Crafting and Executing Strategy The Quest for Competitive Advantage Concepts 21st Edition Th

Crafting and Executing Strategy The Quest for

Competitive Advantage Concepts 21st Edition
Thompson Solutions Manual

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CASE 8 TEACHING NOTE 1

Under Armour’s Strategy in 2016

How Big a Factor Can the Company Become in the $250
Billion Global Market for Sports Apparel and Footwear?

Overview

F
ounded in 1996 by former University of Maryland football player Kevin Plank, Under Armour was the
originator of sports apparel made with performance-enhancing fabrics—gear engineered to wick moisture
from the body, regulate body temperature, and enhance comfort regardless of weather conditions and
activity levels. It started with a simple plan to make a T-shirt that provided compression and wicked perspiration
off the wearer’s skin, thereby avoiding the discomfort of sweat-absorbed apparel. Under Armour’s innovative
synthetic performance fabric T-shirts were an instant hit.

Nearly 20 years later, with 2015 revenues of $3.9 billion, Under Armour had a growing brand presence in the
roughly $70 billion multi-segment retail market for sports apparel, active wear, and athletic footwear in the
United States. Its interlocking “U” and “A” logo was almost as familiar and well-known as industry-leader
Nike’s swoosh. Heading into 2016, Under Armour had an estimated 16 percent share of the United States market
for sports apparel (up from 12.7 percent in 2012 and 11.1 percent in 2011). In the synthetic performance apparel
segment—a market niche with estimated U.S. sales close to $7 billion in 2015—Under Armour’s market share
was thought to exceed 35 percent.

However, across all segments (sports apparel, active wear, and athletic footwear) of the $250 billion global
market in which the company competed, Under Armour still had a long way to go to overtake the two long-
time industry leaders—Nike and The adidas Group. In fiscal 2015, Nike had U.S. sales of $11.3 billion and
global sales of $30.6 billion, and it dominated both the U.S. and global markets for athletic footwear. In the
United States, Nike’s share of athletic footwear sales approached 60 percent (counting its Nike-branded footwear
and sales of its Jordan and Converse brands) versus Under Armour’s less than 3 percent share. Nike’s 2015
global sales of athletic footwear were $18.3 billion (over 1 million pairs per day), dwarfing Under Armour’s
2015 global footwear sales of $678 million. Germany-based The adidas Group—the industry’s second-ranking
company in term of global revenues—had 2015 global sales of €16.9 billion (equivalent to about $18.8 billion),
which included athletic footwear sales of €8.4 billion ($9.3 billion) and sports apparel sales of €7.0 billion ($7.7
billion).

Despite having global sales much smaller than its two global rivals, Under Armour was gaining ground and
making its market presence felt. In North America, Under Armour had recently overtaken adidas to become the
second largest seller of sports apparel, active wear, and athletic footwear. Under Armour’s 2015 North American
sales of $3.56 billion were over 15 percent greater than The Adidas Group’s 2015 North American sales of €2.75
billion (equivalent to about $3.03 billion). Moreover, Under Armour was growing at a faster percentage rate than
both its bigger rivals. From 2010 through 2015, Under Armour’s sales revenues grew at a compound annual rate
of 30.1 percent. Nike’s revenues from Nike Brand products during its most recent 5 fiscal years (June 1, 2010-
May 31, 2015) grew at an 11.75 percent compound rate. Total revenues of The adidas Group grew at a compound
rate of 7.1 percent during 2010-2015. But because Under Armour’s revenues were much smaller than those of
Nike and The Adidas Group, its faster percentage rate of revenue growth did not translate into bigger revenue
gains in absolute dollar terms. Under Armour’s global revenues grew by just under $880 million in 2015. Nike’s

–1–
 Case 8 Teaching Note Under Armour’s Strategy in 2016 2

global revenues in 2015 were $2.8 billion above the 2014 level, more than three times greater than UA’s dollar
increase in revenues. The adidas Group’s 2015 revenue gain of €2.4 billion (about $2.66 billion) was three times
bigger than UA’s dollar increase in revenues. So, in term of dollar revenues, Under Armour fell further behind
Nike and The adidas Group in 2015. Consequently, it would take many years, if ever, for Under Armour’s
revenues to approach those of Nike, which touted itself as a growth company and was led by top executives who
were intent on preserving Nike’s standing as the global market leader.

Nonetheless, 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 line-up and brand
name appeal into product categories where it currently had little or no market presence, and (3) the company was
only in the early stages of establishing its brand and penetrating markets outside North America. Plank’s revenue
objectives for Under Armour were global sales of $7.5 billion in 2018 and $10 billion in 2020. If these objectives
were met and if Under Armour’s strategy proved powerful enough to sustain a revenue growth rate of 20 percent
or more for another 5 to 10 years thereafter, then Plank’s vision of Under Armour becoming a major player on
the global stage would be fulfilled.

Suggestions for Using the Case

This freshly-updated case should generate considerable student interest and provoke a lively, interesting class
discussion. Under Armour is rapidly expanding its market presence in performance sports apparel, growing a
base of loyal customers for its product offerings, and becoming a much stronger market contender vis-à-vis both
Nike and The adidas Group.

The Under Armour case is probably best assigned after you have covered Chapters 1-7, but it can be successfully
used after students have read just Chapters 3, 4, and 5. It is definitely a good case for drilling students in the tools
of analysis covered in Chapters 3 and 4. The material in Chapters 5 and 6 is pertinent to student identification and
assessment of Under Armour’s strategy and competitive approaches. And, with Under Armour’s accelerating
efforts to enter a growing number of foreign markets, the material in Chapter 7 regarding competing in foreign
markets comes into play as well.

The Under Armour case provides an opportunity for class members to evaluate industry and competitive
conditions, think strategically about Under Armour’s resources and capabilities versus those of its main rivals,
do a weighted competitive strength assessment of Under Armour versus Nike and The adidas Group, crunch
some numbers in the financial exhibits, and make action recommendations regarding Under Armour’s future
course of action.

There is enough material in this case and enough opportunities to drill students in applying the concepts and
analytical tools in Chapters 3 and 4 to fill two class periods should you opt to devote this much class time to
covering the case thoroughly.

Videos for Use with the Under Armour Case. There are two videos you can show (or let students view on
their own) when having class discussion of the Under Armour case:

 A 2:35-minute 2015 video entitled “Under Armour’s Game Plan.” It can be accessed at https://www.
youtube.com/watch?v=i4S08VwUMgw.

