athletic apparel industry is so diverse that some smaller companies may choose to target a specific area such as yoga; whereas the larger companies try to capture the whole market. The larger companies continuously increase the competition by spending large amounts of money on product innovation, advertising, and sponsorships. Under Armour’s three largest com-petitors in the industry are Nike, Adidas/Reebok, and Columbia Sportswear.18 There are also smaller competi-tors such as SportHill that could possibly break through to become larger threats.

Nike19

Nike was founded in 1964 by a University of Oregon track star, Phil Knight. Knight saw a need for better run-ning shoes and began selling shoes imported from Asia out of the trunk of his car. By 1972 he severed his rela-tionships with suppliers abroad because they had become strained and developed his first shoe branded as Nike. Nike over time became known as a high-quality, innova-tive product that consumers and athletes wanted to wear and were willing to pay a premium price to own.

By 1980, Nike had captured 50 percent of the ath-letic shoe market and in the 1980s began expanding into other areas of the market through acquisitions and product innovation. It produces its three main product segments (footwear, apparel, and equipment) mostly through contract manufacturers rather than operating its own plants. Nike has relationships with some 700 fac-tories in 52 countries, with most in China, Vietnam, and India.20 Nike is the leader in athletic shoes, apparel, and equipment and grossed $18.6 billion in fiscal year 2007. It sells products for every sport and climate and strives to be the best in every segment. Nike advertises its brand through high-priced endorsement deals, media advertis-ing, event sponsorships, and partnerships and alliances. Nike currently has 30,000 employees spread across six continents and operates in 160 countries. Nike is an industry leader that is continually striving to stay ahead of the competition.

Adidas21

Adidas, combined with Reebok (through an acquisi-tion), is the second largest athletic apparel manufacturer


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ame in the world. Adidas was founded in 1924 in Germany

by Adolf Dassler. Dassler created the first running shoe made by hand without electricity in his mother’s kitchen. Dassler’s big break came in 1954 when the German soc-cer team beat Hungary in the World Cup wearing Adidas cleats. From that point forward, Adidas was the industry leader in soccer shoes and apparel.

Changes in leadership during the late 1980s led Adidas to branch out into other markets, but it struggled to find its niche. Through acquisitions and better management it was back on track by the mid-1990s. Adidas acquired three smaller companies: TaylorMade, Salomon Group, and Maxfli. These acquisitions gave it access to the golf and winter sports market segments. In 2006, it merged with athletic apparel and equipment giant Reebok mak-ing it the second largest athletic apparel manufacturer in the world. Today the Adidas product line includes shoes and athletic apparel for basketball, soccer, fitness, golf, and outdoor adventure. Adidas operates globally and has 25,000 employees worldwide with 80 subsidiar-ies and reported $15.6 billion in profits in 2007.

Columbia Sportswear22

Columbia Sportswear Company started in the 1930s as a family-owned and operated hat company in Portland, Oregon. Founder Paul Lamfrom grew tired of working with inadequate suppliers and decided to manufacturer his own products. Columbia quickly gained a reputation for its innovative, high-quality products.

Columbia’s introduction of waterproof, breathable fabrics triggered the growth it has experienced since the 1980s from a small family-owned business to a billion dollar publicly traded company. Columbia continues to grow thanks to its innovative product development and the acquisitions of Sorel, Mountain Hardware, Pacific Trail, and Montrail. These acquisitions enabled the company to branch out into other market segments.

Columbia Sportswear is now one of the largest man-ufacturers and sellers of outdoor apparel specializing in skiwear, snowboard gear, and hunting, fishing, hiking, camping, and casual wear. Columbia currently operates in North America, Europe, and Asia, and its products are available in 90 countries. Columbia has 3,000 employees worldwide. In 2007, Columbia posted record net sales of $1.36 billion.

SportHill23

SportHill was founded in 1985 by a University of Oregon track runner who saw the need for cold weather track gear. His athletic apparel design concept merged the best American fabrics with European style to make unique athletic apparel. SportHill clothing is designed for use in any climate and for any sport. SportHill utilizes the expertise of elite athletes to perfect its design and innovate

new products. It is well known for quality, comfort, and reliability. SportHill’s clothing can be found globally in most major retailer stores and can be purchased online. The success of SportHill is apparent in the number of sponsorships it has, including many Olympic athletes and collegiate running teams; however, it is a privately held company so financial information is not available.

