Under Armour Free Essays

AU has been able o increase its North American brand awareness by showing the advantages of its differentiated product which has improved athletes’ comfort and performance. In order to compete in the global markets against Nikkei and Ideas LILA should consider the following four alternatives: mergers or acquisitions, establishment of foreign subsidiaries, joint ventures, or a continuation of the North American strategy to be used in the international markets. The decision criteria used in evaluating each option looked primarily at how to increase CIA brand awareness and market share, the financial strain on ALGA sources, protection of CIA patents and intellectual property, and the level of control maintained by CIA It is recommended that AU pursue appropriate mergers or acquisitions that will increase its resources and competencies internationally and enable AU to more quickly build its market presence. We will write a custom essay sample on Under Armour or any similar topic only for you Order Now Aqua’s big competitors have been selling their performance apparel internationally for several years, with the added advantage of already having international brand recognition. Since CIA won’t have the first-to-market advantage they had in the US Market they need to carefully find complementary companies that can assist in both brand cognition and in core understanding of the global markets. Significant resources will be required initially, but it is expected that this investment will be paid back within 3 to 4 years. If this alternative proves unsuccessful AU should consider a joint venture or alliance which shifts some of the risk on to those other participants. For the full recommendation and action plan please refer to pages 12 to 13. Table of Contents Executive Summary 2 Identification 4 Backgrounds Problem Statement (Scope of Report) 4 Current Strategy 4 Analysis and Evaluation 5 External Analysis Macro-Environments Five Forces Analysis 6 Strategic Group Map 7 Key Success Factors Internal Analysis 9 SOTTO If uncial 9 Alternatives 10 1. Merger and Acquisitions 10 2. Foreign Subsidiaries (Greenfield Venture) 10 3. Joint Ventures and Alliances 11 4. Status Quo – Utilize the IIS Strategy Internationally 11 Decision Criteria 12 Recommendation 12 Action Plan 13 Contingency Plan 13 Appendix A 14 Appendix B 15 Bibliography 16 Identification Background Under Armor (AU), formerly known as KIP Sports, was founded in 1 996 by former University of Maryland football player Kevin Plank. KIP Sports was the originator Of performance apparel engineered with supreme moisture management to keep athletes cool, dry, and light throughout the course of a game, practice, or workout. The company’s operations started out of the basement of Kevin Plank’s grandmother’s house. Shortly after founding KIP Sports, Kevin recruited one of his acquaintances from Maryland University to join the company as a partner. Kip Bulks, the gentlemen brought on as partner utilized his excellent credit rating to open 17 different credit card accounts to fund the cash flow requirements of KIP Sports. By 1 998 the company’s revenues had Increased efficiently enough for KIP Sports to acquire a $250,000 small business loan. The company was ever growing with a broader product line and consumer segments and from time to time it would take out additional loans needed to fund their working capital requirements. It was not until 1999 that Kevin recruited another acquaintance, a gentleman by the name of Ryan Wood from high school, to join the company as Vice President of Sales. In 2005, KIP Sports changed their name to under Armor and went public. This initial offering generated net proceeds of approximately $114. 9 million, from the 9. Million Class A Common stock issued. Problem Statement (Scope of Report) Although AU has done well in the present US market, carving out a sizeable market share, it is unknown how their current strategy will be able to compete with fierce rivals like Nikkei and Ideas on a global frontier. Their big competitors have been able to start selling their performance apparel internationally for several years, with the added advantage of already having international brand recognition, so CIA will no longer have the first-to-market advantage that they had in the US Market. If AU hopes to be successful in the lobar market, they will need to analyze their current strategy while exploring other possibilities to make an informed decision on how best to proceed. Current Strategy The company’s principal business activities in 2012 were the development, marketing and distribution of branded performance apparel, footwear, and accessories for men, women, and youths. 