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How to get big without sucking: Under Armour has grand ambitions

December 28, 2016

By Tanya Dua


On the banks of the Patapsco River, overlooking the Baltimore harbor, sits Under Armour’s sprawling headquarters. Inside its red-brick buildings — once Procter & Gamble factories — are offices, state-of-the-art testing labs, a mega gym and a cafeteria. The cafeteria, named The Humble & Hungry Cafe, is not only an allusion to one of founder and CEO Kevin Plank’s leadership maxims but an embodiment of the company’s core values.

An unfettered hunger for success goes some distance toward explaining Under Armour’s meteoric rise over the two decades. The brand has continuously disrupted the sports-apparel market, with 26 consecutive quarters of 20 percent-plus growth. Most recently, sales were up by 22 percent in the third quarter of 2016 to $1.5 billion, and the brand is well on track to reaching its 2019 revenue target of $7.5 billion, according to Plank.

It has offered surprising competition to global behemoths like Nike and Adidas by continuously investing in newer categories, consistently pushing the envelope in terms of its marketing and amassing the world’s largest connected fitness community with over 190 million users.

But growth often comes at a cost, and with a degree of sacrifice. As Under Armour sets its sights on new international locations, new categories and connected fitness, the Baltimore-based brand is facing increasing headwinds.

Revenue continues to increase, sure, but it is coming at the cost of margins: The brand’s gross margins dropped to 48.8 percent in 2016’s third quarter, down from 49.6 percent the year before. Its shares also took a beating after the third-quarter earnings, slipping by more than 13 percent after executives warned that sales growth would slow over the next two years. And in October 2016, Adidas overtook Under Armour to reclaim its position as the second-biggest sports brand in the U.S.

If the brand is sweating, it’s not showing it.

“We’ve never been the biggest kid on the block, so we’ve always had to do things a little bit differently,” says the brand’s president of innovation, Kevin Haley. “We have an advantage because we don’t have a $30 billion dollar supply chain that’s always done something a certain way.”

Innovation in products
Under Armour’s official mission, “make all athletes better,” has long meant creating high-performance sports gear and apparel. But in the last couple of years, the phrase has taken on a new meaning.

Since 2013, the company has spent close to $1 billion investing in three leading fitness and diet-tracking mobile apps apart from its own — MapMyFitness, MyFitnessPal and Copenhagen-based Endomondo — building the world’s largest digital fitness community, with over 190 million connected users.

This year, Under Armour also made its foray into wearable technology under a new sub-brand, Healthbox, introducing two models of wireless headphones in collaboration with JBL, as well as a smart shoe and a smart scale, putting itself in direct competition with Fitbit and Apple in the fast-growing wearables market.

The idea is to use that digital community, and its reams of data, to drive everything from product development to merchandising and marketing. It is not …read more

Source:: Digiday