Under Armour has been able to remain successful among its competitors in large part due to the strength of character of its founder and other leaders.

Under Armour’s LeadersUnder Armour’s success may seem unbelievable at first, but it’s no accident. Plank’s drive to keep trying even during difficult times when it seemed the company might never flourish is what made it possible. In the beginning, when customers would request products that Plank had not created, he would respond, “Of course we make that!” and then immediately go to work with suppliers and contractors to deliver on his promise. Two such examples were when the equipment manager for the Atlanta Falcons wanted long-sleeve Under Armour shirts, and when the equipment manager for Arizona State wanted clothing for cold weather.24

“He’s one of the hardest workers I’ve known in my life,” says Plank’s mother.25 Plank’s humble beginnings give him valuable insight into his business. He knows every aspect of it because at one time he actually did the work himself. Many of his first employees were his col-lege classmates and teammates. Most of them are still with Under Armour and play important roles in management.

He spent five months driving round-trip from Baltimore to Moundsville at least twice a week to help Ella Mae Holmes produce and ship Under Armour prod-ucts. He left Baltimore at 4 am, arrived in Moundsville about 8 am, and worked with Holmes and her boy-friend throughout the day. At 8 pm, Plank would take his shipment to the local FedEx office and drive back to Baltimore.26

Plank effectively uses his athletic experience and connections to help Under Armour’s marketing and sales teams earn new business. In the athletic world, he is considered by his customers to be “one of them” rather than a CEO of a very profitable business. It frequently takes competitors years to develop a loyal customer, but Under Armour has been able to quickly earn loyalty after a customer has had one or two good experiences with their purchase. Most of the sports teams feel that Plank is truly helping them by providing a better product and not simply trying to sell his brand. Plank embraces and nurtures this connection respectfully and gracefully. He regularly seeks feedback regarding existing products and the need for new products.


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Management StyleHaving been part of a sports team, Plank manages his company with a unique team-driven style. “Under Armour is one team and my job is to help ensure we operate and execute as one team. Because there’s a lot of noise and clutter surrounding our brand, I try to sim-plify our story and objectives for the team to help keep everyone running on the same wavelength and working towards the same goal: to become the world’s number one performance athletic brand.”27

To remind him of his critical role every day, Plank has written on a whiteboard in his office four things that define his job: (1) make a great product, (2) tell a great story about the product, (3) service the business, and (4) build a great team. Every morning when he arrives at the office and every evening before he leaves, he looks at the board. Plank said, “If I don’t work toward those things, I’m not doing my job …. You can overcompli-cate your job … It’s important that you don’t allow the clutter to grow too loud […] and distract you from your mission.”28

International LeadershipIn order to facilitate its international expansion, Under Armour hired several new executives with experience in international business, most notably Peter Mahrer. Mahrer was appointed as president and managing director for Under Armour Europe, B.V. Mahrer, a sea-soned industry executive, will oversee Under Armour’s European operations headquartered in Amsterdam. Mahrer previously served as head of international sales and general manager for Puma AG.29

Under Armour’s Business Strategies Ever since its inception in 1996, Under Armour’s leaders have strived to achieve the company’s vision of becoming the world’s leading performance athletic apparel brand by employing a differentiation strategy through innovation. Under Armour attains physical differentiation through the value chain activities of technological development and procurement. As CEO Kevin Plank puts it, “The key driver is to offer products that are better than what is currently in the market, best in class.”30 Additionally, Under Armour is able to exploit psychological differen-tiation through its marketing campaign, which has hun-dreds of professional athletes that not only volunteer to wear Under Armour gear, but actually want to wear it. Most budding stars or wannabe weekend recreational athletes want to wear the gear the pros wear. Plank is fix-ated on maintaining differentiation from Nike, and uses “authenticity” as his guiding principal to grow or adver-tise the brand. Under Armour, for example, identifies

itself with team sports, rather than individual sports and fashion. “Everything we do is centered on performance … we aren’t ever going to develop products to fill up a sales table,” says Plank. Specifically, Under Armour will never use cotton to produce its clothing.31

