Under Armour’s Strategy

free essayThe industry of sports apparel, footwear, and athletic accessories is highly competitive. In fact, the competition continues to increase. Overall, there are 25 major brands, which comprise the market in the sports apparel industry. The list of famous brand names includes Adidas, Nike, Columbia, Patagonia, and Under Armour. All these brands have various product lines and different representations across the world. For example, Under Armour has a greater coverage in the United States, whereas Nike derives its sales from overseas. However, there are also small competitors, which normally operate in one country or region. The key products of the industry include athletic and leisure footwear, related clothes, and equipment. The sales of clothes reached 135 billion in 2012 while the sales of footwear were about $75 billion. The sales of all these products are expected to grow due to the continuous increase of population, rising disposable income, development of new attractive products and increasing interest in healthy lifestyle.

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The evaluation of the external environment of Under Armour includes Porters’ 5 Forces Analysis and Key Success Factors. The objective of the first analysis is to assess the state of competition in the industry, the threat of new entrants and substitutes, as well as the bargaining power of suppliers and buyers.

Porter’s 5 Forces Analysis

Intensity of Rivalry and Competition. The competition is intense in the industry. Although the number of large brand names operating within the industry reaches only twenty-five, they have been actively investing in research and development of new products. Therefore, all their footwear and clothes are equally attractive to customers, and no organization can be sure of its leading position. Besides, leaders of the industry have been competing for contracts with sports teams and famous athletes because sales for groups generate greater revenues than serving individual customers. This fact means that companies have little power, because they have to offer the most attractive conditions to win business from the competitors. On the other hand, only few companies can compete with Under Armour across all product lines. Other organizations compete with the company in specific market niches.

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Threat of New Entrants. The barriers to entry into the industry are high. In fact, the barriers are particularly significant for companies trying to sell a wide range of products. They should have considerable financial and human recourses to develop, produce and market their goods. The more product offerings companies have, the more resources they need. Although Under Armour has gained some success in the industry, it still has lower market shares than Adidas and Nike, what proves the claim about high barriers for new entrants. At the same time, companies trying to operate in one niche have high chances to succeed. For example, Under Armour also started with selling only one kind of T-shirt to individual customers. In a few years, it decided to expand its product offerings. Therefore, the threat of new entry is generally high and companies can succeed only in a certain market niche. Gaining the size and market share of the current leaders in the industry might take years.

Power of Suppliers. The power of suppliers is moderate. For example, Under Armour obtains approximately half of its fabrics from five suppliers located in China, Malaysia, Mexico, Vietnam and Taiwan. It also has contracts with multiple companies, which manufacture specific products. About half of manufactures are located in Asia. Such variety of suppliers allows Under Armour to reduce their power. In particular, the company can control the prices of fabrics and products as well as minimize the risks connected to possible instabilities in the countries of suppliers. Most probably, these countries will not have crisis simultaneously. Apart from prices, Under Armour is able to control quality and social compliance of its suppliers. In case any issue arises, the company can easily switch a supplier. On the other hand, Under Armour does not have long-term agreements with its suppliers, allowing them to stop cooperation with the company. In addition, suppliers normally work with a few competitors and set various prices depending on the amount of products these companies order. For example, Nike has greater bargaining power than Under Armour because it sells larger amounts of products.

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Power of Buyers. The power of buyers is moderate. For example, Under Armour and other leading companies sell their products to various individual and group buyers. Therefore, losing some of the customers does not affect the corporations greatly. In fact, Under Armour has agreements with athletes and teams from NFL, NBA, National Hockey League, and some Olympic teams, ensuring stable sales. The risk is that competitors can develop some highly attractive products, making most of the buyers switch to their brand. Today, companies try to reduce the power of buyers by sponsoring sports events and famous athletes as well as signing contracts with equipment managers of teams.

Threat of Substitutes. The threat of substitutes is strong. Although clothing is always in high demand, many customers choose cheaper products than the ones offered by Under Armour and its competitors. For example, they can purchase cheap cotton T-shirts instead of paying $25 for an innovative T-shirt from Under Armour. However, the disposable income of people has been increasing, making them pay less attention to prices. Besides, sports apparel offered by Nike, Adidas or other similar companies is more comfortable for doing sports than clothes made from cotton or other traditional fabrics. Therefore, comfort of apparels might become a crucial factor. Another important detail is that people’s interest in sports has been growing, thus increasing the demand for innovative athletic and leisure clothing. The only risk for the industry is that some company will create some new more innovative type of fabrics. However, the example of Under Armour demonstrates that a company needs at least a few years to gain brand awareness and customer loyalty. Therefore, current leaders have time to develop strategies for fighting potential rivals.

How It Works

Overall, the industry is not very attractive due to intensive competition and rivalry, strong threat of substitutes and new entrants, as well as moderate power of buyers and suppliers. Companies need considerable financial and human resources to gain market share in the industry. On the other hand, new companies can start by offering a specific unique product. For example, Under Armour’s first product was a T-shirt, which was sold to individual customers. The company began to diversify its product lines only after gaining brand awareness.

Key Success Factors

The first success factor is creating a product, which has competitive technical design and aesthetic design. The target audience of the industry is sportspeople, who expect their apparels to be comfortable for doing sports. For example, T-shirts should be light and dry even after a few hours of running. Besides, many of them participate in popular sports events and need clothing that looks attractive. This success factors forces companies invest money in research and development of new fabrics, which make apparels and footwear even more comfortable.

The second success factor is making contacts with equipment managers of sports teams rather selling products to individual customers. Teams usually make larger orders than individuals do. Besides, they can become promoters of a company’s products. For example, at first, Under Armour started selling to individuals, but later the company’s owners understood that this approach would not allow reaching high growth rates. Therefore, they decided to contact equipment managers. In fact, this success factor encourages companies to create products for different kinds of sports and offer them to different sports teams. For example, Under Armour produces apparels for hockey, basketball and baseball teams.

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The third success factor is various sponsorships. In particular, the leading companies have agreements with individual athletes and provide financial support to sports events. Sponsorship is another success factor because it helps raise awareness about a brand, as well as manipulate customers’ purchasing choices. For example, customers tend to choose apparels, footwear or accessories, which their favorite athletes wear. This success factor has led to intense competition among companies for sponsorship agreements with athletes and sports teams. As a result, organizations constantly have to improve technical characteristics of their products to stay attractive to their customers.

To sum up, growth of population and their disposable income as well as increasing interest in sports make the industry more attractive to its current players and allow making positive predictions about the future of the industry. However, new companies can face difficulties while entering the industry, because creating and marketing sports products requires considerable capital. Besides, such companies as Nike or Adidas have outstanding customer loyalty. The only opportunity is to succeed in a specific market’s niche. The only industry’s challenge is preventing customers from switching to products made of cheaper materials. In particular, they choose cotton apparels. Overall, the industry is attractive to current players because it brings rising profits and sales. Intense competition promotes research and development of new products and an innovative technical design.

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