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1 Matthew Poskus Professor Jorge Riverias SIB 429 20 October 2023 Under Armour Introduction: Established in 1996 by Kevin Plank, Under Armour has been a trailblazer in sports apparel, pioneering the use of performance-enhancing fabrics. Initially catering to athletes and sports teams with high-performance gear, the company later diversified its focus to include the retail market. Under Armour made a significant stride in its evolution by going public in 2005, with aspirations to broaden its product line, extend its global footprint, and enhance brand recognition. This strategic move marked a pivotal moment in the company's trajectory, aligning with its vision to not only meet the needs of elite athletes but also resonate with a broader consumer base worldwide. Recently, Under Armour has faced significant challenges, particularly in its North American market, starting in 2016. The sales difficulties persisted, and despite initial optimism, the company's performance continued to decline. a. North American Sales decline: Between 2016 and 2019, Under Armour faced a hurdle in its primary market, North America, which historically accounted for more than two-thirds of the company's annual sales. The once robust revenue growth, maintaining a steady pace of over 20% for 26 consecutive quarters until Q3 2016, witnessed a noticeable slowdown. In 2017, although the company boasted record annual revenues of $4.8 billion and net profits of $259 million, ominous signs emerged. The reduced sales outlook for the fourth quarter and a concerning dip in demand within North America hinted at the challenges that lay ahead for Under Armour in navigating its sales landscape during this period. b. Competitive pressures from Adidas: In 2017, Under Armour found itself unexpectedly locked in a fierce competition with Adidas, as the latter implemented strategic initiatives aimed at expanding its market share in North America. This move proved highly effective, propelling Adidas to reclaim the

2 coveted second position in the broader North American sportswear market. Consequently, Under Armour experienced a shift in its standing, slipping to the third position. The competitive pressure from Adidas during this period marked a significant development, prompting a reevaluation of Under Armour's market positioning and strategic responses to navigate the intensified rivalry in the sportswear industry. c. Financial struggles: From 2017 to 2019, Under Armour encountered persistent financial challenges despite undergoing restructuring measures in late 2017 and early 2018. Contrary to expectations, the company's financial performance did not witness the anticipated improvements. In 2018, although revenues experienced a modest uptick of just over 4% to reach $5.2 billion, the operating income took a significant hit, plummeting by over $50 million. This decline resulted in an operating loss of $25 million and a net loss of $46.3 million for the year. Under Armour grappled with the dual challenge of achieving only modest revenue gains while striving to return to profitability during this period, reflecting a critical phase in the company's financial narrative. d. 2020 outlook: In its initial outlook for 2020, Under Armour foresaw challenges linked to the outbreak of the coronavirus in China, anticipating a negative impact on sales. Recognizing the need for strategic adjustments, the company explored the possibility of a restructuring initiative in 2020. The envisioned restructuring aimed to recalibrate the cost base, fostering improved profitability and cash flow. This proactive approach reflected Under Armour's commitment to adapting to evolving market conditions and maintaining financial resilience in the face of external uncertainties, such as the global health crisis. In summary, Under Armour faced a prolonged period of sales difficulties, intensified by competitive pressures and operational challenges. The company undertook restructuring efforts, but its financial performance continued to be a concern. As of the provided information, the outlook for 2020 was uncertain, with external factors like the coronavirus outbreak adding to the challenges. Macro-Enviorment External Analysis:

3 A. Political factors for the industry: Political factors affecting Under Armour can be seen in the challenges faced by the company in North America. The unexpected competitive offensive by The adidas Group in 2017 impacted Under Armour's market position, indicating the influence of political decisions and strategies in the sports apparel industry. This information can be found in the case on page C-87, paragraph 6. B. Economic conditions for the industry: Under Armour's economic conditions are reflected in its financial performance, with fluctuations in revenues and operating income. The decline in North American sales and the overall financial struggles in 2017 and 2018 highlight the economic challenges faced by the company. You can find this information in the case on pages C-87 to C-89. C. Socio-Cultural forces for the industry: Socio-cultural forces are evident in the changing consumer preferences and demands in North America. The weakening demand for Under Armour products in this region, as mentioned by Kevin Plank, indicates the impact of socio-cultural factors. This is discussed in the case on page C-87, paragraph 1 D. Legal and regulatory factors for the industry: Legal and regulatory factors are seen in Under Armour's response to challenges, such as the restructuring plan in 2017, involving workforce reduction and charges for various legal aspects. This information is on page C- 89, paragraph 6. SWOT: Strengths: 1. Brand Recognition: Under Armour has established itself as a premium global brand with a track record of strong financial results (Page C-87, paragraph 1). - Quote: Over the past 20 years, we have established ourselves as a premium global brand with a track record of strong financial results." 2. Diversified Portfolio: The company has diversified into businesses like footwear and women's apparel, with each approaching a billion dollars in revenue (Page C-87, paragraph 1). - Quote: As a growth company with an expanding global footprint and businesses like footwear and women’s each approaching a billion dollars this year..."

