What Is Under Armour Doing To Turn Its Business Around? (Part 1)
Under Armour (NYSE:UA) has seen its revenues decline at a modest pace since the end of 2016. Troubles began when the North American apparel market began its slump. Since around 80% of the revenues at the company come from the region, this slump took a heavy toll on sales and profitability. In a bid to clear out mounting inventory, management had to resort to selling off excess product at cheaper prices through a slew of promotions and discount campaigns.
That said, things at UA seem to finally be looking up as the company’s “pivot” strategy begins to show results. Through the remainder of this series, we will discuss in detail, the three strategies that Under Armour has employed to turn the its fortunes around.
We have created an interactive dashboard display titled How Has UA’s International Revenue Grown In Comparison To North American Revenue to better explain the following point on international expansion. Click on the link to modify charts and arrive at your own conclusions.
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International Expansion
Unlike its competitors, Under Armour has hardly improved its international reach since 2010. While Nike and Adidas look for a balance between their domestic and international businesses, Under Armour pushed its North American business to try and gain significant market share. This strategy worked for the company in the beginning, however, the same strategy became the reason for its fall from grace in recent times. 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.
That said, international revenues have seen a consistent rise over the last few quarters. Through most of 2017 alone, the company recorded a mammoth high double digit increase in sales from outside the U.S. While the EMEA market continues to grow at a steady pace, Asia, and in particular China, is seeing the bulk of this overall growth.
As recognized by both Nike and Adidas, Greater China is expected to be a heavy growth market for sports apparel companies going forward. In particular, Under Armour believes that the Chinese market could hold the potential to become a billion dollar plus market due to its recently unveiled regulatory initiatives.
In 2016, 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.
Furthermore, in keeping with its strategy to target emerging economies, the company debuted in India by launching its brand on Amazon fashion a few quarters back. At present, through its dedicated Amazon store, Under Armour sells more than 330 styles of clothing and footwear in the South Asian country. Like China, sportswear is a high growth market in the region. 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 country as it looks to tap into this growing demand.
Given the immense opportunities abroad, we expect Under Armour to really push its presence significantly outside the U.S. and Canada in the coming years. 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 diversifying its risk significantly.
In the next article, we will elaborate on the two other areas in which the company is investing in hopes to turn its business around.
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