A Half-Court Shot for Under ArmourBy
Under Armour (UA) Chief Executive Officer Kevin A. Plank beat the odds in college when he won a spot on the University of Maryland football team as a walk-on and eventually became one of its captains. His next challenge could make that feat look easy. Under Armour on Oct. 23 launched a basketball shoe line, called Micro G, to take on the longtime ruler of the court, Nike (NKE). It's all part of Plank's quest to make Under Armour, with $856 million in sales in 2009, "the biggest, baddest brand on the planet."
In the $2.5 billion U.S. market for basketball sneakers, Plank confronts more than just Nike's 95 percent 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. And Under Armour's earlier disappointments in cross-training and running shoes suggest its hoop dreams may be tough to realize.
If Plank harbors doubts about taking on Nike in its stronghold, he isn't showing it. "Our goal for getting into basketball is to be No. 1," he says. "I'm 38. I've got a long time." As for Nike, he adds, "those guys are old."
Despite the trash talk and Baltimore-based Under Armour's fast growth (sales at its core apparel business have tripled in the past five years), Plank has had difficulty climbing the learning curve in sports footwear. In 2008, Under Armour spent big on a Super Bowl ad for a line of cross-training shoes—months before the shoes actually reached stores. Many shoppers had forgotten the ad by the time of the shoes' debut. Meanwhile, tepid sales of the line of running shoes it introduced in 2009 have led the company to allow retailers to discount them or simply send them back to clean out inventories. Under Armour holds a slim 1.1 percent of the athletic shoe market, says SportsOneSource.
Another failure in athletic shoes could hurt Under Armour's long-term prospects, says Nathan Brown, an Overland Park (Kan.)-based analyst for Waddell & Reed (WDR), 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 says. "Then the probability of that dream of eventually becoming an Adidas or Nike has to go down."
Plank says Under Armour has learned from its missteps. He's reached outside the company for expertise, hiring Eugene R. McCarthy, who previously ran Nike's Jordan brand, to be senior vice-president for footwear. McCarthy added Nike veterans Dave Dombrow as creative director and Charlie Brown as sourcing chief and moved two-thirds of the footwear unit's 90 staffers into new positions. He also is flushing unsold running and training shoes out of dealers' inventories and plans to introduce new shoe models next year.
The release of the Micro G, promoted by Brandon Jennings of the National Basketball Assn.'s Milwaukee Bucks, will be a less splashy affair than the botched cross-trainer debut, says Plank. There are no big ad buys. A small number of pairs have landed at such national retailers as Foot Locker (FL) 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 will range from $80 to $110.
As Plank prepared for the Micro G launch, he told employees to start thinking of Under Armour as a footwear brand, not just an apparel maker. "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 says. "We are Under Armour performance. We're going to walk it. We're going to talk it, and we're going to believe it."
Plank expanded Under Armour by identifying profitable market niches, such as its namesake undergarments that pull moisture away from athletes' skin, says Michael Baron, an analyst for New York-based Baron Capital, the largest holder of Under Armour shares. Getting into basketball shoes, however, is "a whole other level," Baron says.
One reason: Nike spent $2.4 billion on marketing in its last fiscal year, or almost three times Under Armour's annual sales and 20 times its marketing outlays. Perhaps that's why the Beaverton (Ore.) sports giant isn't exactly running scared. "While our main focus is on fulfilling our own potential, which is unlimited, we thrive on competition of any kind," says Nike spokesman Derek Kent when asked about Under Armour's foray into basketball. "We expect to further expand our leadership position."
The bottom line: After earlier flubs in athletic footwear, apparel maker Under Armour is introducing basketball shoes, a stronghold of sports leader Nike.