Under Armour’s corporate level strategy consists of a low level of diversification. While it does offer more than one product, 84 percent of its revenue comes from athletic apparel and gear. Incorporating a shoe line is helping the company with its diversification efforts, but it is still highly dependent upon premium priced products that are closely related. There is obviously a degree of economic risk associated with the premium pricing and Under Armour is feeling the effects of the current declining retail consumer market that is affect-ing the broader economy. Additionally, Under Armour is exposed to a degree of risk by offering closely related, nonessential products that are, to a degree, subject to the fashion whims of its customers. Plank said Under Armour is “cautiously optimistic about 2009” and is looking at the year with the “appropriate degree of conservatism.”32

Under Armour added new domestic sales channels by introducing its first independent retail sales outlet in 2007 in Annapolis, Maryland. However, due to the conservative approach to growth in 2009, no new retail stores will be opened during the year.

Under Armour has placed major emphasis on international expansion. In addition to creating a broader consumer base, “Researchers have found that international diversification can lead to greater operational efficiency, which ultimately leads to higher financial performance.”33 Because its product transcends cultural differences and is appealing to many athletes, regardless of nationality, Under Armour is pursuing a worldwide scope via regionalization. Over the past three years, revenues from foreign sales other than Canada have increased at a rate of 100 percent per year and are expected to increase even more quickly with the international growth emphasis (Exhibit 3). Under Armour is fortunate because performance sports apparel appears to transcend any jingoistic trends and exporting does not require an in-depth knowledge of local customer service. Additionally, Under Armour’s products are already manufactured overseas in China; therefore, the new offices in Europe are primarily geared toward marketing and distribution and do not have to contend with the challenges associated with establishing manufacturing plants in foreign countries.

MarketingUnder Armour’s marketing strength is twofold. First, its products have proven to be so effective that professional athletes want to use them. Second, Under Armour has


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shows, and video games. Plank believes that word-of-mouth advertising is the

most effective method. Plank has said, “We always build a product for the athlete’s needs.” The customer is will-ing to pay the price because the Under Armour prod-uct has value in it. “Without value, our product is just an expensive t-shirt. But we have the technology in the fabric [and] the design and the features satisfy what the athlete needs.”34 “Our model is getting to the athletes—supplying them with great product that helps them perform better.”35

Athletes are a valuable marketing resource and the mouthpiece for Under Armour. The company signed a five-year partnership agreement in April 2009 with Cal Ripken, Jr., a retired professional baseball player, to be their official uniform representative. Under Armour feels this is a great opportunity because Ripken previously was partnered with Nike.36 The company has reached out to capture much of the youth sports industry by sponsor-ing recreational teams and major youth tournaments, including the Under Armour All-America high school football and lacrosse games (see Exhibit 7).37

Under Armour has initiated other sponsorships that help get its name out in public, such as the Baltimore Marathon, which is now named the Under Armour Marathon. In an effort to boost the women’s clothing line, Under Armour sponsored the women’s U.S. field hockey team and some of the U.S. women’s softball and volleyball athletes during the 2008 Olympic Games.38

During the first three months of 2008, Under Armour apparel appeared in cable shows nearly 3,000 times, more than any other company, according to Nielsen Media.39 Ironically, movie studios are asking to use Under Armour’s products as opposed to Under Armour having to purchase product placement time. The desire of athletes and movie studios to use Under Armour’s

products leads to a lower-cost, more effective, grass roots ad campaign. While Under Armour did sponsor its first Super Bowl commercial in 2008, the company will continue to use more guerrilla tactics than traditional expensive ad campaigns.

Strategic ChallengesLike most up-and-coming companies, Under Armour faces several issues and challenges. These challenges include the current economic downturn, competing against major rivals such as Nike and Adidas/Reebok, and maintaining a positive brand image despite set-backs, such as the recent recall of its men’s protective athletic gear.40 In addition, some of the most critical issues involve protection of the differentiation strategy, improvement of production and procurement capabili-ties, and continued implementation of a sound interna-tional expansion strategy.

