Business Management – Under Armour Case Study

Business Management – Under Armour Case Study

Read the case study and answer the question below with a one page response. What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s situation?

Founded in 1996 by former University of Maryland football player Kevin Plank, Under Armour was the originator of performance apparel—gear engineered to keep athletes cool, dry, and light throughout the course of a game, practice, or workout. It started with a simple plan to make a T-shirt that provided compression and wicked perspiration off the wearer’s skin, thereby regulating body temperature and avoiding the discomfort of sweat-absorbed apparel. Some 15 years later, with 2012 sales of $1.8 billion, Under Armour had a growing brand presence in the roughly $60 billion multi- segment retail market for sports apparel, activewear, and athletic footwear in the United States. Its interlocking “U” and “A” logo had become almost as familiar and well-known as industry-leader Nike’s swoosh. According to SportsOneSource data, in 2012 Under Armour had a 7 percent share of the U.S. market for lightweight running shoes (up from 3 percent in 2011) and a 13.7 percent share of the sports apparel segment (versus 11.1 percent in 2011). Across all segments, Under Armour had boosted its domestic market share from 0.6 percent in 2003 to an estimated 3.0 percent in 2012, while industry leader Nike’s share had remained relatively flat at about 7.0 percent; second-ranked adidas had a market share of about 5.4 percent in 2012.
Founder and CEO Kevin Plank believed Under Armour’s potential for long-term growth was exceptional for three reasons: (1) the company had built an incredibly powerful and authentic brand in a relatively short time, (2) there were significant opportunities to expand the company’s narrow product lineup and brand-name appeal into product categories where it currently had little or no market presence, and (3) the company was only in he early stages of establishing its brand and penetrating markets outside North America. Company Background Kevin Plank honed his competitive instinct growing up with four older brothers and playing football. As a young teenager, he squirmed under the authority of his mother, who was the town mayor of Kensington, Maryland.
When he was a sophomore, he was tossed out of Georgetown Prep for poor academic performance and ended up at Fork Union Military Academy, where he learned to accept discipline and resumed playing high school football. After graduation, Plank became a walk-on special-teams football player for the University of Maryland in the early 1990s, ending his college
Throughout his football career, he regularly experienced the discomfort of practicing on hot days and the unpleasantness of peeling off sweatsoaked cotton T-shirts after practice. At the University of Maryland, Plank sometimes changed the cotton T-shirt under his jersey as it became wet and heavy during the course of a game.
During his later college years and in classic entrepreneurial fashion, Plank hit upon the idea of using newly available moisture-wicking, polyester-blend fabrics to make next- generation, tighter-fitting shirts and undergarments that would make it cooler and more comfortable to engage in strenuous activities during hightemperature conditions. While Plank had a job offer from Prudential Life Insurance at the end of his college days in 1995, he couldn’t see himself being happy working in a corporate environment—he told the author of a 2011 Fortune article on Under Armour, “I would have killed myself.” Despite a lack of business training, Plank opted to try to make a living selling high-tech microfiber shirts. Plank’s vision was to sell innovative, technically advanced apparel products engineered with a special fabric construction that provided supreme moisture management. A year of fabric and product testing produced a synthetic compression T-shirt that was suitable for wear beneath an athlete’s uniform or equipment, provided a snug fit (like a second skin), and remained drier and lighter than a traditional cotton shirt. Plank formed KP Sports as a subchapter S corporation in Maryland in 1996 and commenced selling the shirt to athletes and sports teams.
The Company’s Early Years
Plank’s former teammates at high school, military school, and the University of Maryland included some 40 National Football League players that he knew well enough to call and offer them the shirt he had designed. He worked the phone and, with a trunk full of shirts in the back of his car, visited schools and training camps in person to show his products. Within a short time, Plank’s sales successes were good enough that he convinced Kip Fulks, partner in his enterprise. Fulks’s initial role was to leverage his connections to promote use of the company’s shirts by lacrosse players. Their sales strategy was predicated on networking and referrals. But Fulks had another critical role—he had good credit and was able to obtain 17 credit cards that were used to make purchases from suppliers and charge expenses.
Operations were conducted on a shoestring budget out of the basement of Plank’s grandmother’s house in Georgetown, a Washington, D.C., suburb. Plank and Fulks generated sufficient cash from their sales efforts that Fulks never missed a minimum payment on any of his credit cards. When cash flows became particularly tight, Plank’s older brother Scott made loans to the company to help keep KP Sports afloat (in 2011 Scott owned 4 percent of the company’s stock).
It didn’t take long for Plank and Fulks to learn that it was more productive to direct their sales efforts more toward equipment managers than to individual players. Getting a whole team to adopt use of the T-shirts that KP Sports was marketing meant convincing equipment managers that it was more economical to provide players with a pricey $25 high-performance T-shirt that would hold up better in the longrun than a cheap cotton T-shirt. In 1998, the company’s sales revenues and growth prospects were sufficient to secure a $250,000 small-business loan from a tiny bank in Washington, D.C.; the loan enabled the company to move its basement operation to a facility on Sharp Street in nearby Baltimore.