90% of its sales were from North American, though international sales were growing. AU uses a broad differentiation strategy as its corporate strategy. It has developed its own patented fabrics to create a differentiated product that its customers are ailing to pay a premium for. Its growth strategy includes broadening its product lines, targeting additional consumer segments, increasing distribution, expanding internationally, and growing brand awareness. Aqua’s business strategies include how it will compete in each of its product line offerings of apparel, footwear, and accessories for men, women, and youths. Its strategy is to offer a variety of styles and price levels for its customers that will improve comfort, performance, and mobility no matter what weather condition exists. For its apparel it has designed three lines of gear designed o work in various temperatures (Heather, Coolidge, and Legionnaires). Its footwear is designed to be light, breathable, and high performing. Its line of accessories (such as gloves, header and bags) has similar differentiated performance features as Aqua’s other products. Aqua’s main functional strategies include its marketing brand management and promotion strategies as well as its product design and development strategies. CIA has an extremely large marketing budget (close to 1 68 million in 2011 ) which includes athlete endorsements, sponsorship of sporting events and advertising costs. It utilizes an in-house promotion and marketing department whose focus is to increase demand and build brand awareness. Aqua’s main retail marketing strategy is to obtain as much CIA exclusive floor space as possible in each Of its major retail stores. Aqua’s product design and development strategy is to continually upgrade its products and to use â€Å"visible technology†Ã¢â‚¬Ëœ (Thompson, p C-51) to market the benefits of Aqua’s products. There is a high degree of collaboration between the sales, product development, and sports marketing teams in identifying opportunities and markets. Aqua’s key operating strategies include its distribution strategies and its sourcing, manufacturing and quality control strategies. Its distribution strategies included wholesale distribution (70%), direct-to-consumer sales (27%), and product licensing (3%). AU has two distribution facilities in Maryland, though it expects to add another facility overseas in the future. Many of Aqua’s technically advanced fabrics were developed by third parties. These fabrics are available from a small number of sources. In 2011 CIA had 23 main manufacturers which operated in 16 countries. All manufacturers ad to follow stringent quality control processes and had to adhere to a code of conduct with respect to quality, working conditions and social concerns. Analysis and Evaluation External Analysis Macro-Environment The macro-environment is positive for the sports apparel industry without many restrictive influences in the political or regulatory realm. The most strategically relevant factors of the PESTLE analysis (political factors, economic conditions, socio-cultural forces, technological factors, environment forces, and legal/regulatory Factors) include the socio-cultural forces and technological factors as noted below: Socio-cultural Forces Recreational and professional sports are both very popular in North America and throughout the world. With an emphasis on active and healthy living in addition to the â€Å"life skills† learned in playing on sports teams schools and athletic associations offer many sports opportunities for all ages. Professional sports are a multi-billion dollar industry with athletes and coaches making very large salaries. Although there may be aging demographics in some areas of the world enthusiasm for sports remains high. Technological Factors Technology has only continued to improve as sports apparel companies onetime to refine and develop the relatively newly available â€Å"technologically advanced fabrics and specialized manufacturing techniques† (Thompson, p C-43) in an effort to create a more comfortable, drier experience for the athlete. Great strides continue to be made with these products. Five Forces Analysis Competition from Rival Sellers (Strong): Competition among rival sellers is intense. There are approximately 25 brand-name competitors in the market for sports apparel, athletic footwear and related accessories in which (AU competes. Aqua’s major competitors in its sports performance apparel and athletic footwear include Nikkei, Inc. ND the Ideas Group, both highly successful brand-name global companies. AU competes with other top name brands, such as Columbia, Spryer, and North Face in its performance Skewer products. Nikkei is the clear market leader with approximately 17% of the footwear market share and 4. 4% of the sports apparel market share. Customer Bargaining Power (Strong): Since approximately 70% of AU sales are from retailers, the retailers do have Strong bargaining power. 