Assignment%20#1 Under Armour Pest Industry Analysis

Under Armour:PEST and

Industry AnalysisBrian Teufel

MGT 490-004Assignment #2

Professor McDermottMarch 17, 2011

Kevin Plank, the CEO of Under Armour developed a blue ocean strategy

Created Performance Apparel market – enhances consumers performance while offering greater comfort

Total sales over $1.0 billion in 2010 First-mover advantage has allowed UA to gain

70% of the U.S. market and about 15% of the global market

Performance Apparel has evolved from niche to mainstream in terms of target market and competition (Nike and Adidas)

Under Armour Snapshot

Key Dependencies

Proof of Dependency Future Challenges

Innovation 1/4 of 3,900 employees in R&D

Ratio likely to decrease as UA branded stores continue to open

U.S. Market 95% of sales come from U.S.

International market development

Performance Apparel

85% of sales come from PA

Product development of non-PA products

International Subcontracting

Product suppliers mainly from Asia

Diversify supplier locations as costs and inflation increase in China

Retailers 2 retailers make up about 50% of sales

Brand development and franchising

Under Armour Snapshot (cont.)

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.

Factor Trend Evaluation;O=OpportunityT=Threat

Impact (1=Low; 5=High)

Rank in terms of importance

Political - FDI policies T 2 -

Economic - Economic Recovery- Increase in cost of raw materials and resources; shipping costsi.e. cotton, all man made fibers, and the big one being OIL/GAS- Growth of performance apparel industry (Domestic and International)- Increase in interest rates - Inflation in China increasing- Chinese labor costs increasing

OT

O

TTT

35

5

233

-1

1

543

Social - Consumers focus on quality, not price- Aging population and increase in physically active seniors- Increase in physically active women- Consumers becoming more health conscious- Obesity rates in U.S.- Sport participation is a key aspect of U.S. culture- Increase in sports participation in emerging markets

OO

OO

TO

O

32

33

33

4

4-

--

25

2

Technological - Increase in e-commerce- Increase in m-commerce

OO

43

33

Pest Analysis• Opportunities and Threats are ranked in terms of importance separately; top five of each are ranked accordingly.(1 = extremely important, 5 = Not very important.

FDI Policies - Some foreign countries have policies in place that prohibit 100% 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 from

2002-2008 is shown below.

Political Factor

Year National Currency Basis (Yuan)

U.S. Dollar Basis(U.S. $)

2002 4.74 .57

2003 5.17 .62

2004 5.50 .66

2005 5.95 .73

2006 6.44 .81

2007 8.06 1.06

2008 9.48 1.36

Economic Factors

Economic Factors (cont.)Factor Comment

U.S. and International Economic Recovery

Consumers have more disposable income

Growth of Performance Apparel industry

PA industry is on the rise and shows no signs of slowing down

Chinese Inflation Chinese inflation is on the rise and expected to continue to rise

Increase in Cost of Raw Materials/Resources

Cotton, Man-made fibers, are on the rise but GAS is the big factor

•The growth of the performance apparel industry is the greatest opportunity. •More Consumers = More Revenues

Obesity rates in U.S. show people not physically active

Consumers focus on quality more than price Increase in physically active women Increase in health conscious consumers = more

exercise/physical activity Sport participation is a key aspect of U.S. culture Aging population and increase in physically

active seniors Increase in sports participation in emerging

markets

Social Factors

Increase in e-commerce

Increase in m-commerce (trend is to always have digital connection)

Technological Factors

Opportunity Rank in terms of importance (1; least important, 5; most important)

Comments

Growth of the performance apparel industry (domestic and international)

1 Protect products and the industry

Increase in sports participation in emerging markets (foreign markets)

2 Marketing will be key

Increase in commerce (electronic and mobile)

3 Take advantage

Consumers focus on quality more than price

4 Innovation and Differentiation

Sport participation is a key aspect of U.S. culture

5 Sport participation will always be a key aspect of U.S. culture

PEST Summary

Threat Rank in terms of importance (1; most important, 5; least important)

Comments

Increase in cost of raw materials and resources, shipping costs

1 Buy in higher quantities; volume discounts

Obesity rates in U.S. 2 Marketing will be key

International labor costs increasing

3 Explore new options for production

Inflation in China increasing

4 Explore new options for production

Increase in interest rates 5 Keep debt as low as possible

PEST Summary

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%.

