Under Armour sales hit the wall
Under Armour sales have slumped by a painful 12.1 per cent in North America, part of a worldwide trend to hit the once powerhouse brand of sports retail. Profit has slumped nearly 60 per cent.
The question arising from the latest set of results is: how did Under Armour lose so much traction so quickly?
With revenue grow moderating for the past couple of quarters, and with North American sales down across the first half of the year, the signs of a slowdown have been present for some time. Given the gentleness of these previous shifts, it has been easy to pin the blame on external factors such as a tapering down of demand for athleisure apparel, or the bankruptcy of leading sports retailers.
The third quarter numbers represent a marked deterioration from those previously modest declines. Overall revenues tumbled by 4.5 per cent. This is now about more than external factors: it demonstrates issues with the brand and its proposition. Especially so since other brands and retailers, including Lululemon, have not posted such calamitous figures.
Before diving into the detail of Under Armour’s travails, it is only fair to note that this is not the easiest of trading environments. GlobalData’s consumer data shows a marked slowdown in interest in sporting and athleisure apparel, and this is having an impact on sales across the sector. A rash of discounting at many retailers has also put pressure on revenues and margins.
All that said, demand in the US has not fallen by anywhere near 12 per cent over the past three months, so it is clear that Under Armour is underperforming and losing market share. This is an abrupt about-turn for a company that, until recently, was on a mission to challenge the might of Nike and other major brands.
There are several reasons for this fall from grace.
The first of these is that Under Armour has put down very shallow roots. While awareness has soared over recent years and customer numbers have risen, loyalty to the brand is not deep-rooted in the same way that it is at Lululemon and Nike. What this means is that as demand moderated, Under Armour has been quick to drop off the radar of many consumers.
The second reason relates to Under Armour’s focus. Lululemon has a unifying purpose to its brand; the same can be said of Nike, even though its reach across sports retail is far more varied. As it has expanded, Under Armour appears to have lost some of its brand essence, and its proposition and purpose have become confused. Admittedly, communication in its own stores and online is better, but in third-party shops the focus is completely lost and, in some instances, Under Armour has become just another brand in a sea of brands.
The third reason relates to distribution. Here, we see the decision to go heavily into stores such as Kohl’s as a mistake. Although Under Armour’s attempts to widen its reach should be applauded, the company should have expanded more selectively. Failure to do so has alienated other, more important, retail partners and has also devalued its brand in the eyes of some consumers.
Failing to connect
The fourth reason is the failure to connect with women. As much as Under Armour has tried to increase its appeal to female shoppers, its brand is very masculine and has limited appeal – especially outside of the professional sports market. This can be remedied, but Under Armour needs to have a serious rethink about its marketing, store design, and product mix for female shoppers.
This unfortunate state of affairs has hit Under Armour at a time when it remains in expansion mode. As much as this may be prudent overseas – where the company is still growing – the failures in its home market have hit the bottom line hard. The 57.7 per cent decline in net income is unfortunate and suggests a lot more financial discipline is needed in the quarters ahead – an uncomfortable juxtaposition with the need to reinvent and reinvigorate the brand.
Under Armour is not so broken that it cannot be fixed. But the days of glory, when it would post double-digit uplifts in sales, are over. Now is the time to work out, slim down, and become more competitive.
Ultimately, that means quite a lot of exertion and financial pain in the quarters ahead.
- Neil Saunders is MD of GlobalData Retail.