As sales continued to gain momentum, the bank later granted KP Sports additional small loans from time to time to help fund its needs for more working capital. Then Ryan Wood, one of Plank’s acquaintances from high school, joined the company in 1999 and became a partner. The company consisted of three jocks trying to gain a foothold in a growing, highly competitive industry against more than 25 brands, including those of Nike, adidas, Columbia, and Patagonia. Plank functioned as president and CEO; Kip Fulks was vice president of sourcing and quality assurance; and Ryan Wood was vice president of sales. Nonetheless, KP Sports sales grew briskly as the company expanded its product line to include high-tech undergarments tailored for athletes in different sports and for cold temperatures as well as hot temperatures, plus jerseys, team uniforms, socks, and other accessories.
Increasingly, the company was able to secure deals not just to provide gear for a particular team but also for most or all of a school’s sports teams. However, the company’s partners came to recognize the merits of tapping the retail market for high- performance apparel and began making sales calls on sports apparel retailers. In 2000, Galyan’s, a large retail chain since acquired by Dick’s Sporting Goods, signed on to carry KP Sports’ expanding line of performance apparel for men, women, and youth. Sales to other sports apparel retailers began to explode, quickly making the retail segment of the sports apparel market the biggest component of the company’s revenue stream. Revenues totaled $5.3 million in 2000, with operating income of $0.7 million. The company’s products were available in some 500 retail stores. Beginning in 2000, Scott Plank, Kevin’s older brother, joined the company as vice president of finance, with operational and strategic responsibilities as well. Rapid Growth Ensues Over the next 11 years, the company’s product line evolved to include a widening variety of shirts, shorts, underwear, outerwear, gloves, and other offerings. The strategic intent was to grow the business by replacing products made from cotton and other traditional fabrics with innovatively designed performance products that incorporated a variety of technologically advanced fabrics and specialized manufacturing techniques, all in an attempt to make the wearer feel “drier, lighter, and more comfortable.” In 1999 the company began selling its products in Japan through a licensee. On January 1, 2002, prompted by growing operational complexity, increased financial requirements, and plans for further geographic expansion,
KP Sports revoked its S corporation status and became a C corporation. The company opened a Canadian sales office in 2003 and began efforts to grow its market presence in Canada. In 2004, KP Sports became the outfitter of the University of Maryland football team and was a supplier to some 400 women’s sports teams at NCAA Division I colleges and universities.
The company used independent sales agents to begin selling its products in the United Kingdom in 2005. SportsScanINFO estimated that as of 2004, KP Sports had a 73 percent share of the U.S. market for compression tops and bottoms, more than seven times that of its nearest competitor.
Broadening demand for the company’s product offerings among professional, collegiate, and Olympic teams and athletes; active outdoor enthusiasts; elite tactical professionals; and consumers with active lifestyles propelled revenue growth from $5.3 million in 2000 to $263.4 million for the 12 months ending September 30, 2005, equal to a compound annual growth rate of 127 percent. Operating income increased from $0.7 million in 2000 to $32.7 million during the same period, a compound annual growth rate of 124 percent. About 90 percent of the company revenues came from sales to some 6,000 retail stores in the United States and 2,000 stores in Canada, Japan, and the United Kingdom. In addition, sales were being made to high-profile athletes and teams, most notably in the NFL, Major League Baseball, the National Hockey League, and major collegiate and Olympic sports. KP Sports had 574 employees at the end of September 2005.
Throughout 2005, KP Sports increased its offerings to include additional men’s and women’s performance products and, in particular, began entry into such off-field outdoor sports segments as hunting, fishing, running, mountain sports, skiing, and golf. Management expected that its new product offerings in 2006 would include football cleats. KP Sports Is Renamed Under Armour In late 2005, the company changed its name to Under Armour and became a public company with an initial public offering of 9.5 million shares of Class A common stock that generated net proceeds of approximately $114.9 million. Simultaneously, existing stockholders sold 2.6 million shares of Class A stock from their personal holdings. The shares were all sold at just above the offer price of $13 per share; on the first day of trading after the IPO, the shares closed at $25.30, after opening at $31 per share. Following these initial sales of Under Armour stock to the general public, Under Armour’s outstanding shares of common stock consisted of two classes: Class A common stock and Class B common stock; both classes were identical in all respects except for voting and conversion rights. Holders of Class A common stock were entitled to one vote per share, and holders of Class B common stock were entitled to 10 votes per share on all matters to be voted on by common stockholders. Shares of Class A and Class B common stock voted together as a single class on all matters submitted to a vote of stockholders. All of the Class B common stock was beneficially owned by Kevin Plank, which represented 83 percent of the combined voting power of all of the outstanding common stock. As a result, Plank was able to control the outcome of substantially all matters submitted to a stockholder vote, including the election of directors, amendments to Under Armour’s charter, and mergers or other business combinations.
At the time of Under Armour’s IPO, Kevin Plank, Kip Fulks, and Ryan Wood were all 33 years old; Scott Plank was 39 years old. After the

 

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