 A 2:21-minute 2016 video interview of Kevin Plank aired on CNBC titled “How Under Armour
Overcame Its Underdog Odds / How I Made It.” It can be accessed at https://www.youtube.com/
watch?v=Q3VO2pGMIok.

Links to the two videos are also posted in the instructor resources section of the Connect Library.

Our recommendation would be to show the Kevin Plank video interview at the beginning of the class period and
to show the first video just prior to asking class members for what 3-4 top priority issues do Kevin Plank and
Under Armour management need to address—question 9 in the Assignment Questions section below.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 3

The Connect-based Exercise for the Under Armour Case. We developed an exercise for Under Armour
for inclusion in the publisher’s Connect™ Management web-based assignment and assessment platform
because:

 The case ties tightly to many of the topics covered in Chapters 3 through 7.

 One of the purposes of the case exercises is to drill students in applying the concepts and analytical tools
discussed in the chapters to the circumstances posed in the cases.

This particular Connect-based exercise concerns the following ten questions:

1. What is your assessment of the strength of competitive pressures stemming from rivalry among Under
Armour, Nike, and Adidas-Reebok (The adidas Group)?

2. What is your assessment of the strength of competitive pressures stemming from the threat of entry of
new competitors into the North American market for performance sports apparel?

3. What is your assessment of the strength of competitive pressures stemming from substitutes for
performance sports apparel?

4. What is your assessment of the strength of competitive pressures stemming from suppliers to the
marketers of performance sports apparel?

5. What is your assessment of the strength of competitive pressures stemming from the buyers of
performance sports apparel in North America?

6. What is the collective strength of the five competitive forces facing Under Armour, Nike, and Adidas-
Reebok in the North American market for performance sports apparel?

7. Does Under Armour have any core competencies and, if so, what are they?

8. Does Under Armour have any resource strengths or competitive capabilities that qualify as a distinctive
competence?

9. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates
the competitive approach that Under Armour is employing?

10. What is impressive about Under Armour’s financial performance during the 2011-2015 period (as shown
in case Exhibit 1)?

It should take class members roughly 60 minutes to complete the exercise, assuming they have done a conscientious
job of reading the case and absorbing the information it contains. All of the questions are automatically graded,
and the grades are automatically recorded in your Connect grade book, which makes it easy for you to evaluate
each class member’s ability to apply many of the concepts and analytical methods in Chapters 3-7.

What to Tell Students in Preparing the Under Armour Case for Class. To give students guidance in
what to do and think about in preparing the Under Armour case for class discussion, we strongly recommend
two things:

1. Have class members complete the Connect-based exercise for the Under Armour case in the event
you have adopted the Connect software for your course.

OR

2. Provide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the Under Armour
case are presented in the next section of this TN. You may wish to have the class concentrate their
attention on a subset of these questions, depending on how you want to handle the class discussion.
Covering all of the assignment questions will likely require two class periods.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 4

To facilitate your use of assignment questions and making them available to students, we have posted
a file of the Assignment Questions contained in this teaching note in the instructor resources section
of the Connect Library. (You should be aware that there is a set of assignment questions posted in the
Connect Library for each of the cases included in the 21th edition.) In all instances, these assignment
questions correspond to the assignment questions in the teaching note for the case.

In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
we pose. Moreover, students often find that a set of study questions is useful in helping them prepare oral
team presentations and written case assignments—in addition to whatever directive question(s) you supply for
these assignments. Hence, we urge that you provide students with assignment questions—either those we have
provided or a set of your own questions—for all those aspects of a case that you believe are worthy of student
analysis or that you plan to cover during your class discussion of the case.

Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that follows Case 31. The content of this Guide is particularly
helpful to students if your course is their first experience with cases and they are unsure about the mechanics of
how to prepare a case for class discussion, oral presentation, or written analysis.

Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis. We
definitely recommend use of the Under Armour case for written assignments and oral team presentations. Our
suggested assignment questions are as follows:

■ Under Armour CEO Kevin Plank has employed you as a consultant to assess the company’s overall
situation and recommend a set of actions to improve the company’s future prospects. Please prepare
a report to Mr. Plank that includes (1) an evaluation of competitive forces in the global market for
performance sports apparel and accessories, (2) an assessment of Under Armour’s strengths, weaknesses,
opportunities and threats, (3) an evaluation of Under Armour’s financial performance as shown in case
Exhibit 1, (4) a weighted competitive strength assessment of Under Armour, Nike, and The adidas
Group using the methodology in Table 4.4, and (5) a set of action recommendations that clearly define
the course of action Under Armour should pursue. Your report should be 5-6 pages, plus it should
include an assortment of charts, tables, and exhibits to support your analysis and recommendations.

■ Prepare a brief report to Under Armour CEO Kevin Plank outlining the 3-4 top priority issues that Under
Armour management needs to address and the actions you think Kevin Plank should initiate to address
these issues and steer Under Armour into an even stronger position to challenge Nike’s leadership
position. Your report should contain detailed and convincing reasons in support of each one of your
recommendations. It is imperative that the support offered for each of your recommendation be based on
(a) conclusions drawn from application of the concepts and analytical tools discussed in Chapters 3 and
4 and (b) the content of Chapters 5-7 regarding strategic moves that may be suitable for Under Armour
in building a stronger competitive position vis-à-vis Nike and The adidas Group.

Assignment Questions
1. How strong are the competitive forces confronting Under Armour, Nike, and The adidas Group? Do a five-
forces analysis to support your answer.

2. Does Under Armour have any core competencies and, if so, what are they?

3. Does Under Armour have any resource strengths or competitive capabilities that qualify as a distinctive
competence?

4. What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s situation?
 Case 8 Teaching Note Under Armour’s Strategy in 2016 5

5. What are the key elements of Under Armour’s strategy?

6. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Under Armour is employing?

7. What is impressive about Under Armour’s financial performance during the 2011-2015 period (as shown in
case Exhibit 1)?

8. How does Under Armour’s competitive strength compare against that of Nike and The adidas Group? Do
a weighted competitive strength assessment using the methodology presented in Table 4.4 in Chapter 4 to
support your answer. Based on your assessment and calculations, does Under Armour have a net competitive
advantage or disadvantage in competing against Nike and The adidas Group?

9. What 3-4 top priority issues do Kevin Plank and Under Armour management need to address?

10. What recommendations would you make to Under Armour CEO Kevin Plank? At a minimum, your
recommendations should cover what to do about each of the top priority issues identified in question 9.

