Question

identify and analyze the main issue(s) of the case study (often there is more than one). What is occurring? Why is it occurring? Why is it an impact to the business?

1. In an interview with CNBC, when asked about being a niche business, Kevin Plank explained, “Our goal in what we are doing.. .It’s Under Armour; it’s this idea of performance versus a basic product.. .It’s a movement towards people building and buying a better product.” In 2008, Kevin Plank noted the company’s vision was “to be the number one performance athletic brand” and “the next major force in performance footwear.” MOVING INTO FOOTWEAR Under Armour’s first entry into footwear was in June 2006 with a line of lightweight moisturewicking football cleats that kept feet cool and dry.
2. The mistake cost the company over $500,000 and disappointed retailers who had to wait another year for a women’s line.15 In 2004, Under Armour added a children’s line of clothing and expanded its accessory offerings, including football receivers’ gloves.16 Under Armour’s football receivers’ gloves gained 30 percent of the $50 million football glove market within a year of introduction.17As of 2008, Under Armour offered its products in 17,000 retail stores worldwide, including 13,000 retail stores in North America.
3. In the two-day period from January 16th to 18th, coinciding with the announcement of the Super Bowl ad for their new athletic shoe, Under Armour’s stock dropped 33 percent, to $28.61. Shortly thereafter, Under Armour announced its first quarter results, which included a 103 percent increase in marketing expenses from the prior year and a 71 percent decrease in net profits for the quarter.2 Super Bowl Sunday was not the first time Under Armour tried to compete against Goliaths like Nike, but could they win in this new game? IT ALL STARTED WITH BUILDING A BETTER T-SHIRT For Kevin Plank, founder of Under Armour, football was his passion.
4. Summary of major athletic footwear and apparel companies (all financial information for fiscal 2008 converted to US$ millions) Company Company Headquarters’ location Market Cap Employees Revenue Gross Margin Net Income Nike US - Beaverton, OR Herzogenaurach $31,100 34,300 $18,540 $8,600 $1,490 Adidas-Reebok Germany Herzogenaurach Germany 10,670 3,299 1,258 613 304 Puma 5,511 9,503 4,046 1,910 340 Saucony (part of Collective Brands) US - Lexington, MA 1,460 15,500 3,400 1,009 (69) Under Armour US - Baltimore, MD 1,363 2,600 725 355 38 Asics Tokyo, Japan 1,320 5,217 2,713 1,155 147 Mizuno Osaka, Japan US - Westlake Village, CA 641 6,129 1,817 738 (27) K-Swiss 323 584 340 135 29 New Balance Brooks US - Boston, MA N/A-Private Co.
5. Kevin Plank’s vision for Under Armour was to be the “Number one performance brand.”hr looking towards the future, how could Under Armour make itself perform better against its own competition? EXHIBIT A: THE ATHLETIC FOOTWEAR INDUSTRY In 2008, the athletic footwear market included all non-cleated, rubber, and plastic footwear designed in an athletic style or for athletic use.
6. Approximately one-third of the company’s sales came from two major retailers, Sports Authority and Dick’s Sporting Goods.18 In addition, the company sold its products direct to customers through its website, company owned retail stores, and Under Armour Factory Houses located in upscale outlet centers.
7. In speaking of his company’s success during this time Plank noted, “We were smart enough, to be naive enough, to not know what we couldn’t COMPANY PRODUCTS AND OPERATIONS Under Armour’s original product line was snug fitting apparel made of synthetic micro fiber designed to wick perspiration away from the skin, help regulate body temperature, enhance comfort, and improve performance regardless of weather conditions.
8. On Super Bowl Sunday 2008, Under Armour entered the $18 billion dollar athletic footwear market in direct competition with Goliath, Nike.
9. N/A - Segment data unavailable - A subsidiary of Berkshire Hathaway Inc The United States was the largest market for athletic footwear, accounting for approximately 23 percent of worldwide sales volume in 2008.49 The number of units sold and sales revenue declined in the US by one percent in 2008 and analysts expected slow growth for this market going forward.
10. Industry analyst, Renaud Vaschalde, noted Japan, the US, and Western Europe athletic footwear markets underperformed relative to the economy as measured by domestic gross product per capita, but China, Africa, and the Middle East saw double digit growth in 2008.50 US-based companies grew sales through increased penetration into foreign markets.
11. In addition to athlete endorsements, the company sponsored athletic events including a football game profiling top senior college players called the Under Armour Senior Bowl, and the Under Armour Baltimore Marathon.
12. Under Armour made its entrance into footwear by purchasing a $4.4 million Super Bowl ad to introduce its first non-cleat athletic shoe.1 The ad featured two dozen celebrity athletes and thumping bass-heavy music.
13. The Company’s aggressive “Click-Clack” advertising campaign also helped Under Armour gain 21 percent of the $250 Million football cleat market within one year of its entry into the market.
14. As of 2008, Nike and Adidas represented approximately 80 percent of US sales volume in this $17.4 billion dollar industry and dominated the worldwide market for athletic shoes.
15. Considering the size of the athletic shoe market in 2008, capturing just three percent of the market would have doubled Under Armour’s revenue, but such a move entailed direct competition against the Goliath named Nike.
16. Although footwear sales increased Under Armour’s total revenue by $44 million in 2008, increased production and marketing costs resulted in a 140 basis point drop in the company’s gross margin for the year.

Answer 1

Main Issues of the case

• High advertisement cost in relation to the revenues. The cost for sales promotion and advertising was increasing at a greater pace than the actual revenues. The tiny market share of Under Armour compared to giants like Nike and Adidas was less compelling them to push boundaries and create innovative products for their target segments-the athletes. In reality, the cost of making people aware of the brand and its benefits were costlier and Under Armour was finding it hard to compete with the strong existing products with their own niche product.
• Under-Armour tried to create another innovative product ,the players apparel besides its already existing innovative shoes. This product needed promotion , which once again drained the company's finances.
• Last but not the least, the United States along with Western European nations and Japan, the major markets were seeing a decline in demand where as the Middle East Asian countries, China, South Asian countries , Eastern Europe and parts of Africa was witnessing double digit growth in this segment . While Nike and Adidas had full fledged sales and operational presence, Under Armour lacked presence in these growing economies.