Under Armour Case Analysis

How strong are the competitive forces confronting Under Armour, Nike, and The Adidas Group? Do a Five- forces analysis to support your answer.
The five forces analysis according to Gamble et al., (2014) include;Competition from rival groups
The rivalry between Adidas Group and Nike is so vigorous. The three competitors are striving to improve their market share and sales. The rivalry is mainly based on two factors which include brand reputation and image, and performance features and product quality. The competitive pressures between Under Armour, Nike, and Adidas has intensified due to the aggressive effort of every company to strengthen the appeal of their brand name. This has been possible due to celebrity endorsements, advertising, and sponsoring of sports events.
The differentiation that exists between the brands weakens the rivalry. Such differentiations include design, brand image, style, and product selection. The differentiations intensify customer’s preference for certain products thus giving rise to purchaser allegiance to their favorite brand as well as hindering brand switching.
Rivalry from potential new entrants
This rivalry can be viewed as moderate. The increased rate of advancement in the consumers’ demand for performance athletic attire has intensified the threat of new entry. New entrants face barriers in building distribution networks and attracting potential customers. This may not offer intense competition to Under Armour, Adidas, and Nike but with time if strong marketing is done they will be able to compete for the market share.

Rivalry from manufacturers of substitute goods
This competition is moderate. Technology has aided in the increase in competition from substitute products. The extensive accessibility of other sporty attire which is not made from performance textiles has intensified the rivalry from substitute products. Additionally, the apparel from brands of substitute companies is relatively cheaper than those from these companies hence escalating the competition. However, the rivalry is reduced when substitutes products are viewed to bring less comfort hence customers viewing them as low-quality products thus the low prices.
Bargaining power of suppliers
This competition is moderate. The main suppliers include the contract manufacturers producing apparel items and those who make performance-based fabrics. Since the fabric suppliers with proprietary fabrics having superior performance traits have high quality, they have a stronger bargaining power in influencing prices and other terms and conditions for sale of their products. Conversely, the numerous contract manufacturers who want to become the suppliers for Nike, Under Armour, and Adidas decreases the bargaining power. They have the capabilities to manufacture the products but they will need help to sell. Hence, the competition to do business with well-known brands.
Bargaining power of customers
Depending on the type of buyers, this competition varies from weak to moderate. Buyers include large chain vendors of the athletic attire and the prominent athletic teams. Aspects that increase the customer negotiating influence include the freedom of vendors to choose products from among the three brands. Similarly, retailers who purchase large quantities have a high bargaining power since they are viewed as important and valuable customers. Prestige sports teams also have high bargaining power due to the large followers who watch them play. Hence, every brand would want to see their logo in their attire. However, the bargaining power of the small retailers who shop at their outlets is low.
Does Under Armour have any core competencies and, if so, what are they
Under Armour has numerous key proficiencies. First, they produce the unmatched quality of athletic apparel. They have among the best moisture-wicking and tight-fitting athletic apparel.
Second, their CEO, Kevin Plank was an athlete hence he knows what other athletes need thus providing them. Third, Under Armour is innovative as they look for ways to keep athletes comfortable hence performing well. Under Armour has excellent marketing strategies which comprise of endorsements and sponsorships through using celebrities. They also increase their customer loyalty by offering high-quality products.
Does Under Armour have any resource strengths or competitive capabilities that qualify as a distinctive competence?
Under Armour uses the more advanced material for their sports apparel. They use material made of polyester blend in their undergarments and tight-fitting shirts. This material makes the athlete feel cool and comfortable while engaging in strenuous events especially in areas experiencing extreme temperatures. Similarly, their sports apparel is suitable for cold weather regions. This innovation has enabled them to outshine their rivals despite recent competition to offer quality outfits. However, despite their quality products they still do not qualify as distinctive competence. There failure to obtain copyrights after innovating prompted Nike and Adidas to use the same technology in designing and manufacturing their apparel.
What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s situation?