Under Armour’s differentiation strategy has been successful to date; however, the lack of proprietary prod-uct rights, intellectual property rights in foreign coun-tries, and a heavy reliance on relatively few third-party suppliers and manufacturers could adversely affect the long-term sustainability of the firm. “The intellectual property rights in the technology, fabrics, and processes used to manufacture our products are generally owned by our suppliers and generally not unique to us.”41 The company’s ability to obtain patent protection for its products is limited, and as previously mentioned it does not currently own any fabric or process patents.42

Intangible assets such as trademarks are very impor-tant to the Under Armour brand, as are licensing arrangements and other legal agreements. The intellec-tual property rights laws and regulations of countries in the global market vary dramatically. Under Armour relies heavily on suppliers and manufacturers outside of

Exhibit 7 Sponsorship and Other Marketing Commitments

December 31

(In thousands) 2007

2008 $14,684

2009 14,660

2010 13,110

2011 10,125

2012 and thereafter 1,005

Total future minimum sponsorship and other marketing payments $53,584



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the United States. Seventy to 75 percent of the fabric used in its products come from only six suppliers,43 lending to Under Armour’s weak position relative to its suppli-ers. Additionally, some of its supplies are commodities and thus are subject to price fluctuations; for example, petroleum-based materials are used in Under Armour’s products and the petroleum industry has experienced significant swings in price and relative availability in recent months and years.44

Under Armour has achieved a level of success in the U.S. domestic market and limited foreign markets, but is relatively small in size and financial strength com-pared to its major competitors (Nike and Adidas) with similar or competing product offerings. Does Under Armour run the risk of diluting the brand relative to its competitors? Is an acquisition strategy feasible due to the company’s current debt situation? Although a coop-erative strategy may be beneficial to bridge barriers to entry into desirable markets such as China, how likely is it that Under Armour would pursue this option due to its emphasis on innovation and premium branding? Overall, has Under Armour done a good job in finding key strategic leaders with the experience necessary and does it have the right organization in place to help exe-

cute its international growth strategy? Going forward, how can it maintain the product quality that it has nur-tured thus far?

Additional questions that Plank and other managers are pondering are: Can Under Armour maintain strong relationships with its suppliers so that it becomes the customer of choice? Should Under Armour pursue pat-ents or strike agreements to limit the chance of com-petitors offering identical products? If so, will this effort actually be a defense or will counterfeit merchandise undermine such an investment? Does Under Armour possess appropriate supplier relationships and have an understanding of the inherent economic impacts on raw materials? If not, how will Under Armour acquire or develop these capabilities? What capabilities should Under Armour develop to ensure international success? What barriers to entry exist in additional markets, and is licensing or some other method the best approach based on its current cash position? Will the international strat-egy be different from Under Armour’s overall differen-tiation and growth strategy? As its founder and CEO has stated, “Under Armour’s success in 2010 and beyond will be significantly impacted by the decisions we make in 2009.”45

NOTES

1. 2008, Investors Relations—About Under Armour, Inc., http://www.underarmour.com.

2. 2008, Five questions with Under Armour CEO, Kevin Plank, Sports Business Journal, http://www.sportsbusinessconferences.com/sss-pov/entries/2008/five-questions-with-kevin-plank, August 15.

3. Ibid. 4. Ibid. 5. S. Lyster, 2008, The history of Under Armour—A mastermind for

performance apparel, http://www.ezinearticles.com, December 4. 6. 2008, Under Armour performance apparel, Funding Universe,

http://www.fundinguniverse.com, December 4. 7. Ibid. 8. Ibid. 9. D. Rovell, 2005, Under Armour could offer up to $100 million in

stock, http://sports.espn.go.com, August 26.10. S. N. Mehta, 2009, Under Armour reboots: The sports apparel

maker is sprinting into footwear—and trying to take on Nike—with the help of software and science, Fortune, http://www.money.cnn.com, March 5.

11. D. Kiley, 2008, Under Armour steps into footwear field: Sports apparel maker set to do battle with Nike and Adidas, BusinessWeek, http://www.businessweek.com, January 31.