5% of all retail sales are to large retail chains who also sell Aqua’s competitor products. They have the discretion as to whether to allocate a certain level of floor space exclusively to CIA or not. Although there is some differentiation in products between competitors many of the products are fairly standardized, increasing customer bargaining power. The cost of switching to competitor brands is likely fairly low as all competitors will be fighting for key retail space. Supplier Bargaining Power (Moderate): CIA specialty fabrics and other raw materials come from a relatively small number of sources. In 2011 , a little more than half of the fabrics used came from six suppliers in several different countries. With only six suppliers for such a large volume the suppliers do have some leverage in increasing their prices. It seems that it may be difficult for LILA to find alternative suppliers, though these suppliers must also depend on the revenues from CIA As such, they will not want to price themselves out of the market and they will want to see CIA succeed. Competition from Potential New Entrants (Weak): Given the strength and number of large brand name competitors already in the industry the threat of new entrants is relatively weak. The Ideas Group has several well-known brands within its company, such as Rebook, Rocket, ND Ideas. Nikkei and CIA are also well-known brands. All of these companies participate heavily in sponsoring sporting events and invest significantly in athlete endorsements. As a result, there are high degrees of customer loyalty, making it difficult for new entrants. These large companies also have well-established networks of distributors. All of these things as well as the capital investment requirements limit the potential of new entrants to the industry. Competition from Producers of Substitute Products (Weak): Although it is unlikely that there are significant substitute products in existence, CIA and its success shows that it is possible for a creative company to enter the industry with some sort of product which would be more appealing. Additionally, both Nikkei and Ideas spend significant amounts of money on research and development. It is possible that one of these competitors will be able to develop a next generation substitute product. Us Mary Overall, the industry competitive forces are moderate to strong. The competition among rival sellers is quite intense and the retail buyers have significant power in working with all of these sellers. Brand image and loyalty re important in this industry. Nikkei is a well-established company and the clear market leader, but the Ideas Group is also a global leader. CIA has done very well at establishing a solid market share in its sports apparel and training/fitness clothing. Strong profitability is evident in this industry as can be seen in the net profit margins among Nikkei, the Ideas Group, and Under Armor. Strategic Group Map Key Success Factors Performance and Reliability – To remain competitive in this industry, CIA products must meet or exceed customer expectations for high performance and reliability. CIA was founded on creating clothing that was cooler, drier, and more comfortable for its athletes. AU must continue producing high quality items which can be counted on. This includes utilizing high quality standards. New Product Development -? In this competitive environment it is important that AU invest sufficient funds into research and development so that it can gain improvements in its fabrics and its products. Additionally, CIA must keep a sufficient number and styles of products available to be able to meet various consumer segments, such as it has done with Heather, Coolidge, and Legionnaires. CIA will need to re-examine its product line and its inventory management systems to ensure it is able to better meet customer needs without high levels of excess inventory. Pricing – Due to the number of brand name competitors in the industry with similar products an appropriate pricing strategy is crucial to Aqua’s success. CIA will have to remain vigilant in watching competitor prices and discounts given. Brand and Product Image – Each competitor in this industry will need to continually work on communicating and maintaining its overall brand image that is consistent with its mission and vision. Additionally, certain key products should have high visibility in terms of the image they represent. Loyalty from customers will be driven in part by these branding images. Customer Support and Services – In part a company is only as strong as it is perceived to be by its customers. Aqua’s retailers and its direct sale customers must be treated fairly and be given adequate support when purchasing AU products. Retailers (representing 70% of sales in 2011) will be driven to work with La’s competitors if customer support and service is lacking. If Under Armor is able to successfully manage each of these key success actors which matter to its customers it should have continued competitive success for the long-term. Conclusion The external environment is conducive to successful results and profitability for the current competitors in the sports apparel industry. Although CIA is competing against some large global rivals it has been able to gain substantial market share from 0. 6 percent in 2003 to almost 2. 8 percent in 2011. This is compared with 7. 0% market share for Nikkei and 5. 