The SWOT breakdown discloses that Under Armour is performing satisfactorily but there is still much that needs to be done to outshine other competitors. Their SWOT analysis includes;
Strengths
Under Armour has a strong brand image that is recognized and respected. They establish a unique identity from its competitors hence attracting a loyal customer base thus their strong brand equity. Additionally, they have strong financial performance and stability which is evident in their high profit to earning ratios. The brand also has an ability to provide a wide range of sportswear, attractive image and logo, and their product innovations. They have done an excellent job of advertising their products through using sportsmen and teams.
Weaknesses
Their lack of effecting marketing strategies hinders their ability to maximize their potentials. Due to their unavailability of physical retail stores, customers struggle to search the brand hence reducing their revenues. Under Armour offers closely-related non-essential products that can be affected by economic decline and fashion change. Another weakness is that they depend heavily on apparel sales which contribute to about 84% of their total sales.
Opportunities
There are existing areas that the brand can invest. They can decide to implement cost reduction tactics to attract more customers. Similarly, if they widen their focus and emphasize on a variety of sports, there will increase their market share and brand recognition. They can also design apparel outside sports.
Threats
Under Armour is experiencing intense competition from Adidas and Nike. The presence of low-cost substitutes and economic recessions also posses a threat. The company’s male dominant is also a threat. Under Armour is also hit by the increased cost of raw material and their inability to properly manage the rapid growth rate.
What are the key elements of Under Armour’s strategy?
Under Armour has the approaches to distribution, marketing, evolution, and merchandise lines. They pursue a growth strategy to continue broadening their products y targeting new customers. They create a diverse product line. They strategize to be the number one performance athletic brand. Under their sport’s marketing strategy, they want to enter into outfitting agreements with professional sports teams, sponsoring professional events, and selling their products to athletes. Additionally, they aim to increase sales in North America and invest in other foreign countries. They also intend to increase their floor space for their products in their major stores. This will increase the visibility of the products to customers hence creating the brand awareness.
Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the competitive approach that Under Armour is employing?
Under Armour uses the product differentiation tactic as their competitive tactic. Under this tactic, a corporation endeavors to surge their customer’s insight of the value of the product. Under Armour consider their product a premium brand hence the high prices for their products. They accomplish product differentiation by implementing a design process in which they use their management control, organization culture, and reimbursement strategies to revolutionize. Under Armour are able to use their managerial expertise to invent new products for their products by assembling resources. They are able to compete well with their competitors as they operate on their typical capabilities.
What is impressive about Under Armour’s financial performance during the 2011-2015 period?
The gross profit of Under Armour has been growing tremendously. From 2011 to 2015 the company has grown to about three times which shows it’s a good performance. The apparel has been their main source of revenue followed by footwear. The revenues and expenses are also increasing. However, the expenses are increasing at a lower rate than the expenses. For instance, according to NASDAQ, the annual income statements indicated the total revenue as per December 2013 as $2,332,051 which increased to $3,963,313 by 31st December 2015. This was associated with a gross profit of $1,136,670 and $1,905,547 in 2013 and 2015 respectively. This indicates growth in the sale of their products (Investor.Underarmour.com, 2018).
Under Armour ability to churn out a 2:1 profit ratio. This implies they are consistently double the goods sold with the revenue they earn. For example, in 2012, Under Armour cost of revenue amounted to $912 million which was doubled by the revenue which amounted to $1.83 billion. This means that they either have clients who want to pay extra money for this brand or their cost of production is low (Investor.Underarmour.com, 2018).
The steady growth of this company is accredited to the lack of payment of dividends. The company within the five years was not paying dividends to their shareholders. The money was spent on things such as sponsorship, advertising, and other things that helped to develop the company.
How does Under Armour’s competitive strength compare against that of Nike and the Adidas Group? Do a weighted competitive strength assessment using the methodology presented in Table 4.4 in Chapter 4 to support your answer. Based on your assessment and calculations, does Under Armour have a net competitive advantage or disadvantage in competing against Nike and the Adidas Group?