Teaching Outline and Analysis

1. How strong are the competitive forces confronting Under Armour, Nike, and The adidas
Group? Do a five-forces analysis to support your answer.
Below is a representative five-forces model of competition for the performance sports apparel industry:

Substitutes for
Performance
Athletic Apparel

Competitive pressures coming from

the market attempts of sellers in
other industries to win buyer patronage
away performance athletic apparel

Rivalry among
Performance
Sports Apparel
Suppliers of Competitive Designers and Competitive
pressures Buyers of
Materials and pressures Marketers
stemming stemming Performance
Ingredients
from from the Athletic Apparel
Used in the Competitive pressures bargaining
supplier (mainly retailers
Production of created by the power
bargaining
jockeying for and sports
Craft Beer power of buyers
better market teams)
position
and competitive
advantage

Competitive pressures coming

from the threat of entry of new rivals

Threat of New Entry

into Performance
Athletic Apparel
 Case 8 Teaching Note Under Armour’s Strategy in 2016 6

 Rivalry among the designers and marketers of performance sports apparel—a strong, perhaps even
fierce, competitive force

In assessing this competitive force, students should draw upon the information in Figure 3.4 in Chapter
3 (and the related text discussion).

The rivalry among Under Armour, Nike, and The Adidas Group is vigorous and likely to remain so. All
3 competitors are striving to grow their sales and market shares. Rivalry is centered on two main factors:

• Product quality and performance features

• Brand image and brand reputation

Students should be pressed to identify the following rivalry-related competitive pressures at work:

• Rivalry-related competitive pressures are being intensified by the ongoing and vigorous efforts on
the part of Under Armour, Nike, and Adidas-Reebok to expand their product lines and offer wider
selection to those people who wear performance sports apparel.

• Rivalry-related competitive pressures are being intensified by the ongoing and vigorous efforts on
the part of Under Armour, Nike, and Adidas-Reebok to expand the sizes of their retail distribution
networks in all geographic areas of the world where they have a market presence.

• Rivalry-related competitive pressures are being intensified by the active and aggressive efforts on
the part of Under Armour, Nike, and Adidas-Reebok to build and strengthen the appeal of their
brand names via celebrity endorsements, sponsorships of sporting events, various promotional
activities, and advertising.

• Rivalry is weakened by the differentiation that exists from one brand of performance sports
apparel to another (as concerns product selection, brand image, quality, design, and styling)—such
differentiation creates buyer preferences for the features of certain brands, thus inhibiting brand
switching and giving rise to buyer loyalty to their preferred brand.

• Fast-growing demand for performance sports apparel acts to weaken the rivalry among rival
designers/marketers because there is enough new demand to enable each rival to grow sales/market
share without having to steal customers away from rival brands.

However, in our view, the latter two factors are not powerful enough to overcome the competitive
impact of the first two factors acting to strengthen rivalry. On the whole, we think it is fair to say that
the competitive pressures associated with rivalry among Under Armour, Nike, and Adidas-Reebok are
moderately strong. This is because the competitive pressures associated with rivalry are not so potent as to
prevent the rivals from earning attractive profits in performance sports apparel. In market circumstances
where rivalry is very strong or even fierce, then the profitability of rival sellers is adversely impacted and
industry profitability tends to be more modest than what we see at Under Armour and Nike.

 Competitive pressures associated with the threat of new entry into the performance athletic apparel
marketplace—a weak to moderate competitive force

In assessing this competitive force, students should draw upon the information in Figure 3.5 in Chapter
3 (and the related text discussion).

Factors that are acting to intensify the threat of entry:

• The fast rate of growth in buyer demand for performance athletic apparel

• Existing industry members are actively striving to expand their market reach by entering product
segments or geographic areas where they do not have a presence—this threat of new entry is very
real and virtually certain to occur as Under Armour, Nike, and Adidas-Reebok try to attract more
customers in the markets of more countries.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 7

Factors that are acting to weaken the threat of the entry:

• The small pool of entry candidates

• Somewhat formidable entry barriers—new entrants face high barriers in building a retail distribution
network and securing attractive retail display space for their product offerings to consumers

• The degree of product differentiation and brand name awareness enjoyed by Under Armour, Nike,
and Adidas-Reebok—trying to go head-to-head against these rivals would be quite expensive from
the standpoint of establishing a credible and potent brand image and brand reputation to contend
successfully with the images and reputations of Nike, Under Armour, and The adidas Group

All things considered, we think it is fair to say that the competitive pressures associated with the threat
of additional entry into the performance athletic apparel marketplace are:

• Relatively weak in the case of brand new competitors entering the marketplace on a grand scale
with intentions to take on the market leaders. However, we would not disagree with students who
argue that new competitors may well enter on a limited scale and try to compete in select market
niches.

• Relatively strong in terms of the existing competitors (particularly Nike, Under Armour, and
adidas-Reebok) entering new product segments and new geographic areas where they currently
do not have a market presence.

 Competitive pressures associated with substitutes for performance athletic apparel—a moderate
competitive force

In assessing this competitive force, students should draw upon the information in Figure 3.6 in Chapter
3 (and the related text discussion).

Factors that are acting to intensify competitive pressures from substitute products:

• The widespread availability of other types of athletic apparel products that are not made of
performance fabrics

• Many types and brands of substitute sports apparel are typically cheaper than the premium-priced
performance sports apparel products designed and marketed by Under Armour, Nike, and Adidas-
Reebok

Factors that are acting to weaken competitive pressures from substitute products:

• Substitute types of athletic apparel deliver less comfort and are viewed by many users as being of
inferior quality (despite the attraction of their often lower prices)

All things considered, it is fair to say that the competitive pressures from substitutes for performance
sports apparel are moderate. Some students might argue for strong or moderately strong because of the
lower prices of substitutes but we think a convincing case can be made that rapidly growing numbers of
consumers are becoming aware of and attached to the performance and quality of the products made of
“high-tech” performance fabrics and are increasingly inclined to pay the higher price.

 Competitive pressures associated with the bargaining power of suppliers—a moderate competitive
force

In assessing this competitive force, students should draw upon the information in Figure 3.7 in Chapter
3 (and the related text discussion).
 Case 8 Teaching Note Under Armour’s Strategy in 2016 8

The two types of suppliers that really matter here are (1) the suppliers/makers of performance-based
fabrics and (2) the contract manufacturers that actually produce the apparel items.

