Under Armour Industry Analysis

1. Under Armour:
PEST and
Industry Analysis
Brian Teufel
MGT 490-004
Assignment #2
Professor McDermott
March 17, 2011

2.  Kevin Plank, the CEO of Under Armour developed
a blue ocean strategy
 Created Performance Apparel market – enhances
consumers performance while offering greater
comfort
 Total sales over $1.0 billion in 2010
 First-mover advantage has allowed UA to gain
70% of the U.S. market and about 15% of the
global market
 Performance Apparel has evolved from niche to
mainstream in terms of target market and
competition (Nike and Adidas)

3. Key Proof of Dependency Future Challenges
Dependencies
Innovation 1/4 of 3,900 employees Ratio likely to decrease as UA
in R&D branded stores continue to
open
U.S. Market 95% of sales come from International market
U.S. development
Performance 85% of sales come from Product development of non-
Apparel PA PA products
International Product suppliers mainly Diversify supplier locations as
Subcontracting from Asia costs and inflation increase in
China
Retailers 2 retailers make up Brand development and
about 50% of sales franchising
 Under Armour owns branded retail stores in 28 U.S. states (30+ stores) and 23
other countries (25+ stores).
- First UA branded retail store opened on November 1, 2007.

4. • Opportunities and Threats are ranked in terms of
importance separately; top five of each are ranked accordingly.
(1 = extremely important, 5 = Not very important.
Factor Trend Evaluation; Impact Rank in
O=Opportunity (1=Low; terms of
T=Threat 5=High) importance
Political - FDI policies T 2 -
Economic - Economic Recovery O 3 -
- Increase in cost of raw materials and T 5 1
resources; shipping costs
i.e. cotton, all man made fibers, and the
big one being OIL/GAS
- Growth of performance apparel O 5 1
industry (Domestic and International)
- Increase in interest rates T 2 5
- Inflation in China increasing T 3 4
- Chinese labor costs increasing T 3 3
Social - Consumers focus on quality, not price O 3 4
- Aging population and increase in O 2 -
physically active seniors
- Increase in physically active women O 3 -
- Consumers becoming more health O 3 -
conscious
- Obesity rates in U.S. T 3 2
- Sport participation is a key aspect of O 3 5
U.S. culture
- Increase in sports participation in O 4 2
emerging markets
Technological - Increase in e-commerce O 4 3
- Increase in m-commerce O 3 3

5.  FDI Policies - Some foreign countries have policies in place that prohibit
100% ownership of retail stores which poses threat to internationalization
 Chinese Labor Costs Increasing
◦ Costs of international labor is on the rise.
◦ Hourly compensation costs of manufacturing employees in China from
2002-2008 is shown below.
Year National Currency U.S. Dollar Basis
Basis (Yuan) (U.S. $)
2002 4.74 .57
2003 5.17 .62
2004 5.50 .66
2005 5.95 .73
2006 6.44 .81
2007 8.06 1.06
2008 9.48 1.36

6. Factor Comment
U.S. and International Economic Consumers have more disposable
Recovery income
Growth of Performance Apparel PA industry is on the rise and
industry shows no signs of slowing down
Chinese Inflation Chinese inflation is on the rise and
expected to continue to rise
Increase in Cost of Raw Cotton, Man-made fibers, are on
Materials/Resources the rise but GAS is the big factor
•The growth of the performance apparel industry
is the greatest opportunity.
•More Consumers = More Revenues

7.  Obesity rates in U.S. show people not physically
active
 Consumers focus on quality more than price
 Increase in physically active women
 Increase in health conscious consumers = more
exercise/physical activity
 Sport participation is a key aspect of U.S. culture
 Aging population and increase in physically
active seniors
 Increase in sports participation in emerging
markets

9.  Increase in e-commerce
 Increase in m-commerce (trend is to always
have digital connection)

10. Opportunity Rank in terms of Comments
importance (1; least
important, 5; most
important)
Growth of the performance 1 Protect products and
apparel industry (domestic the industry
and international)
Increase in sports 2 Marketing will be key
participation in emerging
markets (foreign markets)
Increase in commerce 3 Take advantage
(electronic and mobile)
Consumers focus on 4 Innovation and
quality more than price Differentiation
Sport participation is a key 5 Sport participation will
aspect of U.S. culture always be a key aspect
of U.S. culture

