Under Armour: The Next Big Tech Company?

Kevin Plank, founder and CEO of Under Amour, is making a~$700M bet that technology will define the future of the brand.

Context

For decades, athletic wear was largely defined by two dominant players: Nike, founded in 1964, and Adidas, established in 1949. This started to change in 1995 when a new entrant, Under Armour, came onto the scene, offering innovative, new products that improved the performance and comfort of football players. Roughly two decades and several product launches later, Under Armour grew to become a major competitor in the athletics market, earning $4B in revenue and securing several lucrative brand sponsorships with the likes of Steph Curry and Misty Copeland. [1]

The Future of Under Armour

Despite this success, Kevin Plank still had one problem. Under Armour was clearly the #3 brand in terms of rank and popularity, and was trailing Nike’s revenues by over ~$26B. [2] Given this, how could Under Armour position itself for growth?

The answer for Plank rested in technology and big data analytics, which he believed would create value for consumers above and beyond regular clothing retailers. His vision was to create a world of “connected fitness,” where consumers could easily manage and track their health across four key dimensions of exercise, activity, sleep, and nutrition. [2] Data inputs across these dimensions would then converge to create a “concierge” type service, where Under Armour could manage every aspect of one’s health and workouts. To illustrate this vision more clearly, Under Armour’s app, Record, would be used to facilitate the following:

“It knows your location, and the day’s forecast there. It knows you run best when it’s between 60 and 70 degrees, and there’s only one window in your day when it’ll be that temperature. Record will alert you to that, and tell you when it’s time to go. It also will know there’ a gym around the corner, it’s offering a class you love, and will sign you up and check you in with a single swipe or tap. Visit the doctor for your checkup and you’ll have all the data needed to take charge of your own health.” [3]

Of course, underlying all of this technology is a recommendation engine that stimulates demand for Under Armour products based on one’s exercise patterns. For example, using gear tracking features on the app, Under Armour can remind customers that they need to buy new shoes after running 600 miles. [1]

Organizing for success

In order to achieve this vision, Under Amour has a made a number of important operational decisions. For one, it has invested heavily in building its tech assets and capabilities, spending ~$710M to acquire three fitness apps. These include MyFitnessPal, MapMyFitness, and Endomondo, all of which feed into Under Armour’s umbrella app, Record. While it may seem like a very costly acquisition for a company that is only $4B in revenue, Under Armour has gained unprecedented access to consumer data. In fact, those apps alone hold a community of over $120M users, who have logged more than 1.7 billion workouts throughout 2015. [3] Additionally, the company has also been hard at work building partnerships with organizations like HTC to create a suite of wearable devices that will continue the data tracking and fitness connectedness. [4]

While the acquisition of mobile apps represents an important first step towards building Under Armour’s fitness ecosystem, they have also made strides in product innovation. Specifically, they have launched a new shoe with a built in chip that contains an accelerometer, a Bluetooth antennae, and a battery. Although enabling production of this shoe required re-tooling some of their factories and overhauling some of their testing and control processes, the product seems to represent an important step towards producing “smart gear,” not just wearable accessories. [3]

Finally, Under Armour is also organizing for their digital future, employing 300 engineers to work on their digital strategy. [4]

Key watchouts

It’s obvious Under Armour is taking on enormous risk by pursuing a digitization strategy so aggressively, especially when competitors like Nike have tried and somewhat failed to launch successful wearable products (Remember the FuelBand?). [5] The key difference for me however is that Under Armour has a much broader vision for what technology will mean to the company. To that end, not only will Under Armour need to invest in their data analytics capabilities, they’ll also need to formulate strategies that will keep customers engaged with the brand long term. Given that increased competition in the app space will be inevitable, Under Armour should seriously invest in their app marketing techniques, offering discounts for product purchases made through their recommendation engine. Adding a social component to the app, whether by coordinating meet ups or simply sharing fellow member’s performance stats, could be another way to increase stickiness to the Under Armour ecosystem by creating strong network effects. Though the brand has the potential to benefit from “first mover” advantages, Under Armour will need to stay nimble and innovative if it wants to beat Nike.