Factors that are acting to intensify the bargaining power of suppliers:

• Fabric suppliers having proprietary fabrics with superior performance features and/or superior
quality have significant bargaining power to influence the prices and other terms and conditions
under which they will sell/supply these fabrics for use in the garments of the designers and
marketers of performance athletic apparel. Such product differentiation (if it is truly significant)
almost certainly enables them to command a price premium.

• The designers and marketers of performance athletic apparel are not a strong threat to integrate
backward and attempt to self-manufacture their own apparel requirements.

• The designers and marketers of performance athletic apparel are not a strong threat to integrate
backward and attempt to self-manufacture their own performance fabrics.

Factors that are acting to weaken the bargaining power of suppliers:

• The presence of numerous contract manufacturers who are eager to win the business of producing
apparel items for Nike, Under Armour, and adidas-Reebok and who also have the capabilities (1) to
make these items to the designer/marketer’s specifications and (2) to meet their delivery schedules.

• The costs to Nike, Under Armour, and adidas-Reebok of switching their orders over to alternative
contract manufacturers are relatively low, which undercuts the bargaining power of any one contract
manufacturer to insist on a higher price or other favorable terms and conditions.

• Fabric suppliers having non-differentiated or commodity-like performance fabrics lack any

significant bargaining to the extent that comparable fabrics are readily available from other fabric
suppliers at competitive prices.

All things considered, it is fair to say that competitive pressures from the bargaining power and leverage
of suppliers are weak in the case of contract manufacturers and moderate when certain fabric
suppliers have developed performance fabrics that have better quality and/or features than those of
rival suppliers of performance fabrics.

 Competitive pressures associated with the bargaining power of buyers—a weak to moderate
competitive force depending on the type of buyer

In assessing this competitive force, students should draw upon the information in Figure 3.8 in Chapter
3 (and the related text discussion).

The two types of buyers that really matter here are (1) the big chain retailers of performance athletic
apparel and (2) prominent and highly visible sports teams.

It is very important here that class members understand that individual buyers of performance
athletic apparel do not buy directly from Under Armour, Nike, or adidas-Reebok except
when they are shopping in the retail stores/factory showrooms owned and operated by these
companies. Individual shoppers are really in no position to bargain with the store personnel
at the retail stores/outlets of Under Armour, Nike, and Adidas-Reebok for lower prices or
other favorable terms and conditions of sale because they buy in such small quantities. The
only “power” any individual shopper for performance athletic apparel has is to not buy an
item they believe is overpriced and/or shop elsewhere and/or purchase an alternative brand,
but such options do not convey any bargaining leverage sufficient to wrestle concessions and
thus qualify as a legitimate source of competitive pressure.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 9

Factors that act to enhance the bargaining power of retailers and/ prestige sports teams:

• The retailers of performance athletic apparel have some freedom to decide which brands they want
to stock in their stores and also which specific apparel items within a branded product line to
stock—retailers are unlikely to stock all brands and all models/styles of each brand of performance
athletic apparel. Such choices—most especially if they have many store locations and buy in very
sizable quantities—are likely to convey some bargaining power in wresting concessions regarding
prices or other important terms and conditions from the designers/marketers of performance athletic
apparel.

• It is easy and relatively inexpensive for the retailers of performance sports apparel to switch a
portion (and in some instances, perhaps, even a big fraction) of their purchases from one brand to
another. In other words, they have some freedom in choosing what mix/proportion of the items of
each brand they opt to stock.

• Retailers have the freedom to determine which brands to display in which space on their floors
(all floor or shelf locations or types of merchandise displays may not be equally attractive in terms
of generating sales). Retail buyers may therefore be able to wring some concessions in return for
granting a designer/marketer the best or most preferred locations of merchandise display space
within their stores.

• Some retailers of performance sports apparel have bargaining power and leverage because they
buy in large quantities and thus qualify as very important and competitively valuable customers of
the designers and marketers of performance sports apparel—such status may enable them to wring
concessions regarding prices or other terms and conditions they consider important.

• Prestige sports teams may well possess bargaining power in negotiating the terms and conditions
under which they will use the performance athletic apparel of such designers and marketers as Under
Armour, Nike, and adidas-Reebok. The marketing value and brand-building value that having the
viewers of sporting events see company logos on a particular team’s apparel has to Under Armour,
Nike, and adidas-Reebok may enable prestige/high profile teams to command bigger endorsement
fees. For example, Under Armour might pay certain prominent teams a bigger endorsement fee just
to keep the team from endorsing/wearing/using Nike or adidas or Reebok products. Less prominent
(but nonetheless noteworthy) teams may be able to win price concessions for whatever apparel or
merchandise they purchase.

Factors that act to weaken the bargaining power of retailers and/ prestige sports teams:

• The vast majority of retailers of performance athletic apparel do not pose a credible threat to
integrate backward into the design, manufacture, and marketing of performance sports apparel and
compete head-to-head against Under Armour, Nike, and Adidas-Reebok with their own private-
label brands.

• Retailers are aware that growing numbers of individuals who buy performance athletic apparel are
less concerned about price than they are about the quality, styling, and performance features of the
athletic apparel products they use/wear.

• Because there are vast numbers of retailers of performance athletic apparel, no one single retailer
tends to be so critical to Nike or Under Armour or The adidas Group that they have to agree to
unreasonable demands from a particular retailer in order to secure the retailer’s business.

All things considered, it is fair to say that the competitive pressures from the bargaining power and
leverage of those who buy performance sports apparel from Under Armour, Nike, Adidas-Reebok,
and other performance sport apparel marketers are not of equal strength or intensity for the three
categories of buyers of performance sports apparel—(1) the retailers of performance sports apparel who
purchase their supplies of merchandise directly from Under Armour, Nike, and Adidas-Reebok to sell
 Case 8 Teaching Note Under Armour’s Strategy in 2016 10

in their various store locations or at their websites, (2) the sports teams who buy apparel directly from
Under Armour, Nike, and Adidas-Reebok, and (3) individuals who shop at the retail/outlet stores and
showrooms operated by Under Armour, Nike, and Adidas-Reebok.

Buyer bargaining power tends to be:

• Strong for large chain retailers who buy performance sports apparel directly from Under Armour,
Nike, and Adidas-Reebok to sell in their retail locations (and even stronger in negotiating with the
marketers of lesser-known brands of performance sports apparel).

• Moderate to moderately strong for prominent sports teams who obtain performance sports apparel
directly from Under Armour, Nike, and Adidas-Reebok.