Industry Analysis Overview

Participants in the PA Industry

Buyers/Buyer Groups Physically active and want to enhance their performance, especially athletes. Groups include both domestic sports teams, international teams, and retailers

Suppliers/Supplier Groups Third Party Suppliers (100+)

Competitors Nike, Adidas, Columbia Sportswear

Substitutes Conventional apparel or no apparel

Potential Entrants Anyone is a possible entrant in this industry because of the high growth rates, especially organizations that produce apparel, sportswear, or equipment.

Porter’s 5 ForcesForce High/Moderate/Low Underlying Drivers

(Strong or Weak)

Threat of New Entrants

High Weak

Threat of Substitutes - Core Athletes = High

- Non-Core Athletes = Moderate

Strong

Bargaining Power of Buyers

- Athletes and Teams = High

- Non-Core Athletes = Moderate

Strong

Bargaining Power of Suppliers

Moderate Weak

Intensity of Rivalry High Strong

Threat of New Entrants - High

With the expected growth of the performance apparel industry, there will be new entrants in the industry from all over the world.

Most companies who enter the performance apparel industry are unable to compete due to existing brand loyalty and the high barriers to entry.◦ Examples include New Balance, Velocity, and

Sugoi

Substitutes are limited to conventional apparel or no apparel at all.

Core athletes have a large number of substitute options to choose from.

Threat of Substitutes – Moderate to High

Factor Under Armour

Lack of Direct Competition Exceptions include Nike and Adidas

PA not essential to participate in sports or physical activity

UA products enhance performance and allow comfort

Potential Substitute Products Low

Switching Costs Low

Buyer/Buyer Group

Bargaining Power

Comment

Core Athletes High Exposure to the public and builds relationshipsProfessional Teams

Non-Core Athletes Moderate - Limited competition and substitute products- UA’s products differentiated from competition- Consumers do not need performance apparel to compete or be physically active

Non-Professional Teams

Recreational Buyer

Bargaining Power of Buyers – Moderate to High

The bargaining power of buyers depends on the consumer’s skill level and the level of the team.

Factor Under Armour

Switching Supplier Costs Moderate

# of Different Suppliers Very High

Product Uniqueness Moderate

Third Party Suppliers Very High

Bargaining Power of Suppliers - Moderate

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.

Currently, the performance apparel industry is growing rapidly at 15%; this allows rivalry to grow rapidly as well.

There is a high # of competitors but UA, Nike, and Adidas make up the majority of the industry due to a quality advantage over other competitors.

Rivalry Intensity - HighFactor PA Industry

# of Competitors High

Brand Loyalty High

Industry Growth Rate Extremely High

Quality differences between competitors Moderate to High

Blue Ocean Strategy

InnovationDifferentiation

Enhance Performance

Niche R&D

The opportunities for the performance apparel industry outweigh the threats.◦ Labor and gas costs are increasing but opportunities such as the

global growth of the PA industry, global increase in sport participation, and increase in both e-commerce and m-commerce outweigh the threats.

Rivalry is extremely high in the performance apparel industry.◦ The competition between Nike, Adidas, and Under Armour is fierce

and it continues to heat up. Participants in the performance apparel industry must always

be aware of new entrants because the industry is on the rise.◦ Create high barriers to entry.

Blue Ocean Strategy was the basis for Under Armour and it allowed them to achieve success in the PA industry. ◦ Innovation, Differentiation, R&D, Creating Niche of performance

apparel that enhances performance while allowing comfort.

Conclusions