Under Armour is learning a lesson about self-reliance.
The athletic-wear maker's shares dropped by as much as 4 percent Tuesday morning after it reported its first quarterly loss as a public company. Much of the loss had to do with a one-time dividend paid to shareholders when it created a third class of stock. Excluding that and other items, Under Armour earned 4 cents a share.
But the liquidation of Sports Authority -- one of Under Armour's biggest customers, which filed for bankruptcy in March -- added a hefty $23 million impairment charge in the quarter. The company said the impact from the closures could continue into the current quarter.
That hit is a harbinger of what's to come for other brands and manufactures that rely too much on department and specialty stores to sell their wares. It's an outdated model, as brands such as Coach, Ralph Lauren, Nike and Skechers shift attention to their own retail channels.
Under Armour, which started out making performance shirts to sell at other retailers, plans to build hundreds of new stores -- including a flagship in the former New York City store of FAO Schwarz. It will launch a new sportswear brand primarily in its own stores and a new app to boost online sales. "Whether we like it or not, we're a retailer," CEO Kevin Plank said Tuesday.
Still, the company relies on wholesale clients for two-thirds of its sales. And on Tuesday it announced a partnership with struggling department store Kohl's, starting in 2017. Gaining sales from a big retailer like Kohl's might have sounded like a good idea a year ago, but sluggish sales at the department store suggest Kohl's is the wrong star for wagon-hitching.
Instead, Under Armour should learn from Sports Authority's demise and reduce its exposure to these kinds of outlets, rather than increase it.
There's a reason why nobody stepped up to take over the leases at Sports Authority's 450 stores. (Creditors on Friday asked the court to bypass bankruptcy procedures and go straight to liquidation.) Not even industry leader Dick's Sporting Goods -- which bought the Sports Authority brand name and other intellectual property -- was interested.
That's because Dick's, like most established retail chains, doesn't need any more physical stores. Customers no longer rely on department stores and specialty retailers to curate the latest styles when they can go online or buy the stuff they want directly from brands.
The same fate could eventually befall struggling department chains such as Macy's and Kohl's, although that will likely to take longer to unfold. Under Armour is better off betting on itself, rather than on other retail chains.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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