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DESCRIPTIONUnder Armour Analysis
- 1. Under Armour:PEST andIndustry AnalysisBrian Teufel MGT 490-004Assignment #2 Professor McDermottMarch 17, 2011
2. Kevin Plank, the CEO of Under Armour developeda blue ocean strategy Created Performance Apparel market enhancesconsumers performance while offering greatercomfort Total sales over $1.0 billion in 2010 First-mover advantage has allowed UA to gain70% of the U.S. market and about 15% of theglobal market Performance Apparel has evolved from niche tomainstream in terms of target market andcompetition (Nike and Adidas) 3. KeyProof of Dependency Future ChallengesDependenciesInnovation 1/4 of 3,900 employeesRatio likely to decrease as UA in R&Dbranded stores continue to openU.S. Market95% of sales come fromInternational market U.S.developmentPerformance85% of sales come fromProduct development of non-ApparelPAPA productsInternationalProduct suppliers mainlyDiversify supplier locations asSubcontracting from Asia costs and inflation increase in ChinaRetailers2 retailers make up Brand development and about 50% of salesfranchising Under Armour owns branded retail stores in 28 U.S. states (30+ stores) and 23 other countries (25+ stores). - First UA branded retail store opened on November 1, 2007. 4. Opportunities and Threats are ranked in terms ofimportance separately; top five of each are ranked accordingly.(1 = extremely important, 5 = Not very important.FactorTrend Evaluation; ImpactRank inO=Opportunity (1=Low; terms ofT=Threat5=High) importancePolitical - FDI policiesT 2-Economic- Economic Recovery O 3-- Increase in cost of raw materials and T 51resources; shipping costsi.e. cotton, all man made fibers, and thebig one being OIL/GAS- Growth of performance apparel O 51industry (Domestic and International)- Increase in interest ratesT 25- Inflation in China increasing T 34- Chinese labor costs increasingT 33Social- Consumers focus on quality, not price O 34- Aging population and increase inO 2-physically active seniors- Increase in physically active women O 3-- Consumers becoming more healthO 3-conscious- Obesity rates in U.S. T 32- Sport participation is a key aspect ofO 35U.S. culture- Increase in sports participation in O 42emerging marketsTechnological - Increase in e-commerceO 43- Increase in m-commerceO 33 5. FDI Policies - Some foreign countries have policies in place that prohibit100% ownership of retail stores which poses threat to internationalization Chinese Labor Costs Increasing Costs of international labor is on the rise. Hourly compensation costs of manufacturing employees in China from2002-2008 is shown below. YearNational Currency U.S. Dollar Basis Basis (Yuan)(U.S. $) 20024.74.57 20035.17.62 20045.50.66 20055.95.73 20066.44.81 20078.061.06 20089.481.36 6. Factor CommentU.S. and International EconomicConsumers have more disposableRecovery incomeGrowth of Performance ApparelPA industry is on the rise andindustry shows no signs of slowing downChinese InflationChinese inflation is on the rise and expected to continue to riseIncrease in Cost of RawCotton, Man-made fibers, are onMaterials/Resourcesthe rise but GAS is the big factor The growth of the performance apparel industry is the greatest opportunity. More Consumers = More Revenues 7. Obesity rates in U.S. show people not physicallyactive Consumers focus on quality more than price Increase in physically active women Increase in health conscious consumers = moreexercise/physical activity Sport participation is a key aspect of U.S. culture Aging population and increase in physicallyactive seniors Increase in sports participation in emergingmarkets 8. Increase in e-commerce Increase in m-commerce (trend is to alwayshave digital connection) 9. OpportunityRank in terms of Comments importance (1; least important, 5; most important)Growth of the performance1Protect products andapparel industry (domesticthe industryand international)Increase in sports 2Marketing will be keyparticipation in emergingmarkets (foreign markets)Increase in commerce 3Take advantage(electronic and mobile)Consumers focus on 4Innovation andquality more than price DifferentiationSport participation is a key 5Sport participation willaspect of U.S. culturealways be a key aspectof U.S. culture 10. Threat Rank in terms ofComments importance (1; most important, 5; least important)Increase in cost of raw 1Buy in highermaterials and resources, quantities; volumeshipping costs discountsObesity rates in U.S. 2Marketing will be keyInternational labor costs 3Explore new optionsincreasing for productionInflation in China4Explore new optionsincreasing for productionIncrease in interest rates5Keep debt as low as possible 11. Under Armour is in the extremely competitive performance apparel industry which is defined as anything that is worn which enhances the performance of the user.Performance apparel global sales = $6.4 billion in 2010 and is expected to grow to $7.6 billion by 2014. In 4 years, the industry is expected to grow by 15%.Participants in the PA IndustryBuyers/Buyer Groups Physically active and want to enhance theirperformance, especially athletes. Groupsinclude both domestic sports teams,international teams, and retailersSuppliers/Supplier Groups Third Party Suppliers (100+)Competitors Nike, Adidas, Columbia SportswearSubstitutes Conventional apparel or no apparelPotential EntrantsAnyone is a possible entrant in thisindustry because of the high growth rates,especially organizations that produceapparel, sportswear, or equipment. 