Question /n case
2
Under Armour's Strategy
in 2013-Good Enough to Win
Market Share from Nike
and adidas?
connect
ARTHUR A. THOMPSON The University of Alabama
Founded in 1996 by former University of
Maryland football player Kevin Plank, Under
Armour was the originator of performance
apparel-gear engineered to keep athletes cool,
dry, and light throughout the course of a game,
practice, or workout. It started with a simple
plan to make a T-shirt that provided compres-
sion and wicked perspiration off the wearer's
skin, thereby regulating body temperature and
avoiding the discomfort of sweat-absorbed
apparel.
Founder and CEO Kevin Plank believed Under
Armour's potential for long-term growth was
exceptional for three reasons: (1) the company had
built an incredibly powerful and authentic brand
in a relatively short time, (2) there were significant
opportunities to expand the company's narrow
product lineup and brand-name appeal into prod-
uct categories where it currently had little or no
market presence, and (3) the company was only in
the early stages of establishing its brand and pen-
etrating markets outside North America.
Some 15 years later, with 2012 sales of $1.8 bil-
lion, Under Armour had a growing brand pres-
ence in the roughly $60 billion multi-segment Company Background
retail market for sports apparel, activewear, and
athletic footwear in the United States. Its inter-
locking "U" and "A" logo had become almost
as familiar and well-known as industry-leader
Nike's swoosh. According to SportsOneSource
data, in 2012 Under Armour had a 7 percent
share of the U.S. market for lightweight run-
ning shoes (up from 3 percent in 2011) and a
13.7 percent share of the sports apparel segment
(versus 11.1 percent in 2011). Across all seg-
ments, Under Armour had boosted its domes-
tic market share from 0.6 percent in 2003 to an
estimated 3.0 percent in 2012, while industry
leader Nike's share had remained relatively flat
at about 7.0 percent; second-ranked adidas had
a market share of about 5.4 percent in 2012.¹
248
Kevin Plank honed his competitive instinct
growing up with four older brothers and play-
ing football. As a young teenager, he squirmed
under the authority of his mother, who was
the town mayor of Kensington, Maryland.
When he was a sophomore, he was tossed out
of Georgetown Prep for poor academic perfor-
mance and ended up at Fork Union Military
Academy, where he learned to accept disci-
pline and resumed playing high school football.
After graduation, Plank became a walk-on
special-teams football player for the University
of Maryland in the early 1990s, ending his col-
lege career as the special-teams' captain in 1995.
Copyright ©2013 by Arthur A. Thompson. All rights reserved. Case 2 Under Armour's Strategy in 2013-Good Enough to Win Market Share from Nike and adidas?
Throughout his football career, he regularly expe-
rienced the discomfort of practicing on hot days
and the unpleasantness of peeling off sweat-
soaked cotton T-shirts after practice. At the Uni-
versity of Maryland, Plank sometimes changed
the cotton T-shirt under his jersey as it became
wet and heavy during the course of a game.
During his later college years and in classic
entrepreneurial fashion, Plank hit upon the idea
of using newly available moisture-wicking,
polyester-blend fabrics to make next-generation,
tighter-fitting shirts and undergarments that
would make it cooler and more comfortable
to engage in strenuous activities during high-
temperature conditions.² While Plank had a
job offer from Prudential Life Insurance at the
end of his college days in 1995, he couldn't see
himself being happy working in a corporate
environment-he told the author of a 2011 For-
tune article on Under Armour, "I would have
killed myself."³ Despite a lack of business train-
ing, Plank opted to try to make a living selling
high-tech microfiber shirts. Plank's vision was
to sell innovative, technically advanced apparel
products engineered with a special fabric con-
struction that provided supreme moisture man-
agement. A year of fabric and product testing
produced a synthetic compression T-shirt that
was suitable for wear beneath an athlete's uni-
form or equipment, provided a snug fit (like a
second skin), and remained drier and lighter
than a traditional cotton shirt. Plank formed KP
Sports as a subchapter S corporation in Mary-
land in 1996 and commenced selling the shirt to
athletes and sports teams.
