Under Armour: Adjusting Inventor to Challenge Nike & Adidas - Research Paper

Paper Type:  Research paper
Pages:  7
Wordcount:  1808 Words
Date:  2023-05-04
Categories: 

Introduction

Under Armour LLC started out as a sportswear manufacturer. The business later expanded its product variety, distribution and marketing presence. Being a relatively new entity, the company has been unable thus far to disrupt the dominance of Nike and Adidas. The business has to penetrate its target market more than it currently does for it to become capable of challenging the dominance of Nike and Adidas in the target market.

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The paper will advocate for the company to adjust its inventory management scheme by raising its brand awareness; increase production; expand its global distribution networks; and focus on raising footwear sales. The paper's working assumptions are that aggressive marketing; brand awareness; innovative products; effective distribution networks; and consumer loyalty are essential market success factors. Comprehensive internal analysis is done using the SWOT analytical tool.

The paper recommends that the business invests in a more advanced inventory management system. The new investment can then be leveraged to gain a competitive advantage by having cheap products without compromising on quality that are then aggressively marketed using push advertising. An action plan is provided with a structured way of implementing this paper's recommendations.

Corporate IdentityUnder Armour was founded by in Washington by its Chief Executive Officer (CEO), Kevin Plank, in 1996 (Miloch.et.al. 2012). His original goal was to create a company that specializes in selling sports apparel. From this early goal, the company has grown into the manufacturer of a variety of innovative sports products after it was publicly listed in 2005 (pp.42-57). For instance, sales rose from $ 20 million dollars in the year 2001 to $ 5.2 billion by the close of 2018(Cam, 2019). Expenditure rose as the company invested in Research and Development (R & D) and the acquisition of connected fitness chip companies. For example, it spent $710 million dollar to buy digital startups with successful connected fitness products because Plank believed that by the year 2020, connected fitness chips will constitute a huge market share of consumer sports goods being sold by retailers (Bowman, 2017).

The expenditure on R&D and acquisition of connected fitness chip companies would have been justified if the market trended the way Under Amour's CEO predicted. The migration to connected fitness did not happen. However, by the close of 2019, the company has been grappling with the consequences of a drastic reduction in Under Armour sales volumes that had been driving its profitability for the previous fourteen years (Bain, 2019). The drop in sales is because retail customers have preferred to spend their money on "casual activewear" products instead of connected fitness products like Plank had anticipated (Bain, 2019). Moreover, because its shoe business has a focus on performance-oriented retail customers, this aspect of the business is failing badly (Garcia, 2019). The new CEO's strategy of using direct-to-consumer sales is predicted to not stem the tide because it is incompatible with the rise in e-commerce.

Analysis of Management StrategiesPast: The Company was started by Plank focusing on selling lightweight moisture-wicking shirts to teams and athletes. Operations later expanded into retail consumer apparel, accessories and sports shoes. Its distribution channel were company outlets, e-commerce, specialty stores and large retailers. Distribution could penetrate overseas markets in Asia, Europe, Middle East and Africa. Securing athlete brand ambassadors like the basketballer Steph Curry through endorsement deals was an important plank of its marketing plank. These strategies failed to give the firm a competitive advantage over Nike or Adidas.

Present: The exit of Plank in October 2019 came with a shift in company strategies. Currently, the firm has plans to expand its variety of products to engage additional consumers interested in sports such as rugby union complimented by its marketing strategies geared towards increasing its brand recognition. The current strategy is unlikely to take away some of Nike's or Adidas' market share because of the following reasons:

  • It has bad supply chain management that led to difficulties in accurately predicting consumer demand trends.
  • Sales volumes in overseas markets never recovered from the reduction of sales in the 2012-2013 period.
  • The company's products do not have the global brand recognition that Nike and Adidas have.
  • The firm's manufacturing and distribution networks cannot compete with Adidas or Nike.
  • UnderArmor's shoes are not as popular as brands being sold by Nike or Adidas.

Market OverviewThe North American sports apparel market is predicted to be worth $ 248.1 billion dollars in the year 2026 (Kumar and Deshmukh, 2019). It is predicted that this market will continue to increase in value as more women participate in fitness activities for better health (Bloomberg, 2019). The growth of e-commerce in the sale of sports apparel has become a significant feature of consumer interactions with retail consumer sports goods. For instance, it accounted for $ 7.84 billion dollars in retail purchases last year.

Nike has a 51.3% of the market share for athletic footwear (Scanlon, 2018). Adidas possess 11.3% of the same market while Under Armour has a 2.5% market share. To make matters worse, Under Armor's activewear market share has dropped from 6.4% to 5.6% even as Nike's and Adidas' market share in relation (Scanlon, 2018). The company runs the risk of losing a significant portion of its activewear and athletic footwear market share because the company has not shifted to meet the current trend in the sportswear market is "fashion-meets-fitness" (Soneshine, 2018).