12. Ibid.13. 2008, Under Armour 10-K 2007 Annual Report, http://www

.underarmour.com/annuals.cfm, February.14. D. Kiley, 2008, Under Armour steps into footwear field.15. A. K. Walker, 2009, New shoe helps Under Armour beat

expectations, Baltimore Sun, http://www.baltimoresun.com,April 29.

16. S. N. Mehta, 2009, Under Armour reboots. 17. D. Kiley, Under Armour steps into footwear field.

18. 2008, Under Armour, Hoovers, http://premium.hoovers.com.ezproxy1.lib.asu.edu/subscribe/co/competitors.xhtml?ID=fffrfjjfkrrrhkxsxh.

19. 2008, Nike history, http://www.nikebiz.com/company_overview/history, December 4.

20. 2009, Nike company overview fact sheet, http://www.nikebiz.com; 2009, Nike pulling production from four Asian factories, Reuters, http://www.reuters.com, March 24.

21. 2008, Adidas group history, Adidas Group, http://www.adidas-group.com/en/overview/history/default.asp. December 4.

22. 2008, Columbia Sportswear, Funding Universe, http://www.fundinguniverse.com/company-histories/Columbia-Sportswear-Company-Company-History1.html, December 4.

23. 2008, http://www.sporthill.com, December 4.24. M. Hyman, 2003, How I did it: Kevin Plank: For the founder of

apparel-maker Under Armour, entrepreneurship is 99% perspiration and 1% polyester, Inc., http://www.inc.com, December.

25. S. Graham, 2004, Kevin Plank’s drive makes Under Armour an industry overachiever, Sports Business Journal, http://www.sportsbusinessjournal.com/article/36213, January 19.

26. Ibid.27. 2008, Five questions with Under Armour CEO, Kevin Plank. 28. 2008, How do you define your job? Business Management Daily,

http://www.businessmanagementdaily.com, November 8.29. 2007, Under Armour appoints Peter Mahrer as president &

managing director, Europe; Experienced sporting goods industry executive to lead sport performance brand’s European growth strategy, Baltimore, MD, Under Armour press release, http://www.underarmour.com, July 9.

30. T. Heath, 2008, In pursuit of innovation at Under Armour: Founder Kevin Plank says Super Bowl commercial has generated “buzz,” Washington Post, February 25, D03.


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31. D. Kiley, 2009, Under Armour steps into footwear field.32. R. Sharrow, 2009, Plank: Under Armour eyeing ‘09 “with appropriate

degree of conservatism,” Baltimore Business Journal, http://www.baltimore.bizjournals.com, January 29.

33. R. E. Hoskisson, M. Hitt, R. Ireland, & J. Harrison, 2008, Competing for Advantage, Thomson Southwestern, 286.

34. 2007, I am, Video interview with Kevin Plank, CNBC, http://www.cnbc.com/id/25191722, September 11.

35. M. Hyman, 2003, How I did it: Kevin Plank. 36. R. Sharrow, 2009, Under Armour, Ripken Baseball swing for fences

with sportswear pact, Baltimore Business Journal, http://www.baltimore.bizjournals.com, April 22.

37. R. Sharrow, 2009, Cal Ripken Jr. nears deal to promote Under Armour, Baltimore Business Journal, http://www.baltimore.bizjournals.com, March 20.

38. R. Sharrow, 2008, Under Armour entering an Olympic contest of its own, Baltimore Business Journal, http://www.baltimore.bizjournals.com, August 1.

39. A. K. Walker, 2008, Under Armour in public eye, The Baltimore Sun, July 24.

40. J. Alper, 2009, Under Armour recalls 200,000 cups: Injuries involve cutting and bruising, NBC New York Sports, http://www.nbcnewyork.com/sports, April.

41. 2007, Under Armour, Inc., Form 10-K Annual Report, http://investor.underarmour.com, December 31, 18.

42. Ibid.43. 2008, Under Armour, Inc., Form 8-K, http://investor.underarmour.com, 6.44. Ibid.45. R. Sharrow, 2009, Plank: Under Armour eyeing ‘09 with appropriate

degree of conservatism.


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CASE 30 CASE 29 China’s Home Improvement Under … 2008, Under Armour, Inc., Form 10-K 2007 Annual Report, December 31, 26. ... Case 29: Under Armour: Working to Stay on Top of Its