11. Threat Rank in terms of Comments
importance (1; most
important, 5; least
important)
Increase in cost of raw 1 Buy in higher
materials and resources, quantities; volume
shipping costs discounts
Obesity rates in U.S. 2 Marketing will be key
International labor costs 3 Explore new options
increasing for production
Inflation in China 4 Explore new options
increasing for production
Increase in interest rates 5 Keep debt as low as
possible

12.  Under Armour is in the extremely competitive performance apparel
industry which is defined as anything that is worn which enhances the
performance of the user.
 Performance apparel global sales = $6.4 billion in 2010 and is expected
to grow to $7.6 billion by 2014.
◦ In 4 years, the industry is expected to grow by 15%.
Participants in the PA Industry
Buyers/Buyer Groups Physically active and want to enhance their
performance, especially athletes. Groups
include both domestic sports teams,
international teams, and retailers
Suppliers/Supplier Groups Third Party Suppliers (100+)
Competitors Nike, Adidas, Columbia Sportswear
Substitutes Conventional apparel or no apparel
Potential Entrants Anyone is a possible entrant in this
industry because of the high growth rates,
especially organizations that produce
apparel, sportswear, or equipment.

13. Force High/Moderate/Low Underlying Drivers
(Strong or Weak)
Threat of New Entrants High Weak
Threat of Substitutes - Core Athletes = High Strong
- Non-Core Athletes =
Moderate
Bargaining Power of - Athletes and Teams Strong
Buyers = High
- Non-Core Athletes
= Moderate
Bargaining Power of Moderate Weak
Suppliers
Intensity of Rivalry High Strong

14.  With the expected growth of the performance
apparel industry, there will be new entrants in
the industry from all over the world.
 Most companies who enter the performance
apparel industry are unable to compete due
to existing brand loyalty and the high barriers
to entry.
◦ Examples include New Balance, Velocity, and Sugoi

15. Factor Under Armour
Lack of Direct Competition Exceptions include Nike and
Adidas
PA not essential to participate in UA products enhance
sports or physical activity performance and allow comfort
Potential Substitute Products Low
Switching Costs Low
 Substitutes are limited to conventional apparel or no
apparel at all.
 Core athletes have a large number of substitute
options to choose from.

16. Buyer/Buyer Group Bargaining Power Comment
Core Athletes High Exposure to the public and
Professional Teams builds relationships
Non-Core Athletes Moderate - Limited competition and
Non-Professional substitute products
Teams - UA’s products differentiated
from competition
Recreational Buyer - Consumers do not need
performance apparel to
compete or be physically
active
 The bargaining power of buyers depends on the
consumer’s skill level and the level of the team.

17. Factor Under Armour
Switching Supplier Costs Moderate
# of Different Suppliers Very High
Product Uniqueness Moderate
Third Party Suppliers Very High
 The use of third party suppliers allows performance
apparel companies to chose their suppliers based on
highest quality and lowest production cost.
 Third party suppliers have high bargaining power by being
able to choose the companies that they want to supply for.
◦ The best third party suppliers can select the company or
companies that treat them the best and provide the best
compensation.
◦ There are thousands of third party suppliers all over the world.

18. Factor PA Industry
# of Competitors High
Brand Loyalty High
Industry Growth Rate Extremely High
Quality differences between competitors Moderate to High
 Currently, the performance apparel industry is
growing rapidly at 15%; this allows rivalry to grow
rapidly as well.
 There is a high # of competitors but UA, Nike,
and Adidas make up the majority of the industry
due to a quality advantage over other
competitors.

19. Differentiation Innovation
Niche R&D
Enhance
Performance

20.  The opportunities for the performance apparel industry
outweigh the threats.
◦ Labor and gas costs are increasing but opportunities such as the
global growth of the PA industry, global increase in sport
participation, and increase in both e-commerce and m-commerce
outweigh the threats.
 Rivalry is extremely high in the performance apparel
industry.
◦ The competition between Nike, Adidas, and Under Armour is
fierce and it continues to heat up.
 Participants in the performance apparel industry must
always be aware of new entrants because the industry is
on the rise.
◦ Create high barriers to entry.
 Blue Ocean Strategy was the basis for Under Armour and it
allowed them to achieve success in the PA industry.
◦ Innovation, Differentiation, R&D, Creating Niche of performance
apparel that enhances performance while allowing comfort.