Under Armour: Chasing Digitization
In order to remain competitive with it’s larger peers, Under Armour must digitize it’s supply chain.
Under Armour (UA) reached mass market through traditional retail channels. E-Commerce has been the digitization of traditional retail and the inability of UA’s retail partners to compete in the space spelled their demise.[i][1] Digitization is of particular concern to UA because the company’s supply chain is rigid, takes 18 months to bring product to market, and empties into a distribution network reliant on retail partners.[ii][2]
The retail industry is evolving at an alarming pace; if this piece was written one year ago, it would laud UA for digitizing its consumer interface through the integration of MapMyRun, Endomodo, and MyFitnessPal into its offering.[3] However, the dissolution of the traditional distribution network has transformed the digital integration of the end-to-end value chain from a priority to a necessity.
UA CSO Colin Browne, indicated the opportunity that digitization presents to connect silos throughout the supply chain is transformative. Browne explained that “the UA Lighthouse is the tip of the spear in driving this [digitization] change.[iii][4]” Beyond the local innovation and production that the UA Lighthouse provides, Browne shared that his vision for near-term digitization within UA leverages the connected fitness platform and an ERP software from SAP to give the firm a “single view of the consumer.[iv]” This output, when combined with a flexible supply chain will facilitate the customization and co-creation that consumers desire in the new retail environment. Browne acknowledged that this will be a seismic shift for the UA supply chain, but did not indicate that the process will become full autonomous within the next 10 years. Browne stated “it will remain cheaper to produce in low-cost countries with AI and technology helping production as opposed to a fully automated model.”[v]
UA must continue to develop their supply chain as the company has fallen behind competitors. While UA was creating visibility throughout their supply chain, Nike’s was redesigned in its entirety. At Nike’s October 2017 investor day COO Erik Sprunk highlighted the impact that Flex has had on Nike Production:
“We’ve just moved into a new nearshore purpose-built footwear factory with Flex that will deliver over 3 million pairs to North America in fiscal year ’18 alone… This strategic relationship allows us to take our standard time from just manufacturing to market from about 60 days to 10 days or less.”[vi]
He continued:
“Today, we are building a scalable solution capable of delivering a pair of midsoles and outsoles, the bottom, on average, in 2.5 minutes, compared to more than 50 in the past. Our new process uses 75% less energy, 50% less tooling cost and has a 60% reduction in labor.”[vii]
Nike’s reduction in time to market makes innovation and the integration of customer preferences far more feasible, while the reduction in costs of labor, energy, and tooling will fall straight to the bottom line. UA must step back and acknowledge its most important relationship is with the consumer, if the firm continues to scale along the traditional retail channel it will not add depth to this relationship. UA must enable the consumer to co-create the product in a way that larger scale competitors do not. This will require a radical shift in the supply chain, but it starts with the integration of robotics into the workflow.
Questions:
As Nike becomes more efficient and profitable, how quickly will the positive feedback loop spin into a cycle of doom for UA?
Digitization in athletic wear has outpaced other segments of the market, what are potential reasons for his and what will catalyze other industries?
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[1] Sports Authority and Dicks Sporting Goods were responsible for 22% of Under Armour revenues in 2013
[2] Morgan Stanley estimates that current new product takes 18 months to bring to market
[3] MapMyRun, Endomodo, and MyFitnessPal, are mobile applications owned by Under Armour that collect data on the consumption habits of their users
[4] The UA Lighthouse is a digitally enabled facility that places designers and manufacturers under the same roof
[i] “Form 10-K.” SEC.GOV, United States Securities and Exchange Commission, 31 Dec. 2013, www.sec.gov/Archives/edgar/data/1336917/000133691714000008/ua-20131231x10k.htm.
[ii]Green, Dennis. “Nike and Adidas Are Making Huge Investments That Should Terrify Under Armour.” Business Insider, Business Insider, 7 June 2017, www.businessinsider.com/morgan-stanley-note-on-adidas-nike-2017-6.
[iii] The Apparel Sourcing Caravan’s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15–15, The Apparel Sourcing Caravan’s next Stop: Digitization.
[iv] The Apparel Sourcing Caravan’s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15–15, The Apparel Sourcing Caravan’s next Stop: Digitization.
[v] The Apparel Sourcing Caravan’s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15–15, The Apparel Sourcing Caravan’s next Stop: Digitization.
[vi] Sprunk, Eric. “Nike Investor Day 2017.” Nike Investor Relations, Nike, Inc., 27 Oct. 2017, s1.q4cdn.com/806093406/files/images/irday/ES-Transcript-with-slides.pdf.
[vii]Sprunk, Eric. “Nike Investor Day 2017.” Nike Investor Relations, Nike, Inc., 27 Oct. 2017, s1.q4cdn.com/806093406/files/images/irday/ES-Transcript-with-slides.pdf.
Digitization of the supply chain for clothing manufacturers is an interesting challenge. 18 months seems like an awfully long time to bring a product to market in today’s world. Additionally it’s worth noting that, like Nike, the fundamental value proposition for Under Armour is the combination of performance products with quality branding/marketing. Their initial foray into the market with their heat gear products and great tagline ‘protect this house’ was best example of this. Specifically I would think about ways that they can use digitization to understand or shape consumer preferences, and then link the supply chain around that.
I agree that there is tremendous digitization potential for apparel supply chains. It is especially interesting to think of this potential in light of the current trend in consumer apparel toward increased customization. I can imagine a future, for example, where an Under Armour customer digitally scans their body in a store, and the specs are then digitally sent directly to a factory to begin producing athletic gear made bespoke for that customer’s body. Talk about just-in-time production!
I agree that UA should definitely digitize its supply chain in order to catch up with Nike, long seen as the most innovative player in the industry. It has profound impact on inventory management, merchandising and continuous process improvement.
As for the reason why athletic wear outpaced other segments in terms of digitization, I think one potential reason is that sportswear is more standardized and functional. Technology has always played a pivotal role in product upgrade and utility enhancement, whereas fashion and lifestyle products put more weight on design and tailor.
I am most impressed by the quote that Nike’s “new process uses 75% less energy, 50% less tooling cost and has a 60% reduction in labor.” This clearly has fantastic repercussions from an environmental stand-point and delivers an incredible cost advantage to Nike in relation to other sportswear companies. I think UA will have difficulty beating Nike on supply chain innovation, and should perhaps focus on their other competencies with regard to athletic design that is more performance driven – especially in the compression performance apparel area.
I second what Philip said regarding the role that technology has played in the sportswear industry. Nike, but also other players like Lululemon, are constantly innovating on their products to improve performance. So it seems only logical that they would also be some of the first to innovate on their supply chains.
Interesting thoughts on UA – thanks for sharing. Reading this I am thinking about how UA (and apparel companies more broadly) can make the jump to where Amazon is with predictive shipping. What data can UA collect about their customers that will allow them to predict when an item will need to be repurchased, replaced, or when seasonality or “must haves” will hit? Can we put microchips in shoes and weave smart threads into shirts? You sync them with your device and get workout information, but UA also gets access to this information and employs it to predict trends and purchasing behavior, which in turn gets them ahead of the curve on supply chain. I agree with James that 18 months seems like a very long time, especially when Nike can make a pair of shoes in 2.5 minutes. Any opportunity that UA can seize to employ digitization, data, etc to shorten their supply chain will be vital.