• Weak to nonexistent for individuals who shop at the retail stores/outlets operated by Under Armour,
Nike, and Adidas-Reebok.

Conclusions concerning the Overall Strength of All Five Competitive Forces: The collec-
tive strength of the five competitive forces facing Under Armour, Nike, Adidas-Reebok, and other mak-
ers of performance sports apparel is “moderately strong” to “strong”—but definitely not so strong as
to prevent them from earning attractive profits.

We also think that class members should conclude that competitive pressures associated with rivalry and
with buyer bargaining power are probably the two strongest of the five competitive forces.

2. Does Under Armour have any core competencies and, if so, what are they?
We think students ought to single out the following as qualifying as Under Armour core competencies:

 Designing innovative performance sports apparel

 Capabilities in using the endorsement of prominent sports teams and professional athletes and the
sponsorship of sports events to build growing awareness of the Under Armour brand.

• Under Armour is succeeding in building a growing portfolio of celebrity endorsements and in

contracting with growing numbers of prominent sports teams to wear its apparel—these clearly
help build strong brand awareness and a more potent/authentic brand image and are key elements
of UA’s strategy.

• UA is also building brand awareness and a stronger brand image with its sponsorship of growing
numbers of sports events.

Management believed that having audiences see Under Armour products (with the interlocking
UA logo prominently displayed) being worn by athletes on the playing field helped the company
establish on-field authenticity of the Under Armour brand with consumers.

• It is fair to say that UA has built a potent and authentic brand image and reputation in a relatively
short time

 Securing retailers to stock Under Armour products in their stores—UA’s distribution capabilities are
growing stronger and are definitely helping drive the company’s revenue growth.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 11

3. Does Under Armour have any resource strengths or competitive capabilities that qualify as
a distinctive competence?
We do not see any credible evidence that any of UA’s resource strengths and capabilities have developed
beyond just being core competencies. To qualify as a distinctive competence, UA must have a resource
strength or competitive capability that is competitively superior to those possessed by Nike and The adidas
Group. We see no strengths or capabilities at Under Armour that class members can convincingly argue are
competitively superior to those at Nike.

4. What does a SWOT analysis reveal about the overall attractiveness of Under Armour’s
situation?
Under Armour’s Resource Strengths and Competitive Assets

 A growing lineup of product offerings—the company has a growing array of moisture-wicking apparel
items in many designs and styles for wear in nearly every type of climatic conditions. Indeed, Under
Armour’s diverse product offerings in 2012 consisted of apparel, footwear, and accessories (gloves,
socks, headwear, bags, knee-pads, custom-molded mouth guards, and eyewear) for men, women,
and youths marketed at multiple price levels in a variety of styles and fits intended to regulate body
temperature and enhance comfort, mobility, and performance regardless of weather conditions.

 UA’s growing market share is adding to its competitive strength—UA’s market share for sports apparel
in 2015 was an estimated 16% in the U.S. (up from 12.7 percent in 2012 and 11.1 percent in 2011). UA
had recently overtaken adidas-Reebok in performance sports apparel in the U.S. market. But elsewhere
in the world, UA has a long way to go to match the sales and shares of Nike and adidas-Reebok.

 UA had built growing and competitively strong distribution capabilities in multiple distribution channels
in North America, specifically store retailers, catalog retailers, UA factory outlet and specialty stores,
and sales at the company’s website.

 Growing global awareness of the Under Armour brand name, combined with growing appeal of Under
Armour products worldwide.

 Growing skills and capabilities in promoting the sales and use of UA-branded products to high-
performing athletes and teams on the high school, collegiate, and professional levels. Headed into
2016, UA was the “official supplier of performance apparel” to increasing numbers of sports teams.
Management believed that having audiences see Under Armour products (with the interlocking UA
logo prominently displayed) being worn by athletes on the playing field helped the company establish
on-field authenticity of the Under Armour brand with consumers.

 Growing, albeit still limited, distribution capabilities outside the U.S.

Under Armour’s Resource Weaknesses and Competitive Liabilities

 Weaker brand name recognition and reputation than key competitors—Nike and The adidas Group

 Smaller product line breadth compared to Nike and The adidas Group

 Relatively limited distribution outside North America (although UA’s global distribution capabilities are
growing/improving)

 A smaller portfolio of celebrity endorsements than Nike

 Case 8 Teaching Note Under Armour’s Strategy in 2016 12

Under Armour’s Market Opportunities

 Under Armour has significant opportunities to expand the company’s still relatively limited product
lineup and brand name appeal into product categories where it currently had little or no market
presence—there is ample market opportunity for UA to broaden its product offerings to men, women,
and youths for wear in a widening variety of sports and recreational activities

 Under Armour has very significant opportunities to expand outside of the United States—it is still in the
early stages of establishing its brand and penetrating markets outside the U.S. and North America. Sales
of Under Armour products outside North America accounted for only 11.5 percent of the company’s net
revenues in 2015, up from 8.7 percent in 2014 and 6.3 percent in 2012 (see Exhibit 3B).

The External Threats to Under Armour’s Future Well-Being

 Intensifying competition from rival designers/marketers of performance sports apparel—see Exhibit 4

for major competitors and brands

 The buyer bargaining power that can be exercised by large chain retailers like Dick Sporting Goods—
roughly 75 percent of all sales made to retailers were to large-format national and regional retail chains

Conclusions regarding the attractiveness of UA’s overall situation: Under Armour’s overall
situation is highly attractive. UA is an up-and-coming company with increasingly potent resource strengths
that are producing gains in sales and market share. The company is correcting its resource weaknesses, has
ample market opportunities to sustain its rapid growth, and seems capable of defending against the external
threats to its future well-being. Its future outlook for growth and profitability is bright.

5. What are the key elements of Under Armour’s strategy?

Class members should be expected to identify the following key elements of Under Armour’s strategy:

 Broaden the company’s product offerings to men, women, and youths for wear in a widening variety of
sports and recreational activities

 Market the company’s ever-expanding lineup of performance products to additional consumer segments

 Secure additional distribution of Under Armour products in the retail marketplace in North America via
not only store retailers and catalog retailers but also through Under Armour factory outlet and specialty
stores and sales at the company’s website

• Also, use licensing arrangements to manufacture and distribute Under Armour branded products.
Under Armour had relationships with several licensees for team uniforms, eyewear, and custom-
molded mouth guards, as well as the distribution of Under Armour products to college bookstores
and golf pro shops. Under Armour had a relationship with a Japanese licensee, Dome Corporation,
that had the exclusive rights to distribute Under Armour products in Japan.