12. Force High/Moderate/Low Underlying Drivers(Strong or Weak)Threat of New Entrants High WeakThreat of Substitutes- Core Athletes = HighStrong - Non-Core Athletes = ModerateBargaining Power of- Athletes and TeamsStrongBuyers= High - Non-Core Athletes= ModerateBargaining Power ofModerate WeakSuppliersIntensity of Rivalry HighStrong 13. With the expected growth of the performanceapparel industry, there will be new entrants inthe industry from all over the world. Most companies who enter the performanceapparel industry are unable to compete dueto existing brand loyalty and the high barriersto entry. Examples include New Balance, Velocity, and Sugoi 14. Factor Under ArmourLack of Direct Competition Exceptions include Nike and AdidasPA not essential to participate in UA products enhancesports or physical activityperformance and allow comfortPotential Substitute ProductsLowSwitching CostsLow Substitutes are limited to conventional apparel or noapparel at all. Core athletes have a large number of substituteoptions to choose from. 15. Buyer/Buyer GroupBargaining Power CommentCore AthletesHigh Exposure to the public andProfessional Teamsbuilds relationshipsNon-Core AthletesModerate - Limited competition andNon-Professionalsubstitute productsTeams - UAs products differentiatedfrom competitionRecreational Buyer- Consumers do not needperformance apparel tocompete or be physicallyactive The bargaining power of buyers depends on theconsumers skill level and the level of the team. 16. Factor Under ArmourSwitching Supplier Costs Moderate# of Different Suppliers Very HighProduct Uniqueness ModerateThird Party SuppliersVery High The use of third party suppliers allows performance apparel companies to chose their suppliers based on highest quality and lowest production cost. Third party suppliers have high bargaining power by being able to choose the companies that they want to supply for. The best third party suppliers can select the company or companies that treat them the best and provide the best compensation. There are thousands of third party suppliers all over the world. 17. FactorPA Industry# of CompetitorsHighBrand Loyalty HighIndustry Growth RateExtremely HighQuality differences between competitors Moderate to High Currently, the performance apparel industry isgrowing rapidly at 15%; this allows rivalry to growrapidly as well. There is a high # of competitors but UA, Nike,and Adidas make up the majority of the industrydue to a quality advantage over othercompetitors. 18. DifferentiationInnovationNicheR&D Enhance Performance 19. The opportunities for the performance apparel industryoutweigh the threats. Labor and gas costs are increasing but opportunities such as theglobal growth of the PA industry, global increase in sportparticipation, and increase in both e-commerce and m-commerceoutweigh the threats. Rivalry is extremely high in the performance apparelindustry. The competition between Nike, Adidas, and Under Armour isfierce and it continues to heat up. Participants in the performance apparel industry mustalways be aware of new entrants because the industry ison the rise. Create high barriers to entry. Blue Ocean Strategy was the basis for Under Armour and itallowed them to achieve success in the PA industry. Innovation, Differentiation, R&D, Creating Niche of performanceapparel that enhances performance while allowing comfort. 20. Under Armour:Competitor andMarket Analysis Brian TeufelMGT 490-004 Assignment #2Professor McDermott March 17, 2011 21. CompanyPA SalesTotal Sales PA sales as %% of sales (in millions) (in millions) of total sales spent on R&DUnder Armour $853 $1,060 81% 33%Nike$1,300$19,014 7% 12%Adidas$1,150$11,990 9% 5%Columbia $400 $1,484 27% 1%SportswearCompanySugoi $34 $8540% 2%PUMA $425 $2,862 15% 4%Quiksilver $250 $1,834 14% 3%North Face $300 $1,400 21% 3%New Balance Private PrivatePrivate Private Company CompanyCompany Company 22. Competitive AdvantageLow CostDifferentiation New Balance Nike Columbia Sportswear AdidasCompany Under Armour Champion Broad TargetCompetitiveScope PUMA The North Face QuiksilverNarrowTarget 23. PriceLow High New BalanceLow ChampionPUMAQualityColumbiaSportswearQuiksilver Company The North FaceHighAdidasNikeUnder Armour 24. 1%2% Sales4%9%U.S.Europe 20%Asia/Pacific64%Rest of North America and SouthAmericaAfricaAustralia 25. -UA = 4%-UA =5%-Nike = (-6%) -Nike = 0%-UA = 23.5% -Adidas = 7%-Nike = 8%-Adidas = 2%-Col.