ugg handbags uk sale Under Armour navigates shifting retail shoals
It’s a bad time for Under Armour to be feeling growing pains. sports specialty stores. Competition among sports apparel makers has heated up. Consumers are fleeing stores for online shopping, and increasingly demanding sports brands offer fashion as well as workout clothes.
But the Baltimore brand has struggled more, some say, to adjust to new realities in the marketplace after years of rapid growth came to an abrupt halt this year. The company slashed its earning guidance in half with its report of third quarter results on Tuesday and warned of little growth in the United States through next year. Quarterly sales fell for the first time since the company went public in 2005, dropping 4 percent to just over $1.4 billion. Shares plunged, losing almost a quarter of their value Tuesday and closing Friday at an all time low of $11.61 a share.
After years of rapid growth, Under Armour’s quarterly sales fell for the first time since it went public in the third quarter, the company announced Tuesday.
And some changes are likely. Rather than seeking out new retail partners to sell its merchandise in the United States, it is undertaking a comprehensive review of that wholesale business, made up of the sports specialty stores, mall stores, department stores and others that account for 60 percent of its domestic sales. The company will look at how to balance its mix of retail partners, aiming to be in the stores where consumers are shopping, while trying to gauge the impact of potential future store closings.
“As the environment continues to change out there, we’re going to continue, of course, to evaluate where the brand is going to show up in the future,” said Kevin Plank, Under Armour’s CEO and founder, on Tuesday during a conference call with analysts. “We will not be adding any additional distribution in our wholesale channels going forward.”
Analysts said a turnaround is possible but will take time.
“They seem to be at a crossroads, where they’re having a bit of an identity crisis,” said Jason Moser, an analyst with the Motley Fool’s Million Dollar Portfolio. “Do they consider themselves premium brand, a brand for the masses or something in between? What’s the ultimate goal?”
Patrik Frisk, brought in by Plank in July to serve as company president, said during the conference call that the company’s “reason to exist” will be making products that blend high performance innovation with function and style.
That “has been and will continue to be at the core of who we are,” Frisk said. “Under Armour is a performance brand. Looking back over the last few years, we’ve been inconsistent with this promise. This inconsistency stops now.”
The 20 year old Under Armour has been more vulnerable to industry woes than some of its more established rivals, analysts said. Nike also reported a drop in wholesale revenue in North America in its most recent quarter for some of the same reasons, but Under Armour faces its own set of challenges.
While the company built its brand on performance apparel,
and has created shoes and clothing around athletes such as NBA superstar Stephen Curry, ballet dancer Misty Copeland and quarterback Tom Brady, it has lagged some of its competitors in expanding into fashion oriented sportswear, launching its Under Armour Sportswear line just over a year ago.
While international sales are growing, the bulk of its business is domestic, with 80 percent of sales generated in North America, where revenue dropped 12 percent in the third quarter. sales. The rest comes through its websites and 179 full price and outlet stores under the Under Armour banner.
“They are faced with some very serious challenges because of the wholesale shift,” Moser said.
“We believe that the root of [Under Armour’s] problem in North America lies in the company’s inability to elevate and/or protect the Under Armour brand,” wrote Sam Poser, an analyst with Susquehanna Financial Group LLP, in a report Tuesday. “We believe brand erosion in North America has caused [Under Armour] products to become indistinct in the marketplace, ubiquitous across channels and vulnerable to the promotional environment,” leading retailers to scale back on and cancel product orders.
Nike, too, has spread itself across market segments, but its brand has been able to withstand dilution.
“”You’ll find Nike gear everywhere,” Moser said. “They’re able to sell to the high end and also able to sell in other wholesale channels. It’s a product of time and being able to build the brand up and the reputation behind it. That gives them the leeway to pursue other customer demographics.”
Retail expert Howard Davidowitz disagrees that expanding into Kohl’s may have been a misstep.
“The future of retailing, or the strongest part of it, is in the discounters. They’re continuing to grow, and department stores are shrinking,” said the chairman of Davidowitz Associates, a New York based retail consulting and investment banking firm. “If you’re going to do wholesale, you’ve got to sell to somebody who’s going to stay in business.”
Beyond that, he noted that brands such as Adidas have regained popularity by offering must have shoes and apparel.
“The way to get your mojo back is to do what Adidas did, and that is develop incredible product where it becomes a must have item,” he said. “This company is a product company. That’s what they do. They had that going and were on a tremendous roll. The question is who’s going to have something that’s going to turn on the customer the most?”
Conditions in the retail environment are not likely to improve this year, Plank said during the conference call. But the company is on track to improve operations, product design, sourcing and efficiency at bringing products to market, he said.
“We already have multilevel strategies in play to right size and amplify the business throughout our portfolio,
” Plank said.