 Expand the sale of Under Armour products in foreign countries and becoming a global competitor in
the world market for sports apparel and performance products. Sales of Under Armour products outside
North America accounted for 11.5 percent of the company’s net revenues in 2015, up from 8.7 percent
in 2014 and 6.3 percent in 2012 (see Exhibit 3B). UA’s internal efforts to secure international sales
were accelerating. The company had 48 Factory Houses and Brand Houses in Brazil, China, Chile, and
Mexico at year-end 2015. Plans called for having some 800 such stores in 40+ countries outside North
America by year-end 2018. Exhibit 4 shows UA’s geographic expansion plan.

 Grow global awareness of the Under Armour brand name and strengthening the appeal of Under Armour
products worldwide
 Case 8 Teaching Note Under Armour’s Strategy in 2016 13

 Utilize endorsements and advertising to drive consumer demand for its products and build awareness of
Under Armour as a leading performance athletic brand

• Advertise in a variety of national digital, broadcast, and print media outlets and initiate advertising
campaigns having a variety of lengths and formats

• Grow the company’s “fan base” via social sites like Facebook and Twitter

 Promote the sales and use of its products to high-performing athletes and teams on the high school,
collegiate, and professional levels. This includes:

• Entering into outfitting agreements with a variety of collegiate and professional sports teams

• Sponsoring an assortment of collegiate and professional sports events

• Selling Under Armour products directly to team equipment managers and to individual athletes

 Increase the floor space exclusively dedicated to Under Armour products in the stores of its major retail
accounts

• Design and fund Under Armour “concept shops”—including flooring, in-store fixtures, product
displays, life-size athlete mannequins, and lighting—within the stores of its major retail customers

• Work with retailers to establish optimal placement of UA products in those stores not having Under
Armour concept shops

 Use high-tech fabrics produced by third parties (fabric manufacturers) that were developed in
collaboration with the company’s product development team.

• Under Armour favored the use of superior, technically advanced fabrics, produced to its specifications

• The company regularly upgraded its products as next-generation fabrics when better performance
characteristics became available and as the needs of athletes changed

• An effort was made to design products with “visible technology,” utilizing color, texture, and
fabrication that would enhance customers’ perception and understanding of the use and benefits of
Under Armour products.

 Use contract manufacturers to produce all UA products. Specific components of UA’s production
strategy were as follows:

• In 2013, substantially all UA products were manufactured by 26 primary manufacturers operating

in 19 countries; 14 manufacturers produced approximately 65% of UA’s products. Approximately
66% of UA’s products were manufactured in Asia, 15% in the Middle East, 14% percent in Central
and South America, and 5% in Mexico.

• All manufacturers purchased the fabrics they needed from the 6 fabric suppliers preapproved by
Under Armour, and all were evaluated for quality systems, social compliance, and financial strength
by Under Armour’s quality assurance team, prior to being selected and also on an ongoing basis.

• Under Armour required its contract manufacturers to adhere to a code of conduct regarding quality
of manufacturing, working conditions, and other social concerns.

• UA strived to qualify multiple manufacturers for particular product types and fabrications and to
seek out vendors that could perform multiple manufacturing stages, such as procuring raw materials
and providing finished products—management believed this helped UA control its cost of goods
sold.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 14

 Maintain sufficient inventory to fill incoming orders promptly and put strong systems and procedures in
place to improve the efficiency with which inventories of individual products and total inventory could
be efficiently and effectively managed.

• The amounts of seasonal products it ordered from manufacturers were based on current bookings,
the need to ship seasonal items at the start of the shipping window in order to maximize the floor
space productivity of retail customers, the need to adequately stock its Factory House and Brand
House stores, and the need to fill customers’ orders placed at the company’s website.

• Excess inventories of particular products were either shipped to UA’s Factory House outlet stores
or earmarked for sale to third-party liquidators.

6. Which one of the five generic competitive strategies discussed in Chapter 5 most closely
approximates the competitive approach that Under Armour is employing?
We think UA’s strategy most closely approximates a broad differentiation strategy. The company’s
increasingly broader product line undercuts the case that some students might want to make for a focused
differentiation strategy.

7. What is impressive about Under Armour’s financial performance during the 2011-2015
period (as shown in case Exhibit 1)?
You should push class members to use the financial ratios in Table 4.1 of Chapter 4 in performing calculations
to determine what aspects of UA’s financial performance might qualify as impressive. In addition to the
ratios in Table 4.1, they will also need to calculate compound average growth rates (CAGR) for certain
financial measures. The formula for calculating CAGR (in percentage terms) is as follows:

CAGR % = [ending value ÷ beginning value]1/n – 1 x 100

(where n = the number of year-to-year or period-to-period changes)

There are several things that class members should be expected to identify as being impressive aspects (or
at least very good aspects) of UA’s financial performance since 2011:

 From 2011 through 2015, Under Armour’s compound average growth rate in net revenues was a strong
28.1%.

 UA’s income from operations rose from $162.8 million in fiscal 2011 to $408.5 million in fiscal 2015,
an increase of 250.9% and a very healthy compound average growth rate of 25.9%.

 UA’s net income rose from $96.9 million in fiscal 2011 to $232.6 million in fiscal 2015, an increase of
240.0% and a compound average growth rate of 24.5%.

 UA’s diluted net income per share rose from $0.46 in 2011 to $1.05 in 2015, an increase of 228.3% and
a strong compound average growth rate of 22.9%.

 Under Armour has financed its rapid growth during the 2011-2015 period without incurring burdensome
debt, as reflected by its $669 million in total debt and capital lease obligations versus $1.67 billion in
stockholders’ equity at the end of fiscal 2015 and its very modest annual interest expenses throughout
2011-2015.

 UA’s working capital has doubled since 2011.

 Case 8 Teaching Note Under Armour’s Strategy in 2016 15

8. How does Under Armour’s competitive strength compare against that of Nike and The
adidas Group? Do a weighted competitive strength assessment using the methodology
presented in Table 4.4 in Chapter 4 to support your answer. Based on your assessment
and calculations, does Under Armour have a net competitive advantage or disadvantage in
competing against Nike and The adidas Group?
There is ample information in the Under Armour case for students to do a competitive strength assessment
and practice using the methodology presented in Table 4.4 in Chapter 4. We urge spending about 10-15
minutes of class time drilling students on proper use of this tool.