The Company's Early Years
Plank's former teammates at high school, mili-
tary school, and the University of Maryland
included some 40 National Football League
players that he knew well enough to call and
offer them the shirt he had designed. He
worked the phone and, with a trunk full of
shirts in the back of his car, visited schools and
training camps in person to show his products.
Within a short time, Plank's sales successes
were good enough that he convinced Kip Fulks,
who played lacrosse at Maryland, to become a
2
partner in his enterprise. Fulks's initial role wa
to leverage his connections to promote use
the company's shirts by lacrosse players. The:
sales strategy was predicated on networkin
and referrals. But Fulks had another critica
role he had good credit and was able to obtai
17 credit cards that were used to make purchase
from suppliers and charge expenses. * Opera
tions were conducted on a shoestring budge
out of the basement of Plank's grandmother'
house in Georgetown, a Washington, D.C., sub
urb. Plank and Fulks generated sufficient casł
from their sales efforts that Fulks never missec
a minimum payment on any of his credit cards
When cash flows became particularly tight
Plank's older brother Scott made loans to the
company to help keep KP Sports afloat (in 2011
Scott owned 4 percent of the company's stock).
It didn't take long for Plank and Fulks to learn
that it was more productive to direct their sales
efforts more toward equipment managers than
to individual players. Getting a whole team to
adopt use of the T-shirts that KP Sports was
marketing meant convincing equipment man-
agers that it was more economical to provide
players with a pricey $25 high-performance
T-shirt that would hold up better in the long-
run than a cheap cotton T-shirt.
In 1998, the company's sales revenues and
growth prospects were sufficient to secure a
$250,000 small-business loan from a tiny bank
in Washington, D.C.; the loan enabled the com-
pany to move its basement operation to a facil-
ity on Sharp Street in nearby Baltimore. As
sales continued to gain momentum, the bank
later granted KP Sports additional small loans
from time to time to help fund its needs for
more working capital. Then Ryan Wood, one of
Plank's acquaintances from high school, joined
the company in 1999 and became a partner. The
company consisted of three jocks trying to gain
a foothold in a growing, highly competitive
industry against more than 25 brands, includ-
ing those of Nike, adidas, Columbia, and Pata-
gonia. Plank functioned as president and CEO;
Kip Fulks was vice president of sourcing and
quality assurance; and Ryan Wood was vice
president of sales. 250
Part 2 Cases in Crafting and Executing Strategy
Nonetheless, KP Sports sales grew briskly
as the company expanded its product line to
include high-tech undergarments tailored for
athletes in different sports and for cold tempera-
tures as well as hot temperatures, plus jerseys,
team uniforms, socks, and other accessories.
Increasingly, the company was able to secure
deals not just to provide gear for a particular
team but also for most or all of a school's sports
teams. However, the company's partners came
to recognize the merits of tapping the retail mar-
ket for high-performance apparel and began
making sales calls on sports apparel retail-
ers. In 2000, Galyan's, a large retail chain since
acquired by Dick's Sporting Goods, signed on to
carry KP Sports' expanding line of performance
apparel for men, women, and youth. Sales to
other sports apparel retailers began to explode,
quickly making the retail segment of the sports
apparel market the biggest component of the
company's revenue stream. Revenues totaled
$5.3 million in 2000, with operating income of
$0.7 million. The company's products were
available in some 500 retail stores. Beginning in
2000, Scott Plank, Kevin's older brother, joined
the company as vice president of finance, with
operational and strategic responsibilities as well.
Rapid Growth Ensues
Over the next 11 years, the company's product
line evolved to include a widening variety of
shirts, shorts, underwear, outerwear, gloves,
and other offerings. The strategic intent was to
grow the business by replacing products made
from cotton and other traditional fabrics with
innovatively designed performance products
that incorporated a variety of technologically
advanced fabrics and specialized manufactur-
ing techniques, all in an attempt to make the
wearer feel "drier, lighter, and more comfort-
able." In 1999 the company began selling its
products in Japan through a licensee. On Janu-
ary 1, 2002, prompted by growing operational
complexity, increased financial requirements,
and plans for further geographic expansion,
KP Sports revoked its S corporation status and
became a C corporation. The company opened
a Canadian sales office in 2003 and began
efforts to grow its market presence in Canada.
