For Under Armour, this behavior will also lead to more severe deep problems.
Author: he Xiaomei
on February 12, Under Armour released the fourth quarter and full-year performance of 2018. Although the data is not satisfactory, the capital market still gave positive feedback to it, its share price rose about 6% on the day of the financial report.
Specifically, in 2018, Under Armour revenue increased by 4% to US $5.2 billion, with a net loss of US $46 million and a loss of US $0.1 per share. The gross profit margin of 45.1 was the same as that of the previous year. After excluding the impact of restructuring expenditure, it increased by 30 basis points to 45.5. Under Armour said that this was mainly due to cost improvement, reduction of promotional activities and channel mix offset the promotion of foreign currency changes.
The revenue growth is mainly driven by the international market, which has increased by 23%. The North American business income has decreased by 2% to US $3.7 billion, while the latter accounts for about 70% of the current business scale of Under Armour, this is obviously not good news.
Another bad news is that although clothing revenue increased by 5% to 3.5 billion US dollars, the business revenue of footwear only increased by 2% to 1.1 billion US dollars, and fell by 4% in the fourth quarter, accessories decreased by 5% throughout the year due to weak demand and continuous efforts to optimize inventory and distribution.
Inventory clearance is one of the key points of the Under Armour transformation plan, while increasing low-cost channel sales is a common practice. From the data point of view, Under Armour has achieved very good results: in 2017, its inventory surged 26%, while by the end of 2018, this data fell 12%.
But increasing low-price channel sales will inevitably bring negative effects. Dick sporting goods company attacked CEOEdStack in the earnings conference call to expand its distribution scope to low-priced stores such as Kohl’s in Under Armour, believing that this affected the profits of dealers.
For Under Armour, this behavior will also lead to more severe deep problems. “Many Under Armour customers are migrating to other brands,” GlobalData, the managing director of retail consulting firm NeilSaunders, said that expanding the distribution range to discount stores affected the credibility of Under Armour.
Under Armour also realized this problem, “the business in North America is mainly wholesale business. So when you lose your position on the shelf, you must regain it. Secondly, you should replace a relatively high proportion of reduced sales with full-price sales, “Under Armour, president and chief operating officer, said on the conference call after the financial report was released.
The competition in the North American market is still fierce, and the basketball market is a good example. Although in 2019, Under Armour surpassed Adidas and had two starting players for the first time, in 2018, Puma and NewBalance returned to the basketball court one after another, the former also announced in January 18 this year that it would establish a new second headquarters in the United States, bringing more fierce competition to this market.
Compared with Nike and Adidas, Under Armour, founded in 1996, is still a young brand, and its history is not even as long as Li Ning. Although they have experienced explosive development before, compared with competitors, they still have insufficient experience in fine operations such as inventory, supply chain and stores, which are covered up in rapid development, it was exposed when trying to become a comprehensive sports brand in the whole region in Under Armour, which also forced them to become smarter and more pragmatic. “Use one yuan as three yuan,” PatrikFrisk described their current marketing strategy in a conference call.
Under the financial policy of careful calculation, they formally abandoned the 10-year sponsorship contract with MLB in 2018, and the contract originally scheduled to start in 2020 finally fell into Nike’s hands. According to the US media Sports Business Daily, this saved about 50 million dollars for Under Armour. The capital market expressed a positive response to this, and the share price rose slightly after the news flowed out.
On January this year, Zhu Ting, the captain of the Chinese women’s volleyball team, was signed in Under Armour. The deal satisfied the former, whose chairman and chief operating officer KevinA.Plank mentioned the world’s No. 1 volleyball player (thenumberonerankedvolleyballplayerintheworld) at the beginning of the conference call after the financial report, which also showed his emphasis on the Chinese market. Under Armour currently has more than 660 stores in Asia, most of which are located in mainland China. In 2018, Under Armour’s revenue in the Asia-Pacific region increased by 29%, ranking first in all regions.
The excellent performance of the Chinese market may make Under Armour determined to invest more resources in the field of running shoes. “In China, 8 of the top 10 best-selling products Under Armour are running-related.” Under Armour, senior vice president and general manager of TopherGaylord, has repeatedly mentioned that the strong growth of China’s running market is “the engine developed by Under Armour brand (in China)”.
Therefore, in February 2018, HOVR running shoes technology was first introduced in Under Armour, and two running shoes HOVRSonic and HOVRPhantom were also launched. Since HOVRInfinite, the soles of HOVR series running shoes contain smart chips. Under Armour running software MapMyRun can be bound to shoes to automatically record data such as running track, speed, and pace. Under Armour said that using these data, MapMyRun can provide personal guidance.
When the 2018 semi-annual report was released, KevinPlank said that HOVR running shoes and Curry5 basketball shoes, which were launched only a few months ago, had become the best-selling products of Under Armour and had a good response among retailers. This also gave Under Armour more confidence. At the beginning of this year, they released five new running shoes with connection function.
“Use smart electronic devices to sell more clothes and shoes” is the logic behind these products.
The layout of intelligent electronics in Under Armour has a long history. In the investor conference in 2015, the development plan of internet fitness (Under Armour) business was given ConnectedFitness, it is mentioned that it plans to launch related hardware products in 2017 and launch smart wearable equipment in 2020.
But Under Armour investment in this field has also been questioned a lot. According to the data, although the revenue in this field has been growing, rising from US $19.23 million in 2014 to US $0.12 billion in 2018, it has been in a state of loss. This situation changed this year. The operating profit of the business increased by 107.3 percent to 4 million dollars, successfully turning losses into profits.
This also gives KevinPlank more confidence. In his view, the internet fitness business can enable Under Armour to have a deeper understanding of consumers. “We are still studying how to release the real huge energy of this platform, this is very important for our future”. At present, the internet fitness platform in Under Armour is the world’s largest digital health fitness community, which includes three apps MYFITNESSPAL, ENDOMONDO and MAPMYFITNESS. In 2017, more than 0.2 billion registered users.
To some extent, Under Armour is trying to define his position again after two years of trial. At the end of 2018, according to the Financial Times, KevinPlank said in an interview that Under Armour decided to return to essence and focus on functional sportswear that he was good. “We are more comfortable in the gym than on the runway,” he said.
This is a reflection. In recent years, with the rise of sports fashion trends, Under Armour do not want to miss this outlet. KevinPlank has publicly expressed the hope that the brand can become more fashionable, think sports fashion is an opportunity for the company. In 2017, they officially launched the “Lifestyle” category. They also invited Belgian clothing designers to serve as creative directors TimCoppens, launched the UnderArmourSporswear(UAS) product line, and positioned the high-end sportswear market, but facts have proved that these attempts have little effect.
“2019 will be the last year of the transformation phase of Under Armour, indicating that it will be another investment year, and the inflection point of more meaningful growth and profit margin expansion will not start until 2020,” evercoreISI analyst OmarSaad said in a report to customers.