4% market share for Ideas. AU should be able to remain competitive and earn reasonable profits as long s management remains attentive and pro-active With any changes in the environment. Internal Analysis SOOT under Armor has a variety of strengths which allows them to compete in the highly competitive sports apparel industry. Over the years, the business has focused on building an authentic brand with high quality apparel that has allowed them to gain significant market share from their competitors. Below you will find an analysis of their internal and external environments. Strengths Built an incredibly powerful and authentic brand in a relatively short time Became the official footwear supplier of major league baseball Uses superior scenically advanced fabrics Weaknesses International presence is very low Limited number of distributors to ship their products Insufficient tools in place to manage inventory efficiently and accurately Opportunities Ability to broaden Aqua’s product offerings for wear in a variety of recreational activities and sports Athletic wear, a category historically dominated by men, is seeing significant growth with females Gender equality continues to grow in other parts of the world The reads Highly competitive market Competitors have a well established footprint in international markets Materials used in AU products are petroleum-based synthesis and therefore subject to crude oil price fluctuation If uncial Under Armor financial shows both positive and negatives (see Appendix A for the full financial details). The profita bility ratios are in good standing and are relatively stable over the 5 year period 2006-201 1. The gross profit ratio indicates that CIA has enough revenues to cover operating expenses and leave the company with a profit. The net profit margin shows that their after tax profits per dollar of sale decreased from 9. 05% in 2006 to 6. 58% in 2011. That is a drop of 2. 47%. The return on total assets and return on shareholder’s equity have both decreased from 2006-201 1. A return of 12-15% range is average and Under Armor is at 15. 23% as of 201 1 which is within the range. Liquidity analysis shows that the working capital has improved over the years. As of 2011, the company has $506,056 of internal funds to cover its current liabilities. That is $332,667 more that in 2006 showing a big improvement The leverage ratios show the negative side of Under Armor. The debt to asset ratio has been increasing from 2% in 2006 to 8% in 201 1. This means hat 8% of borrowed funds have been used to finance assets. Also the debt to equity ratio has increased from 3% to 12%. This signifies lower creditworthiness, potential excessive debt and a weaker balance sheet. On the other hand, in order for a business to continue growing and compete with the industry taking on additional loans is a requirement. Even though it appears that CIA has the capability to pay off the debts these ratios should be watched carefully to ensure that covenants are not broken. The activity ratios show that AU inventory management efficiency has decreased over the years. How to cite Under Armour, Papers Under Armour Free Essays IBM 4711 International Strategic Management Under Armour: Working to Stay on Top of Its Game Perform a STEEP analysis to understand the general environment facing Under Armour. How will the firm be affected by external factors? Ans. Each factor under STEEP analysis giving Under Armour more information about how company should adapt itself, in order to be survived in the market. We will write a custom essay sample on Under Armour or any similar topic only for you Order Now Let’s see the effects of these external factors to the company’s strategies each by each. Social factor Demographics Gender : affects the designs for both male and female customers (e. . apparel for women) Age Structure : affects design, sizes, and features for different age distribution(e. g. youth) Lifestyles Types of sports : affects designs of products for different types of sports and different level of players Climates : affects different performance features of products, for example, shoes and apparels Economical factor Technological factor Degree of economic risk associated with premium price (Downturn economy), affect in declining net sales and encouraging the company to use conservative approach Rapid change and innovation of technology, affects company by continuous improving product innovation, procurement and production process Political Legal factor Intellectual property rights law and regulation of the countries in global market very vary, affecting the company to consider their unprotected intellectual property issue. Use Porter’s Five Forces Model to analyze the apparel, footwear, and equipment industry in the US. Given this analysis, is the industry attractive or unattractive? Ans. First, The threat of the entry of new competitors (High) due to †¢Total U. S. performance apparel business is dominated by existing brand ex. Under Armour, Nike and Adidas. The loyalty for existing brand is quite high while there’s high initial investment required as well. For The bargaining power of suppliers (High) as company heavily rely on relative few third party suppliers. Moreover, the intellectual property right owns by suppliers, not unique to us. Therefore, the switching cost is very high. Thus, company has weak position related to suppliers. For The bargaining power of buyers (Moderate) as there’re many choices available for customers, but somehow they are loyalty to Under Armour