Produce a SWOT Analysis of Under Armour. What does the analysis reveal about the overall attractiveness of Under Armour’s situation?
(S)trengths
Under Armour is a young company. Over the last 20 years the company had tremendous growth, especially in the North American market. UA’s products are known for their quality and innovation. CEO and founder Kevin Plank was able to create demand from a specific niche market to the broad sports apparel market. UA has a distinctive competence in product innovation which led to the rapid growth of the firm.A solid strategic plan and a strong marketing strategy helped Under Armour to become the second largest force in the sports apparel, active-wear, and athletic footwear in North America. In recent years, UA has invested heavily in sponsoring high profile athletes, teams and events. This has helped to build the brand and get public exposure. The strong financial performance has shown that UA uses its available resources to gain market share and grow the business sustainably.
(W)eaknesses
Under Armour’s revenue streams are heavily dependent on the North American market. The lack of international diversification puts the company at risk for local economic downturns. In the past, the company has sponsored sports that are mostly popular in the US and Canada such as Baseball, Football etc. On a global scale, those sports don’t get as much exposure as soccer for example. UA products have a hefty price tag on them. In times of economic expansion this leads to a high profit margin. The elastic demand for sports apparel results in weak financial performances in recessions. UA has outsourced most of its production which puts the company at risk for currency fluctuations and commodity price fluctuations. Internationally, distribution channels are complex which makes it hard for UA to gain market share in global markets. Year end inventories increased annually which increases the cost. Surplus inventories indicate inefficiencies in inventory management.
(O)pportunities
The company has a lot of potential in every market outside of North America.UA has started the process of increasing a larger product portfolio. This is an effort to reach a larger customer base. The rising health awareness is an opportunity for UA to sell sports related goods to customers. With the acquisition of MapMyFitness, the UA reaches a broad global customer base. Product designed to work with the fitness application have the potential to boost sales significantly.Lifestyle apparel targets a different set of consumers that are not attracted by UA’s current product selection.
(T)hreats
The biggest threat for UA are existing competitors. The global market is dominated by Nike and adidas. After UA entered the market, the two companies have expanded their product selection to functional athletic gear as well.Global export and import policies could have a potential impact on the company’s financial performance. Recent political developments could impact the import of finished goods from low income countries.
Overall, UA has been performing exceptionally well over the last five years. Their biggest strengths are product innovation and marketing. Paired with the numerous opportunities, the firm sits in an attractive position. Global sales could elevate UA to the third major producer of sports apparel.
The acquisition of MapMyFitness opened a new opportunity set to the company. Global trends towards a healthier and more active lifestyle will fuel the growth of the company in the near future. What, if anything, is impressive about Under Armour’s financial performance during the 2011-2015 period (as shown in case Exhibit 1)? Provide support for your contention. UA’s financial performance has shown an organic growth of the company. Within five years, the firm was able to more than double their sales revenue from $1.47 billion (2011) to $3.96 billion (2015). Over the same time period, UA was able to keep the Gross profit margin between 48%-49%. Net margin over the same time horizon was as followed: The fluctuations in the net margin are primarily due to fluctuations in interest expenses and other expenses. The rest of the income statement did not show any abnormities. Does Under Armour have any core or distinctive competencies, and if so, what are they? Under Armour has a better product with technological advanced materials. Athletic wear that supports an athlete through compression technology can help enhance performance. Furthermore, compression wear activates the blood-flow and facilitates the regeneration process. Fitting clothes with synthetic materials transport sweat off the body and help regulating body temperatures. Depending on surrounding circumstances, this means either keeping the body warm or cool. UA has unique sponsorship deals with famous athletes to promote their products and services. Founder and CEO Kevin Plank, brings first hand experience as an athlete to the firm. As a team-player he has learned how to get the best out of people which is reflected in the product. His involvement in sports allows the firm to base their strategy and products out of the eye of a former athlete. A very valuable perspective considering the target market.
What 3-4 top priority issues do Kevin Plank and the Under Armour management team need to address?
One issue Kevin Plank and UA have to address is inventory management. As the financial data indicated, the firms ending inventory was continuously growing over the past 5 years. This means addition costs that are preventable through a more precise inventory forecast system. The sports apparel market is highly competitive. In order to survive in this business in the long run, UA has to improve their net and gross profit margin. In North America, Nike was able to generate a profit margin of 26.5% in 2015. In contrast, UA’s profit margin was 5.87% in the same year. Companies that are in the growth stage usually have a smaller profit margin due to expenditure plans, however, this strategy has to change in the long-run to maximize stockholder’s wealth. Sustainability and social responsibility are becoming more and more important in modern society. For a modern company it is not enough to be profitable only. The way the profits are generated is equally important. Studies show that companies with a sustainable strategy are outperforming firms that don’t have one (“Sustainable Companies,” 2014). Customer awareness and the ease to find information on the internet are two factors that raised the importance for this topic.
What recommendations would you make to Under Armour CEO Kevin Plank? At a minimum, your recommendations should cover what to do about each of the top priority issues identified in question.
Inventory Management
Inventory management can be improved through faster and more effective distribution channels. When demand is high a company can react quicker through the improved channels. Knowing someone’s suppliers and keeping an eye on them will further improve the relationship. Moreover, it is important to evaluate every product on its own. Shipping time of raw goods and manufacturing time can differ significantly. Knowing the characteristics of each product can greatly improve inventory management. This means a reduction in holding costs and reduced probability of shortages.
Competitiveness
UA has done a great job in product differentiation and innovation over past 20 years. The company is reaching an important stage now that will decide if UA has the potential to challenge adidas and Nike in the global market. The two big players already have a vast distribution network in place with a well diversified product portfolio. UA will need to cut manufacturing costs without lessening product quality. The highly competitive market has different global needs and UA has to address them for every geographic location. The profit margin can be improved through higher prices or a reduction of expenses. Prices for UA products are already relatively high, therefore, I would recommend the company should analyze how to get the product to the consumer more efficiently.
Sustainability
A consumer that buys a product also represents the values a company stands for. UA stands for high performance and modernization. However, when it comes to sustainability I see some potential to grow. This could include product lines with recycled materials or charitable efforts to help people in need. Optimizing the product lifecycle as well as identifying the core social and environmental impacts are only a few ideas to improve the sustainability component. Resource scarcity is becoming more and more of an issue with growing global population numbers and higher standard of livings. A company that tries to have an impact in making the world a better place gains an advantage over competitors who are not aware of those real issues.
References:
Confino, J. (2014, September 23). Sustainable companies are more profitable, report finds. Retrieved September 27, 2017, from https://www.theguardian.com/sustainable-business/2014/sep/23/business-companies-profit-cdp-report-climate-change-sustainability
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