Under Armour has been using foreign retail sales to look for a competitive advantage because it cannot compete with Nike and Adidas in the North American market (Meyersohn, 2019).By the year 2019, overseas sales had risen from 12% to 28% because of its "consumer-metric" approach allows it to use primary data on consumer behavior data to manufacture highly personalize products. The company has also pivoted to Africa, the Middle East and Europe given the success enjoyed in Asia (McDonald, 2020). The pivot to Asia will be very profitable to the company in the future because the sports apparel market in China is expected to grow as more Chinese follow the trend in the health and fitness trend in America (Kumar and Deshmukh, 2019).

The company is positioned to have the third largest market share and use overseas expansion to slowly erode the stranglehold Nike and Adidas have on the global sportswear market. The information is represented below:

Fig 1: Geographic market scope

A problematic aspect of the market is that the prices of materials used fluctuates drastically and the culture of counterfeiting in Asia is a threat to the company's expansions plan. Furthermore, the new CEO's strategy of using direct-to-consumer sales is predicted to not stem the tide because it is incompatible with the rise in e-commerce.

North America is the largest market for sports apparel, but the company cannot acquire a significant amount of market share because of the dominance of Nike and Adidas. It has a negative brand image in the American market since the year 2017.

The damage to its brand can be attributed to the lack of a fashion-focused apparel line like Adidas or Nike. Thus, it has problems accessing the crucial youth demographic. For instance, a 2018 teen survey found Under Armour undesirable among adolescents translating into a weak footwear market share in America. Likewise, Lululemon and Gap have a higher footwear market share among adults in the 18-34 age range.

The recent success of its Hovr platform is evidence that the company can successfully turn around its footwear division. However, the decision to make low end retail chains the final destination in its supply chain has to be addressed. By having its footwear primarily stocked by Kohl's, DSW, and Famous, consumers in the 18 to 34 age range are turned off because they get the impression that the company's shoes are of a poor quality compared to Nike or Adidas. The decision to stock at these low-cost retailers may make supply chains cost effective but it has damaged tits brand among a crucial demographic with disposable incomes.

Internal Analysis

Industry Key Success Factors

From the foregoing, the following will be key to the company's long-term strategy to take away market share from the Nike-Adidas axis.

Aggressive marketing: to increase brand awareness;

Increased R & D: to keep its innovative products edge over other competitors;

Improved supply chain management: to build a global distribution networks that can compete with the Nike-Adidas axis; and

Build a wide consumer base: by manufacturing affordable good quality products.

SWOT Analysis

The SWOT analysis illustrates the company is in a competitive position. It has some great strengths. It is taking steps to mitigate against threats and weaknesses.

Strengths:

Portfolio - Under Armour has a broad product portfolio that has helped in strengthening its standing. The establishment of the company is not dependent on a single product and they are not limited to only footwear but also include other accessories. An extensive product line helps in eliminating the risk of failure.

A global leader in performance sports apparel - the company ensures a high sales ratio as well as continuous growth of the company.

Effective marketing strategy of using famous professional athletes as brand ambassadors - the company values brand recognition hence the use of professionals in the field to market their products. Brand recognition has been helpful in developing authenticity and trustworthiness like other bigger companies such as Nike. Such strategies are to erase any doubts from the investors who plan to invest aggressively for the company.

Distribution networks - Under Armour has a product development team with a vast knowledge of the market. The company also has amazed investors who accelerates the market growth. The company has a creative strategy of operating through its multiple distribution networks. Wholesale distribution accumulates more than 65% of the revenue while the direct consumer sales gather more than 31%. The modifications of operations by selling the products through licensing ensure that the brand expands globally.

Weaknesses:

Limited production line - their operating presence is limited because it is still relatively new in the market. It entirely depends on the American markets since a larger percent of its revenue is from North American branches. Under Armour needs to expand if it requires more revenue from international markets.

Limited brand recognition - the brand is not yet known to a large number of people throughout the world hence only depend on the few markets that they have already penetrated so far.

High expenditure in investment and limited market share in spots footwear market - the Company continues to take risks with extremely high expenditures in the sport-wear to cater to more expenses.

Poor supply chain management - the Company faces poor management of the supply chain hence not making as much profit as they plan.

Opportunities:

Expanding the company's production line with more variety - Under Armour needs to introduce more and new products in the industry so as to pride itself in innovation. There has been technological advancement in products that the company conceived on inception. Extending the company's product line will attract more customers and it will be beneficial for the company in the long run.

Expanding interest in collaboration - cooperati...

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Under Armour: Adjusting Inventor to Challenge Nike & Adidas - Research Paper. (2023, May 04). Retrieved from https://proessays.net/essays/under-armour-adjusting-inventor-to-challenge-nike-adidas-research-paper

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