brand. Thus, the bargaining power is moderate. Also, they don’t have only individual customers, but also as a team or making contract that make switching cost not too low or too high as well. For The threat of substitute products (Moderate to High) due to some brand loyalty and differentiation, the switching cost is moderate. By the way, there are many famous brands those sell similar product lines existed in the industry. Thus, the threat of substitute product to Under Armour is quite high. For The intensity of competitive rivalry (High), there’re many strong existing brands and some smaller brands as competitors in the industry. Given this analysis, this industry is unattractive because of intensive competition and high cost of initial investment requirement. Who are Under Armour’s main competitors? How do they measure up against these competitors? Ans. There are three main competitors in the market. First of all, Nike – which has strong budget part, hasrelationship with 700 factories in 52 countries, so low cost achievable but customers are still willing to pay at premium price. Providing High quality and innovative products. Secondly, Adidas/Reebok – the second largest athletic apparel manufacture, acquisition many small companies, no need to start up from zero. Also, it can access market bases and technology. Thirdly, Columbia Sportswear – one of the largest manufacturers and sellers of outdoor apparels with innovative and high-quality products. To measure up against these main competitors, Under Armour utilizes their capabilities and core competencies which will be further discussed in the next question. What are Under Armour’s main capabilities? Do they have a core competence? Ans. The Main capabilities of Under Armour are their unique team driven management style, ability to create the product innovation, rapid response to customers, developing the effective marketing techniques, building effective operation network and distribution channel, and having good customer relationship management. While Core competencies are considered to be their â€Å"Product innovation and differentiation†. Create a SWOT analysis to understand Under Armour’s strengths and weaknesses. Does Under Armour have a sustainable competitive advantage? Is so, what is the source? What about Under Armour’s evolution and current business strategy may pose problems going forward? Ans. For SWOT analysis, Strengths – Efficient operation distribution network – Net revenue increase continuously year by year – Unique features and product innovation – Effective marketing communication – Strong term management (long relationship) – Rapid respond customers’ needs â€Å"Of course we make that! † – Good management of unique team driven style – Strong and Outstanding in apparel product than competitors Be able to expand business by using licensing (because no need to waste the recourses to operate Miscellaneous product by itself) – Good experience CEO for international division – Take lesser time to make loyal customer Weaknesses Heavy reliance on suppliers and manufacturers Weak financial support No intellectual property right in technology, fabrics and p rocess owned by supplier a adverse affect in L-T sustainability Low diversification Opportunities Threats Emerging global trend for performance apparel (being more universal product) Sports are still in booming period The desire of athletes and movie studios to use Under Armour’s products leads to a lower-cost, more effective, grass roots ad campaign. Downturn economic declines net sales Under Armour products heavily rely on the fashion whims of its customers Be diluted easily. (due to competitive sport industry, the brand can be diluted if stops innovating the products) Swing raw material prices Fluctuated availability of the raw materials Sustainable competitive advantage : Brand loyalty and management style Under Armour’s evolution and current business strategy may pose problems going forward? Since the evolution of the company, Under Armour rapidly expands their business while some internal problems still exist. For example, unprotected intellectual property right issue and supplier relationship management. Also, the current business strategy was focusing on marketing, international expansion, product differentiation, and other expenses while they have weak financial management. These will certainly pose future problems to the company. What is Under Armour’s business-level strategy? Is the strategy appropriate to offset the forces in the industry? Do you recommend any changes and/or foresee any challenges? Ans. Their business-level strategy is differentiation strategy. The competitive scope is broad and focusing on differentiating product from other competitors. In our opinion, this strategy may be appropriated for current situation because there still have untapped markets and the competitors still overlook these untapped opportunities as well. However, these untapped markets may be pursued by some companies in the future and Under Armour will lose the benefit. Therefore, we recommend the company to target both focus and broad markets within this industry. How to cite Under Armour, Papers