Word count: 800

Sources

[1] Parmy Olson, “Silicon Valley’s Latest Threat” Under Armor,” October 19, 2015, http://www.forbes.com/sites/parmyolson/2015/09/30/kevin-plank-under-armour-apps-technology/#564d77bf4b25

[2] Bernard Marr, “How Nike and Under Armour Became Big Data Businesses, November 16, 2016,  http://www.forbes.com/sites/bernardmarr/2016/11/15/how-nike-and-under-armour-became-big-data-businesses/2/#1a205d421778

[3] David Pierce, “How Under Armour Plans to Turn Your Clothing into Gadgets,” January 5, 2016, https://www.wired.com/2016/01/under-armour-healthbox/

[4] Larry Dignan “Will Under Armour’s big data app experiment pay off?” February 5, 2015, http://www.zdnet.com/article/under-armours-grand-big-data-app-experiment-will-it-pay-off/

[5] Chris Smith, “Nike FuelBand: The Rise and Fall of the Wearable that Started it All,” February 22, 2016, http://www.wareable.com/nike/not-so-happy-birthday-nike-fuelband-2351

[6] Lauren Goode, “ The Best Part of Under Armour’s HealthBox is the Software, not Hardare,” January 16, 2016, http://www.theverge.com/2016/1/19/10787676/under-armour-htc-healthbox-review-connected-fitness

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12 thoughts on “Under Armour: The Next Big Tech Company?

  1. Under Armour seems to be doing the right thing in being the first mover in innovating the wearables landscape. I agree with the vision of the company, but one concern is their financial strength; the direction they are heading does require significant investment. I wonder if it would make sense to partner with large companies that have an edge in data analytics.

  2. Well met, zaradi. The storyline of Under Armour expanding into wearable products is particularly compelling when one considers the fact that the company is pushing forward in an area that its biggest rival (Nike) has essentially all but retreated from. Incidentally, after Nike abandoned its foray into wearable products (i.e. FuelBand), it ended up working more closely together with its long-time strategic partner Apple (e.g. Apple Watch Nike+). You mentioned in your post that Under Armour has been working hard to create partnerships with companies such as HTC to create a suite of wearable devices. A quick glance at HTC’s financials do not paint a pretty picture (e.g. HTC’s revenue has declined by 30+% yoy over three of the last four years and the company has posted four consecutive years of negative free cash flow). The key takeaway is that Under Armour needs to also make sure it develops the right partnerships if it is going to make its ambitious vision into a reality.

  3. Under Armour has gone all in on digital, but I wonder: will its innovation outpace its consumers?

    As zaradi mentioned, Under Armour has the benefits of being a first mover in the fitness app space, which is a tremendous benefit for a habit-forming product; but I hypothesized that UA struggle to convert its loyal customers to more complex and expensive products (such as, the shoe) or to bring new customers in. To pursue this hypothesis, I visited the Under Armour website and found the “UA SpeedForm® Gemini 2.1 Record-Equipped” priced at $149.99 with 5 reviews averaging 4.8 stars. Reviews varied from: “Best feeling running shoes I’ve had in a while… Still figuring out the record function without the iPhone… I’m sure I will sort it out with a quick read.” to “Incredible Shoe. Perfect Fit. Great Comfort. Record-Equipped Inconsistent.”

    I interpreted these reviews and others as stating that customers are loyal to Under Armour hardware and are standing by UA as it dives into software even if the customer benefit is not there yet.
    (https://www.underarmour.com/en-us/mens-ua-speedform-gemini-21-recordequipped-running-shoes/pid1290690-001)

  4. Very interesting article, Zaradi.

    Under Armour’s digital strategy seems very creative and it is obvious they think that innovation in technology might put them one step ahead of other competitors, and potentially positioning them as a market leader at some point. However, I would argue that the domination of Nike and Adidas is mainly due to 2 competitive advantages (1) high quality/innovative sportswear products they offer and (2) very strong brand image built through years of top notch marketing strategies. I think technology might be a nice add-on for the two main competitive advantages, and as it stands today is a big bet that the company has made to differentiate itself. Moreover, by adopting this approach, Under Armour has positioned itself more as a health and well-being company, and thereby is now competing not only with Adidas and Nike, but with hundreds of venture capital backed startups and big tech companies who are investing billions of dollars in the space. For example, The market for wearable technology — such as Google Glass, the Samsung Galaxy Gear smartwatch or FitBit, a wearable fitness device — is poised to explode over the next few years, according to a recent report from Swedish telecom market researcher Berg Insight. By 2017, companies will ship more than 64 million wearable technology devices. [1]

    [1] https://www.entrepreneur.com/article/229347

  5. Under Armour produces many types of products beyond its sneakers. How can they integrate this technology with their athletic shirts, pants, sweatbands, cleats, etc.? While the acquisition of many fitness apps is interesting and a step in the right direction, do you really think this is very different from what their competitors are trying to do? Nike has a Nike+ Training App that incorporates this technology with additional workout recommendations and training tips (1). What does the future of hardware look like to match these digital innovations through smartphones and fitness tracking bands?