A representative competitive strength analysis of Under Armour, Nike, and The adidas Group is presented
in the table below.

Competitive Strength Assessments of Under Armour, Nike, and The adidas Group
(Rating scale for each strength measure: 1 = very weak; 5 = average; 10 = very strong)

Under Armour Nike adidas Group

Competitive Strength Importance Strength Weighted Strength Weighted Strength Weighted
Measures Weight Rating Score Rating Score Rating Score
Product line breadth 0.20 6 1.20 10 2.00 9 1.80
Brand awareness and
brand reputation 0.20 7 1.40 10 2.00 9 1.80
Caliber of portfolio of
celebrity endorsements
and sponsorship of
sporting events 0.15 5 0.75 10 1.50 8 1.20
Distribution capabilities 0.15 4 0.60 9 1.35 10 1.50
Product design,
technical innovation,
and new product
development 0.10 8 0.80 10 1.00 9 0.90
Geographic market
coverage 0.10 4 0.40 9 0.90 10 1.00
Financial resources and
financial strength 0.10 4 0.40 10 1.00 7 0.70
Sum of weights 1.00
Total Rating/Score 38 5.55 70 9.75 60 8.80

The competitive strength ratings in the above table indicate that Nike has the greatest competitive strength
of the 3 companies—in our view, it is clearly a formidable competitor on every one of the strength measures
(hence the rating scores of 9 or 10 on each measure). We also see The adidas Group as being quite strong
(first or second strongest) on each one of the competitive strength measures. Under Armour, though up-and-
coming, still trails the other two rivals, although it has closed the gap significantly during 2011-2015—and
seems likely to close the gap even further by 2020 and beyond.

However, had the competitive strength ratings been done for only the North American market where UA’s
revenues are concentrated, then UA’s strength ratings would have been higher and the ratings for The adidas
Group would have been below those for Under Armour.

Student competitive strength ratings can, of course, differ from those in the table above because there is
room for different judgments both as to the importance weights and the strength ratings. However, we think
that the total rating/score should nonetheless be highest for Nike, second highest for The adidas Group, and
third highest for Under Armour. Class members can thus make a convincing case that Nike currently enjoys
 Case 8 Teaching Note Under Armour’s Strategy in 2016 16

a net competitive edge over both The adidas Group and Under Armour. Worldwide, The adidas Group
seems at a “small” net competitive disadvantage vis-à-vis Nike and at a currently sizable net competitive
advantage over Under Armour. Yet, Under Armour is far from being so weak that it is struggling to compete
with and/or gain ground on its two larger rivals. UA’s market share is increasing. Consumer awareness of the
Under Armour brand is growing, and the company’s product offerings have appeal to consumers. But Under
Armour admittedly has a very long way to go before it gains competitive parity with Nike and The adidas
Group in markets outside North America—this is understandable given that UA is a relative newcomer to
the industry and that it is only in the early stages of exerting strong efforts to grow its international presence.

9. What 3-4 top priority issues do Kevin Plank and Under Armour management need to
address?
We think it is always a good idea to push the class for their assessment of what issues management needs
to address before proceeding to ask for action recommendations. Issue identification (or compilation of a
“worry list”) is a way for students to draw conclusions from all the preceding analysis, plus it sets the stage
for what actions need to be taken.

In Under Armour’s case, we see several high-priority issues that merit top management consideration:

 How fast and how far to move into the athletic footwear segment? Does UA management really want to
go head-to-head with Nike, adidas, Reebok, and other athletic footwear brands in the core portions of
the athletic footwear segment or is it better off competing on the fringes in cleats and mainly basketball
shoes?

 How fast to expand the distribution of UA products to foreign markets outside North America and in
which countries/geographic regions should it concentrate its foreign expansion efforts? Near-term, as
shown in Exhibit 4, UA has a nicely laid out geographic expansion plan for 2016-2018.

10. What recommendations would you make to Under Armour CEO Kevin Plank? At a minimum,
your recommendations should cover what to do about each of the top priority issues
identified in question 9?
Students should be pressed to offer practical action recommendations to address the issues identified
in the prior question. But you should appreciate that coming up with good action recommendations for
Under Armour that go beyond what management is already doing is likely to prove challenging to many
class members. Under Armour seems very clearly to be on the right strategic path and all key elements
of its strategy are working well. No major strategy changes seem to be needed since there are no obvious
shortcomings or flaws in Under Armour’s present strategy.

The following recommendations seem to us to be on target and actions that students should propose be part
of Under Armour’s strategy:

 Continue to broaden the company’s product offerings by entering new segments of the market for
performance sports apparel, sports equipment, and sports accessories.

• Continue to expand Under Armour’s athletic footwear offerings—but exercise caution and prudence
in trying to establish a market presence in all models/styles of athletic footwear too quickly. We
suggest a strategy of entering new athletic footwear segments one-by-one over a multi-year period
rather than undertaking a sweeping multi-style, multi-model approach to enter many athletic
footwear segments all within a short time frame. This has the advantage of testing the waters for
Under Armour athletic footwear and endeavoring to prove that Under Armour can be successful in
one targeted segment before entering another segment.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 17

• We very much like UA’s strategy of focusing on premium running shoes and basketball shoes for the
time being—running shoes is a segment where competition from Nike is relatively weak (because
it is not a segment that is truly important to Nike) and UA’s NBA celebrity endorser Stephen Curry
has opened the door for UA to make inroads in basketball shoes with its Stephen Curry collections.

 Continue to expand into additional foreign countries and geographic regions of the world as fast as
practical—the long-term strategic objective here should be to achieve global market coverage but at a
speed/pace that is within UA’s resource capabilities and that does not stretch UA resources too thinly
across too many geographic markets.

The case does not provide enough information for students to offer sound recommendations about the
priority or order in which Under Armour should expand into particular countries/geographic regions
beyond what is shown in case Exhibit 4.

 Continue to focus on the same four retail distribution channels: sales to retailers, sales to catalog
retailers, sales at Under Armour Factory House outlets and Brand House specialty stores, and sales
at the company’s website. Also, continue to use licensing arrangements to manufacture and distribute
select Under Armour-branded products (i.e. socks, hats, eyewear).

 Continue to build consumer awareness of the Under Armour brand and to enhance the company’s brand
reputation by:

• Signing additional appealing celebrities to endorse and promote Under Armour products.

• Sponsoring growing numbers of highly visible sporting events.