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4 3. Innovation: Under Armour was the originator of sports apparel made with performance- enhancing fabrics, showcasing a history of innovation in sportswear (Company Background, Page C-90). - Quote: "Under Armour was the originator of sports apparel made with performance- enhancing fabrics..." Weaknesses: 1. Declining North American Sales: Under Armour faced challenges with declining sales in its core North American market, experiencing a drop of $200 million in 2017 (Page C-87, paragraph 4). - Quote: "Under Armour’s 2017 sales in North America dropped $200 million." 2. Operational Inefficiencies: The company announced a restructuring plan in 2017, indicating operational inefficiencies that required addressing (Page C-89, paragraph 6). - *Quote: "Management’s announcement in August 2017 that it would pursue a $140 to $150 million restructuring plan..." 3. Profitability Decline: Despite revenue increases, operating income plummeted in 2018, resulting in an operating loss of $25 million (Page C-89, paragraph 6). - *Quote: "While revenues for 2018 rose just over four percent to $5.2 billion, operating income plummeted by over $50 million, resulting in an operating loss of $25 million..." Opportunities: 1. Expanded Global Expansion: Despite North American challenges, there are opportunities for growth internationally. In 2017, Under Armour announced an outlook of international sales growth of 25 percent (Page C-89, paragraph 6). - Quote: "Their 2018 outlook for North American revenues was a mid-single-digit decline, although international sales were expected to grow 25 percent." 2. Product Innovation: Accelerated innovation agenda and disciplined go-to-market processes can drive growth and consumer loyalty (Page C-89, paragraph 6).

5 - *Quote: "Our accelerated innovation agenda, disciplined go-to-market process, and powerful consumer-centric approach give us increasingly greater confidence in our ability to deliver for Under Armour athletes..." 3. Strategic Investments: Investments in fastest-growing businesses like footwear, international, and direct-to-consumer can contribute to long-term success (Page C-87, paragraph 1). - *Quote: "The strength of our Brand, an unparalleled connection with our consumers, and the continuation of investments in our fastest growing businesses—footwear, international and direct-to-consumer—give us great confidence in our ability..." Threats: 1. Competitive Landscape: Strong competition, especially from The adidas Group, posed a threat to Under Armour's market position, leading to a drop to the third-largest sportswear seller in North America in 2017 (Page C-87, paragraph 6). - Quote: "In 2015, Under Armour overtook adidas to become the second largest seller of sports apparel, active wear, and athletic footwear in North America. But top executives at adidas launched an unusually strong series of strategic initiatives in 2017 to increase the company’s share..." 2. Market Challenges: Ongoing demand challenges and the need to drive greater efficiencies in the business present ongoing threats to sustainable, profitable growth (Page C-89, paragraph 7). - Quote: "Ongoing demand challenges and the need to drive greater efficiencies in our business requires us to further prioritize our investments..." 3. External Economic Factors: Economic conditions, as seen in the decline in operating income and net income, can pose threats to financial stability and growth (Page C-89, paragraph 6). - Quote: "Revenues worldwide were up a meager 3.1 percent; operating income dropped by $290 million..." Recommendations: 1. Revitalize the North American Market Through Sustainable Performance: - Insight: The case highlights a decline in North American sales and intense competition.

6 - Recommendation: Launch a sustainable sportswear line targeting environmentally conscious consumers. Emphasize the use of eco-friendly materials and transparent, ethical manufacturing processes. Leverage this initiative to reconnect with the North American market, tapping into the growing demand for sustainable and performance-oriented products. 2. Digital Transformation and Personalized Shopping Experience: - Insight: The case suggests a need for increased focus on e-commerce and digital marketing. - Recommendation: Implement a comprehensive digital transformation strategy. Develop an interactive and personalized online shopping experience, utilizing AI and machine learning to recommend products based on individual preferences and behavior. This not only enhances customer engagement but also provides valuable data for targeted marketing and product development. 3. Collaborative Innovation and Athlete-Driven Product Development: - Insight: Under Armour's expertise in performance-enhancing fabrics is a strength. - Recommendation: Establish collaborations with professional athletes for co-designed product lines. This not only strengthens brand authenticity but also ensures that products are tailored to meet the specific needs and preferences of athletes. Utilize these partnerships for innovative marketing campaigns and limited-edition releases, creating buzz and demand around athlete- inspired collections.

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