In 2004, KP Sports became the outfitter of the
University of Maryland football team and was
a supplier to some 400 women's sports teams
at NCAA Division I colleges and universities.
The company used independent sales agents to
begin selling its products in the United King-
dom in 2005. SportsScanINFO estimated that
as of 2004, KP Sports had a 73 percent share of
the U.S. market for compression tops and bot-
toms, more than seven times that of its nearest
competitor.
Broadening demand for the company's
product offerings among professional, colle-
giate, and Olympic teams and athletes; active
outdoor enthusiasts; elite tactical profession-
als; and consumers with active lifestyles pro-
pelled revenue growth from $5.3 million in
2000 to $263.4 million for the 12 months end-
ing September 30, 2005, equal to a compound
annual growth rate of 127 percent. Operating
income increased from $0.7 million in 2000 to
$32.7 million during the same period, a com-
pound annual growth rate of 124 percent. About
90 percent of the company revenues came from
sales to some 6,000 retail stores in the United
States and 2,000 stores in Canada, Japan, and
the United Kingdom. In addition, sales were
being made to high-profile athletes and teams,
most notably in the NFL, Major League Base-
ball, the National Hockey League, and major
collegiate and Olympic sports. KP Sports had
574 employees at the end of September 2005.
Throughout 2005, KP Sports increased its
offerings to include additional men's and
women's performance products and, in par-
ticular, began entry into such off-field outdoor
sports segments as hunting, fishing, running,
mountain sports, skiing, and golf. Management
expected that its new product offerings in 2006
would include football cleats.
KP Sports Is Renamed
Under Armour
In late 2005, the company changed its name to
Under Armour and became a public company Case 2 Under Armour's Strategy in 2013-Good Enough to Win Market Share from Nike and adidas? 2
with an initial public offering of 9.5 million
shares of Class A common stock that gener-
ated net proceeds of approximately $114.9 mil-
lion. Simultaneously, existing stockholders sold
2.6 million shares of Class A stock from their
personal holdings. The shares were all sold at
just above the offer price of $13 per share; on
the first day of trading after the IPO, the shares
closed at $25.30, after opening at $31 per share.
Following these initial sales of Under Armour
stock to the general public, Under Armour's
outstanding shares of common stock consisted
of two classes: Class A common stock and Class
B common stock; both classes were identical
in all respects except for voting and conver-
sion rights. Holders of Class A common stock
were entitled to one vote per share, and hold-
ers of Class B common stock were entitled to
10 votes per share on all matters to be voted
on by common stockholders. Shares of Class A
and Class B common stock voted together as a
single class on all matters submitted to a vote of
stockholders. All of the Class B common stock
was beneficially owned by Kevin Plank, which
represented 83 percent of the combined voting
power of all of the outstanding common stock.
As a result, Plank was able to control the out-
come of substantially all matters submitted to a
stockholder vote, including the election of direc-
tors, amendments to Under Armour's charter,
and mergers or other business combinations.
operating officer at Under Armour in Septen
ber 2011, after moving up the executive ranl
in several capacities, chiefly those related t
sourcing, quality assurance, product develop
ment, and product innovation. In Septembe
2012, Scott Plank, who was serving as the con
pany's executive vice president of busines
development after holding several other pos
tions in the company's executive ranks, retire
from the company to start a real estate devel
opment company and pursue his passion fo
building sustainable urban environments.
Exhibit 1 summarizes Under Armour'
financial performance in five of the seven year:
following the company's 2005 IPO. Exhibit:
shows the growth of Under Armour's quar
terly revenues for 2010 through mid-2013. The
company's stock traded in the $46 to $51 range
in the first three months of 2013. Following the
announcement of better-than-expected earn-
ings in the first half of 2013 and management
forecasts of full-year 2013 revenues of $2.21
billion to $2.23 billion, Under Armour's stock
climbed to $57 per share in mid-April 2013.
Under Armour announced sales target was
to achieve sales revenues of $2.2 billion in 2013,
reaching $4 billion by 2016.