• Promoting the use of UA products by high-performing athletes and teams on the high school,
collegiate, and professional levels.

• Initiating periodic advertising campaigns in the media.

 Continue to use innovative fabrics in UA apparel that enhance performance, comfort, and product quality
and to offer innovative designs and styles that consumer find exceptionally appealing as compared to the
designs/styles of rival brands.

 Continue to use contract manufacturers to produce Under Armour products—integrating backward into
manufacturing should be avoided (What are the benefits? Is it too risky? Doesn’t UA lack the skills and
capabilities to undertake the manufacture of its products?).

Epilogue
In April 2016, UA announced a 10-year partnership agreement with the University of California, Berkley and
whereby UA would not only exclusively design and supply the footwear, apparel and equipment for the athletic
department’s wide range of men’s and women’s sports, but also connect directly with the broader campus
community by providing student internships, employment opportunities for UC Berkeley graduates, charitable
partnerships and exclusive product discounts for campus departments, among other offerings.

One month later UA announced a 15-year partnership agreement with the University of California, Los Angeles
(UCLA) whereby Under Armour would exclusively design and supply the footwear, apparel and equipment for
training and game-day uniforms for all 25 of UCLA’s men’s and women’s varsity athletic teams.

Due to the bankruptcy and closure of The Sport Authority’s business and retail stores in early 2016 (that resulted
in UA only being able to recognize $43 million of the originally planned $163 million in revenues with The Sports
Authority for 2016), UA announced on May 31, 2016, that it now expected 2016 net revenues of approximately
$4.925 billion, representing growth of 24% over 2015, and 2016 operating income of approximately $440
million to $445 million.
 Case 8 Teaching Note Under Armour’s Strategy in 2016 18

In October 2016, Under Armour announced financial results for the third quarter ended September 30, 2016.
UA’s total revenues for the third quarter of 2016 increased 22% to $1.47 billion. Wholesale revenues grew 19%
to $1.01 billion. Direct-to-consumer revenues grew 29% to $408 million, which represented approximately 28%
of total revenues for the quarter. Licensing revenues grew 21% to $29 million and Connected Fitness revenues
grew 40% to $20 million. Apparel revenues increased 18% to $1.02 billion compared to $866 million in Q3 of
2015; apparel growth was strongest in men’s training, women’s training, golf, and team sports. Third quarter
footwear revenues increased 42% to $279 million from $196 million in Q3 2015. Accessories revenues increased
18% to $122 million from $104 million in Q3 2015. International revenues increased 74% to $226 million in the
third quarter to reach 15% of total revenues.

Within UA’s direct-to-consumer channel, the North American store count at the end of Q3 2016 included 162
company-owned stores, comprised of 145 factory stores and 17 Brand House stores. Internationally, the company-
owned international store count at the end Q3 2016 included 63 stores, comprised of 32 Factory Houses and 31
Brand House stores. UA also had 282 partner stores in the international wholesale segment.

UA reported Q3 2016 operating income of $199 million, up 19% over the $171 million in Q3 2015; net income
rose 28% to $128 million compared to $100 million in Q3 2015.

Management said it expected UA would report full-year 2016 net revenues of approximately $4.925 billion (up
24% over 2015) and operating income in the range of approximately $440 million to $445 million, representing
growth of 8% to 9% over 2015.

In commenting on UA’s results for Q3 2016, CEO Kevin Plank said:

As we think about the many dimensions of growth for our company, we’re incredibly confident
in the opportunity we see for our North America business. Consider this, our two largest
competitors generated approximately $18 billion in revenue in North America over just the
past 12 months. So, while we recognize that our trailing 12 month North American revenues of
$3.95 billion is 85% of our business, it is just a fraction of the opportunity that we believe exists
for our brand. Whether it’s through share gains, market growth, new distribution or sheer brand
heat, we know we have tremendous runway in our home market.

Today, we’re the third-largest brand in the world. We’re the second largest brand in North
America. And our two largest competitors have more than 20,000 points of distribution each
in North America alone compared to just our 11,000, which speaks to just some of the runway
that we still have in front of us right here in our own backyard. They are also six times [Nike]
and four times [The adidas Group] our size respectively.

We’ll drive growth by the measures you’d expect: innovative product, brand strength and
relevance and the best team in the industry to drive market-leading results. A large part of that
growth in North America will come from footwear as we firmly believe that we are at a tipping
point in terms of opportunities to gain market share. In the back-to-school window of July
through September, our overall footwear market share nearly doubled according to industry
data.

….recently I pulled together the top leaders in the company and discussed the strategic growth
and direction of Under Armour. We came away with three key areas of focus….. First, getting
big fast. Second, making retail a core competency. And third, getting more shoes on feet.

….we have succeeded over the past 20 years by consistently punching above our weight and
that will not change. But our growth now gives us opportunities to move up in weight class and
we find ourselves well-positioned at this moment in time to compete for long-term relationships
with athletes, teams and league affiliations that we previously could not justify.
Crafting and Executing Strategy The Quest for Competitive Advantage Concepts 21st Edition Th

Case 8 Teaching Note Under Armour’s Strategy in 2016 19

At our 2015 Investor Day, we announced our goals of achieving $7.5 billion of revenues and
$800 million of operating income by 2018. We are on track to achieve our 2018 revenue goal
of $7.5 billion and expect to grow full-year revenues consistently in the low 20%s in both 2017
and 2018. At the same time, we expect annual operating income growth in the mid-teens each
of the next two years as we focus on investing to get big fast. (Author Note: this rate of growth
would mean operating profits of about $750 million instead of $800 million). Our challenge is
that we need to continue investing on multiple fronts, in categories, geographies, and the talent
and infrastructure required to capture those growth opportunities and that’s why the dollars we
are committing reflect a broader investment strategy.

….Footwear and international are going to continue to be staples of our investment strategy,
because we think the opportunity for us now is to strike and strike hard.

Plank’s announcements (1) that UA was lowering its long-term growth rate expectations for apparel revenues
(due to a noticeable slowing of North America apparel growth across the industry) and (2) that UA’s operating
profits would likely reach only $750 million in 2018 instead of the previously announced $800 million
resulted in a 13.2% drop in UA’s stock price on the day of the earnings release and management’s earnings
conference call with Wall Street analysts (October 25, 2016). The company’s stock price dropped another
3% on October 26, 2016.

For the latest information on developments at Under Armour, please visit the Investor Relations section at
www.underarmour.com and check out the company’s recent press releases and financial results.

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