Competitive
Strength Importance Under
Armour
Strength
Rate Under
Armour
Weighted Rate Nike
Strength Rate Nike
Weighted Rate Adidas
Group
Strength Rate Adidas
Group
Weighted Rate
Product breadth 20% 6 1.20 10 2.00 9 1.80
Brand Recognition 20% 7 1.40 10 2.00 10 2.00
Distribution
Capabilities 15% 5 0.75 9 1.35 10 1.50
Endorsement and sponsorship 12% 5 0.60 10 1.20 7 0.84
Innovation and product design 13% 8 1.04 10 1.30 9 1.17
Financial resources 10% 6 0.60 10 1.00 8 0.80
Market coverage 10% 5 0.50 9 0.90 10 1.00
Total 100% 42 6.09 68 9.75 63 9.11
According to the assessment, Nike has the highest competitive strength among the three companies. This can be associated with the excellent performance of the Nike company as their cash books indicate (Gamble et al., 2014). Adidas company despite been the oldest in the apparel industry is the second competitive. It has outshone Nike in some sectors like brand recognition and distribution but its overall rating is lesser than that of Nike. Under Armour is the youngest company and the least competitive. However, in past years it has been performing well and with time it might catch up with the other two. Possibly, in the next five years, it will be in the same level with Nike due to their recent marketing and innovation. Under Armour has a net competitive disadvantage over the others. However, they are working to gain a market share. Customer awareness of Under Armour brand is increasing hence in future they might be in a better position to beat the rest.
What 3-4 top priority issues do Kevin Plank and Under Armour management need to address?
The top urgency problems to be addressed by Under Armour can be described as follows;
Supply chain issues- stocking difficulties were experienced by Under Armour in the years 2013 and 2014. This included stocking their product lines and the size of their retail stores in a timely manner. This caused delivery issues that led to the loss of some profits hence the need to address the issue.
Lower margins and increased competition- Smaller margins have arisen due to the increased number of retailers who are entering the sporting apparel industries by selling at reduced prices. Additionally, the retail clothing industry has become very competitive which has affected negatively the profit of Under Armour. The management needs to implement strategies that will help to fix this issue to continue enjoying profits.
Environmental issues arose whereby the public claim and perceive that the practices of manufacturing the sporting clothes have not been environmentally friendly. Therefore, the need to implement environmentally friendly ways to help fix this issue.
The management also needs to look at how fast and far they will move into the athletic footwear. This entails deciding whether Under Armour company is ready to go head-to-head with Adidas and Nike as they are offering stiff competition. Additionally, they will need to expand to the international market to advertise their products outside the United States.
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 9.
Under Armour is running the company well but there is more room for improvement. One of the recommendations is to expand internationally. They have already implemented this although they are still in the early stages. This is possible through participation in international sports like soccer which are played throughout the year. Developing a good company around an international sport will boost their sales. This will also include picking influencing players to endorse their brand which will help to market the brand globally. With increased sponsorship and endorsement from famous clubs and individuals, the sales of their apparel will increase together with the awareness of Under Armour brand.
Recommendation to increase the market share will be for instance to reinstate the KP sport, Inc. This product line will include goods sold at lower prices and in low-income regions. Communities living in these areas will afford these products hence will increase brand awareness and market share. Since Under Armour is perceived as a male-dominated brand, they can increase their market share by venturing into women apparel. The goal of Kevin Plank is to see the market for women to be higher than that of men. This is possible by sponsoring female sports such as basketballs and also endorsing celebrity sportswomen.
Nike controls a large market share of the U.S basketball footwear market. Therefore, if Under Armour increases their product line by venturing into this market, they will offer competition to Nike and Adidas which will still promote their brand recognition.
The focus on technology and innovation is another strategy to stay competitive in the apparel industry. Under Armour is an innovative company and if they continue advancing their technology and creativity they will manage to compete well with Adidas and Nike. Marketing using social media such as Twitter and Facebook would be successful. Additionally, they should identify new markets and explore them to increase their target market. Improving and expanding their marketing campaign will see the business becoming more competitive.

References
Gamble, J., Thompson, A. and Peteraf, M. (2014.). Essentials of strategic management. 4th ed. New York: McGraw-Hill Higher Education.
Investor.underarmour.com. (2018). Under Armour, Inc. – Financial History. [online] Available at: http://investor.underarmour.com/income.cfm [Accessed 17 Feb. 2018].