Underarmourlogo

    It's amazing how many of the
world's most successful entrepreneurs quickly forget what made them famous.

    The latest example is Kevin Plank,
CEO of Under Armour.

    What made Under Armour famous? It wasn't a
Super Bowl ad. It wasn't a massive marketing campaign. It wasn't ego or hype.
What made Under Armour famous was "performance apparel" a new category Kevin
created and carefully nurtured. 

1_planck  

    As an ex-Maryland football player,
Kevin Plank was sick of wearing sweat-soaked cotton T-shirts. So he visited New
York City’s garment district and found a polyester-Lycra blend that didn’t trap
moisture.

    His next step was to create
undergarments made with this high-tech blend that could wick sweat through the
fabric to the surface instead of absorbing it. He theorized that if athletes
could be dry and cool they would be able to perform better. This is the core
concept of Under Armour and the idea that made Kevin Plank and his company
famous.           

    Under Armour started slowly with a
narrow focus.

        One product = shirt

        One market = football

        One target = athletes

Football-main-clothing-ua-2

    After 12 years, that strategy built the Under Armour brand into the $725
million business it is today.

    But, hey, nobody wants to keep
doing the same thing over and over again. Entrepreneurs are naturally
restless and thrive on challenges. Which is why they often get
themselves into trouble after an initial success.

    What
keeps a brand and company successful over the long haul is sticking to
what made them famous in the first place. But too often that is not
what companies end up doing.

    Like a
successful athlete, a successful brand can feel invincible. Pumped up
by delusions that no matter what they do or what they try, they will be
successful. Ego takes over for marketing sense. Feeling invincible led
Michael Jordan into baseball and Under Armour into running shoes.

    The
key to remember is that Under Armour isn't just a great brand; Under
Armour pioneered and dominates a great category. Its power comes from
the category it owns in the mind, not the brand name it puts on the
package.

    "Under Armour" are the words
that represent that category in the mind. So putting the Under Armour
brand name on another category is not going to guarantee success,
especially if that category has little to do with performance clothing.
Unfortunately, Kevin has learned this the hard way as many do.

    Under
Armour owns performance apparel. It started with football and shirts.
Then slowly expanded into all types of performance apparel for men,
women, children and sports of all types. This kind of slow expansion
over time is fine. It dug Under Armour deeper into its performance-wear
focus.

Cleat_underarmour.03

     What got Under Armour into trouble is veering too far from its focus. Kevin's first big move came in 2006 when
Under Armour started to sell American-football cleats. This is a small market
($250 million in the U.S.) so the big athletic-shoe players (Nike and Adidas)
more or less ignored the threat. His next moves took Under Armour into the
baseball and softball cleats market where the company managed to capture a
small share.

    Then in 2008 Under
Armour really started to get cocky and entered the big leagues of
footwear with the launch of its Prototype
trainer. Unlike its slow and stealthy moves into cleats, Under Armour
made a big and flashy move in non-cleated shoes with a $25 million
campaign that broke with a Super Bowl ad declaring "The Future is
Ours!" a full three months before the shoes were even in retail stores.

Under_armour

    The arrogant and garish launch infuriated Nike which promptly launched its own SPARQ
trainer (for Speed, Power, Agility, Reaction and Quickness.)

    Nike
was not going to let Under Armour be the future of footwear. You beat a
leader like Nike by being slow and sneaky, not shouting to the world we are going to beat you. Especially if you don't have the product or brand to do it. Under Armour is an apparel
brand. Nike is a footwear brand. Each might sell other stuff too, but the
brands are rooted in these categories and can't grow too far from them. Look at the numbers:

Under Armour
    $752 million in sales
        Mens apparel = 53%
        All apparel = 80%
        Footwear  = 12%

Nike
    $19.2 billion in sales
    Footwear = 54%
    Apparel = 27%
    Equipment – 6%

    That is why it makes no sense for Under Armour to
go toe-to-to with Nike in non-cleated athletic shoes. Here is a company
with no credibility in athletic shoes attacking one of
the world’s most iconic and dominant brand for athletic footwear.
Furthermore, Under Armour was doing so with no
clear-cut product advantage and with a name that defined a totally
different
strategy.

    Not surprisingly the financial results from the expansions have not very
encouraging. Even though athletic shoes are an enormous market, Under Armour
sold only $85 million worth of footwear in 2008 and much of that was under aggressive markdowns. 

    In addition, Under Armour’s year by
year results show a definite downward trend.

2006 . . . Sales were up 53 percent
from the previous year.
Net profit margin: 9.1 percent.

2007 . . . Sales were up 41 percent
from the previous year.
Net profit margin: 8.7 percent.

2008 . . . Sales were up 20 percent
from the previous year.
Net profit margin: 5.3 percent.

    Sales growth is slowing, profit margins are
declining and the stock has been pummeled. You might think these
factors would have deflated some egos and shocked management into
realizing their strategic errors, but apparently
not.

    This year, the company launched its
first line of running shoes.

Under_armour_running_shoes

    Will history repeat itself? I think so.