    (1) http://www.nike.com/us/en_us/c/nike-plus/training-app

  6. Really interesting read. Didn’t know any of this before. One question that comes to mind as big companies attempt to expand their business by creating software that ties in with their traditional product offerings…are they diluting the quality of their earnings? Previously, Under Armour would have fairly reliable sales of its apparel, but now wearable technology is emerging as a new source of revenue. My concerns it that the latter revenue stream is not as solid as the former. Why do I need a shoe that has to be charged, when I can carry my cell-phone while running and collect the same data?

  7. I do wander weather the athletic tracking wearables and fitness app market is not already too crowded to allow for more entrants: there are countless FitBit-like wrist bands, RunKeeper-like apps, and big data crunching platforms out there! Even new iPhones come pre-loaded with health apps that can track everything from your weight to how much you are sleeping every night. What would make a consumer move from one existing app to Under Armour’s software? I am not convinced that their value proposition can make a difference, even though I would love more Misty Copeland in my life!

  8. Thanks for this post – didn’t realize UnderArmour was so aggressively pushing into the fitness space. It looks like Nike is also investing in this space, but I think they are doing more in house vs. acquiring. Apps like Nike running are used to engage users and build the Nike brand.

    It also looks like Nike has invested in mobile more directly (http://www.businessinsider.com/why-nike-acquired-virgin-mega-sneakers-2016-8) with this acquisition of Virgin Mega.

  9. Great article Zita. I think that the key risk that Under Armour faces is consumer adoption and whether consumers will pay up for all of these tracking tools and data collection devices. I think that these products appeal to a core base of consumers who are very serious about fitness however these products will have difficultly gaining traction in the mass market in the near-term. With this long time horizon in mind, Under Armour must be careful to maintain its financial integrity, focus on high impact M&A transactions and grow its market share in the apparel industry. I think they are smart to stay ahead of trends in the digital space, however a few missteps could pose a significant threat to the company.

  10. Loved the article Zita, it introduced the question of how will sports appareal companies add value going forward. Introducing the power of information will give a competitive advantage over the traditional brands, Nike and Adidas. I wanted to know more about how other devices and technologies could be integrated into the ecosystem. I was surprised not to see more innovation coming from smart textiles.
    I recommend the following Forbes article, which discusses additional innovations in this area:
    http://www.forbes.com/forbes/welcome/?toURL=http://www.forbes.com/sites/forbesstylefile/2014/05/07/what-is-the-future-of-fabric-these-smart-textiles-will-blow-your-mind/&refURL=https://www.google.com/&referrer=https://www.google.com/

  11. Given the significant potential for growth in e-health, this is a great move for the Company. I am unsure though how quickly UA can move its apparel inventory to ensure the technology stays relevant. If not, the Company could incur strong margin pressure and large losses. As you mentioned, Nike’s Fuelband was somewhat of a failed attempt, challenged by devices such as the Apple Watch. Similarly, FitBit’s stock price also took a hit when FitBit released their new smartwatch. Given the competition in the smart wearables business, UA would have to keep innovating to stay ahead of the curve, which is likely to be very cost heavy. I would be curious to see if the Company can afford to take on such high growth target

  12. This is fascinating, especially since I spent most of the day in Under Armor’s new Boston flagship store. I have two concerns about this digital strategy: First, how do they plan to integrate their digital health apps with brick and mortar sales? Having been to a store today, I did not see any promotions related to their digital strategy. While this is purely anecdotal, I wonder if there are better ways they can create a reinforcement loop for consumers regardless of which channel they’re using to consume Under Armor content. Second, given our discussions about emotional connection to Nike and their effectiveness at promoting sales through high-visibility athletes, I wonder if this digital strategy can truly be a driver of sales. It seems from comparing Nike and Adidas, performance is rarely the main concern of shoppers – rather it is how they feel about the brand.

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