Under Armour's
At the time of Under Armour's IPO, Kevin Strategy
Plank, Kip Fulks, and Ryan Wood were all
33 years old; Scott Plank was 39 years old. After
the IPO, Kevin Plank owned 15.2 million shares
of Under Armour's Class A shares (and all of
the Class B shares); Kip Fulks owned 2.125 mil-
lion Class A shares, Ryan Wood owned 2.142
million Class A shares, and Scott Plank owned
3.95 million Class A shares. All four had opted
to sell a small fraction of their common shares
at the time of the IPO-these accounted for a
combined 1.83 million of the 2.6 million shares
sold from the holdings of various directors,
officers, and other entities. Ryan Wood decided
to leave his position as senior vice president of
sales at Under Armour in 2007 to run a cattle
farm. Kip Fulks assumed the position of chief
Under Armour's mission was "to make all ath-
letes better through passion, design, and the
relentless pursuit of innovation." The compa-
ny's principal business activities in 2012 were
the development, marketing, and distribution
of branded performance apparel, footwear, and
accessories for men, women, and youth. The
brand's moisture-wicking fabrications were
engineered in many designs and styles for wear
in nearly every climate to provide a perfor-
mance alternative to traditional products. Its
products were worn by athletes at all levels,
from youth to professional, and by consum-
ers with active lifestyles. Over 90 percent of
Under Armour's sales were in North America,
but international sales to distributors and 252
Part 2 Cases in Crafting and Executing Strategy
EXHIBIT 1
Selected Financial Data for Under Armour, Inc., 2008-2012 (in 000s, except per share amounts)
Years Ending December 31
2012
2011
2010
2009
2008
Selected Income Statement Data
Net revenues
$ 1,834,921
$ 1,472,684
$ 1,063,927
$ 856,411
$ 725,244
Cost of goods sold
955,624
759,848
533,420
446,286
372,203
Gross profit
879,297
712,836
530,507
410,125
353,041
Selling, general and administrative expenses
670,602
550,069
418,152
324,852
276,116
Income from operations
208,695
162,767
112,355
85,273
76,925
Interest expense, net
(5,183)
(3,841)
(2,258)
(2,344)
(850)
Other expense, net
(73)
(2,064)
(1,178)
(511)
(6,175)
Income before income taxes
203,439
156,862
108,919
82,418
69,900
Provision for income taxes
74,661
59,943
40,442
35,633
31,671
Net income
$ 128,778 $ 96,919
$ 68,477
$ 46,785
$ 38,229
Net income per common share
Basic
$1.23
$0.94
$0.67
$0.47
$0.39
Diluted
1.21
0.92
0.67
0.46
0.38
Weighted average common shares outstanding
Basic
104,343
103,140
101,595
99,696
98,171
Diluted
106,380
105,052
102,563
101,301
100,685
Selected Balance Sheet Data
Cash and cash equivalents
$ 341,841
$ 175,384
$ 203,870
$187,297
$ 102,042
Working capital*
651,370
506,056
406,703
327,838
263,313
Inventories at year-end
319,286
324,409
215,355
148,488
182,232
Total assets
1,157,083
919,210
675,378
545,588
487,555
Total debt and capital lease obligations,
61,889
77,724
15,942
20,223
45,591
including current maturities
Total stockholders' equity
816,922
636,432
496,966
399,997
331,097
Selected Cash Flow Data
Net cash provided by operating activities
$ 199,761
$ 15,218 $ 50,114
$ 119,041
$ 69,516
*Working capital is defined as current assets minus current liabilities.
Source: Company 10-K reports 2012, 2010, and 2008.
retailers outside the North America were grow-
ing. Exhibit 3 shows the composition of Under
Armour's revenues from 2009 to 2012.
Growth Strategy
Under Armour's announced sales objective
was to achieve sales revenues of $4 billion by
2016, up from an estimated $2.2 billion in 2013.
The company's growth strategy in 2013 con-
sisted of several strategic initiatives:
Continuing to broaden the company's
product offerings to men, women, and
youth for wear in a widening variety of
sports and recreational activities.