What Under Armour Will Focus On Going Forward: International Business (Part 2)

by Trefis Team
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In the first part to this series, we discussed how Under Armour (NYSE:UA) is pushing its women’s business as part of its long term strategy to regain momentum. In the following analysis, we will discuss the company’s need to expand in its foreign markets in an effort to reduce its reliance on the North American apparel market, which at the moment, is experiencing a severe drop in demand.

Unlike its competitors, Under Armour has hardly improved its international reach since 2010. While Nike and Adidas look for a balance between its domestic and international businesses, Under Armour pushed its North American business to try and gain significant market share. While this strategy worked for the company in the beginning, the same strategy became the reason for its fall from grace. UA’s over-reliance on North American revenues led to heavy losses in the top and bottom lines as the North American apparel market hit a slump.

Despite this, international revenues have continued to soar over the last few quarters. In the latest quarter, revenues from outside North America came in a mammoth 35% higher in comparison to the same period last year. While the EMEA market continues to grow at a steady pace, Asia, and particularly China, is seeing the bulk of this overall growth.

Greater China has been a revenue driver for Under Armour for quite some time now, and we expect this region to continue to drive growth for the company in the future. The company believes that China could be a billion dollar plus opportunity for its brand as the Chinese market grows due to regulatory initiatives. Only last year, the Chinese cabinet unveiled a blueprint to develop a 5 trillion yuan domestic sports industry by 2025 — more than tripling the current size of the market — with ramped up sports facilities and looser industry regulation. We believe this will be a key revenue driver for Under Armour going forward, given that the company already has a strong presence in the country.

Additionally, the company debuted in India by launching its brand on Amazon fashion last year. Through its dedicated Amazon brand store, the company sells more than 330 styles of clothing and footwear in India. Sportswear is a high growth market in this area.  According to Euromonitor this segment is likely to grow at a CAGR (compounded annual growth rate) of 12% over the next few years and reach around $8 billion by 2020. With economic growth, increasing disposable income, and rapid urbanization in the region, demand for branded sportswear is increasing. Under Armour has a huge potential in the region as it looks to tap into this demand.

Going forward, we expect Under Armour to push its presence significantly outside the U.S. and Canada. Entering new markets and expanding existing ones will not only enable the company to benefit from several international trends, but will also help leverage its business across a wider market, while dividing its risk significantly.

We will elaborate on further possible growth strategies in the upcoming parts to this series.

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