Under Armour Plans to Dethrone Nike, Jordan in Basketball Shoes
Under Armour Inc. Chief Executive Officer Kevin Plank beat the odds in college when he walked on the University of Maryland football team and eventually became a captain. His next challenge could make that feat look easy.
Tomorrow, Under Armour is launching a basketball shoe line, called Micro G, to take on Nike Inc. It’s all part of Plank’s quest to become “the biggest, baddest brand on the planet.” Plank has recruited three Nike veterans to help him succeed after previous efforts to move into athletic shoes left Baltimore-based Under Armour with 1.1 percent of the market, according to the research group SportsOneSource.
If Plank harbors doubts about taking on Beaverton, Oregon- based Nike, which dominates the $2.5 billion U.S. basketball shoe market, he isn’t saying.
“Our goal for getting into basketball is to be number one,” he said in a telephone interview. “I’m 38. I’ve got a long time.” As for Nike, he added, “those guys are old.”
With his foray into basketball shoes, Plank confronts not just Nike’s 95 percent market share and the billions it spends on marketing. Sales of basketball shoes in the U.S. have slid for the past three years as fewer people play the sport, says SportsOneSource analyst Matt Powell.
Another failure in athletic shoes could hurt Under Armour’s long-term prospects, says Nathan Brown, an Overland Park, Kansas-based analyst for Waddell & Reed Financial Inc., the second-largest holder of the company’s shares.
“If the basketball shoe doesn’t do well there will be questions because now you’ll have strike two and critics will say this company can’t ever be a footwear company,” Brown said in an interview. “Then the probability of that dream of eventually becoming an Adidas or Nike has to go down.”
Under Armour has learned from its previous missteps, says Plank, who calls the decision to buy a Super Bowl ad in 2008, three months before a training shoes hit stores, “pretty cocky.” The four-fold sales growth of Under Armour’s sweat- wicking apparel over the past five years led the company to underestimate the challenge of moving into footwear, he says.
Most of the company’s outlet stores didn’t carry the shoes and they were hard to find on Under Armour’s website. “You look back and think, ‘How did we make that mistake?’” Plank said.
This time, Plank reached outside the company for expertise, hiring Eugene McCarthy, who previously ran Nike’s Jordan brand, to be senior vice president of footwear. McCarthy pushed the reset button on the entire business.
McCarthy added Nike veterans Dave Dombrow as creative director and Charlie Brown as sourcing chief and moved two- thirds of the 90-member staff into new positions. He also decided to revamp the running and training shoes and put a priority on getting rid of unsold shoes at stores to make way for new versions next year.
The release of the Micro G, promoted by Brandon Jennings of the National Basketball Association’s Milwaukee Bucks, will be a less splashy affair, says Plank. There are no big ad buys. A small number of pairs will land at national retailers, such as Foot Locker Inc., and urban chains like Jimmy Jazz in New York to create pent-up demand that the previous shoes lacked. Prices for the lightweight Micro G basketball shoes will range from $80 to $110, the company says.
As Plank prepared for the Micro G launch, he exhorted his employees to start thinking of Under Armour as a footwear brand not just an apparel maker. He told them to cut the word “apparel” from voicemail messages and trashed a mat in the company’s headquarters featuring the word.
“I called our marketing team and said go through this building and find anything that says we are only an apparel brand and throw it away,” Plank said. “We are Under Armour performance. We are going to live it. We’re going to walk it. We’re going to breathe it. We’re going to talk it and we’re going to believe it.”
Founded by Plank in 1996, Under Armour has posted sales growth for every quarter since going public in 2005. Last year, the company posted a profit of $46.8 million on $856.4 million in revenue. Under Armour reports third-quarter earnings on Oct. 26. The company rose $1.66, or 3.7 percent, to $47.07 at 4:15 p.m. in New York Stock Exchange composite trading.
Plank, who holds a controlling stake in the company with his Class B shares, succeeded by identifying gaps in the marketplace, specifically base-layer apparel and cleats, says Michael Baron, an analyst for New York-based Baron Capital Inc., the largest holder of Under Armour shares.
Getting into hoops is “a whole other level,” Baron said.
Nike, founded in 1972, spent $2.4 billion on marketing in its last fiscal year, or almost three times Under Armour’s annual sales. Nike has enough top NBA players, including Kobe Bryant and LeBron James, under contract to host an All-Star game and financed a basketball festival last summer that featured the U.S. National team playing inside New York’s Radio City Music Hall.
“While our main focus is on fulfilling our own potential, which is unlimited, we thrive on competition of any kind,” said Derek Kent, a spokesman for Nike, when asked about Under Armour’s foray into basketball. “We expect to further expand our leadership position.”
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