How to get big without sucking: Under Armour has grand ambitions

On the banks of the Patapsco River, overlooking the Baltimore harbor, sits Under Armour’s sprawling headquarters. Inside its red-brick buildings — once Procter & Gamble factories — are offices, state-of-the-art testing labs, a mega gym and a cafeteria. The cafeteria, named The Humble & Hungry Cafe, is not only an allusion to one of founder and CEO Kevin Plank’s leadership maxims but an embodiment of the company’s core values.

An unfettered hunger for success goes some distance toward explaining Under Armour’s meteoric rise over the two decades. The brand has continuously disrupted the sports-apparel market, with 26 consecutive quarters of 20 percent-plus growth. Most recently, sales were up by 22 percent in the third quarter of 2016 to $1.5 billion, and the brand is well on track to reaching its 2018 revenue target of $7.5 billion, according to Plank.

It has offered surprising competition to global behemoths like Nike and Adidas by continuously investing in newer categories, consistently pushing the envelope in terms of its marketing and amassing the world’s largest connected fitness community with over 190 million users.

But growth often comes at a cost, and with a degree of sacrifice. As Under Armour sets its sights on new international locations, new categories and connected fitness, the Baltimore-based brand is facing increasing headwinds.

Revenue continues to increase, sure, but it is coming at the cost of margins: The brand’s gross margins dropped to 48.8 percent in 2016’s third quarter, down from 49.6 percent the year before. Its shares also took a beating after the third-quarter earnings, slipping by more than 13 percent after executives warned that sales growth would slow over the next two years. And in October 2016, Adidas overtook Under Armour to reclaim its position as the second-biggest sports brand in the U.S.

If the brand is sweating, it’s not showing it.

“We’ve never been the biggest kid on the block, so we’ve always had to do things a little bit differently,” says the brand’s president of innovation, Kevin Haley. “We have an advantage because we don’t have a $30 billion dollar supply chain that’s always done something a certain way.”

Innovation in products
Under Armour’s official mission, “make all athletes better,” has long meant creating high-performance sports gear and apparel. But in the last couple of years, the phrase has taken on a new meaning.

Since 2013, the company has spent close to $1 billion investing in three leading fitness and diet-tracking mobile apps apart from its own — MapMyFitness, MyFitnessPal and Copenhagen-based Endomondo — building the world’s largest digital fitness community, with over 190 million connected users.

This year, Under Armour also made its foray into wearable technology under a new sub-brand, Healthbox, introducing two models of wireless headphones in collaboration with JBL, as well as a smart shoe and a smart scale, putting itself in direct competition with Fitbit and Apple in the fast-growing wearables market.

The idea is to use that digital community, and its reams of data, to drive everything from product development to merchandising and marketing. It is not only a chance for the brand to connect with consumers more deeply but also to drive them to buy more gear, by inserting itself into the apps in a way that feels organic to everyday athletes when they reach their fitness goals. The UA Shop app launched this summer, for example, uses users’ data from their activity in Under Armour’s other apps and makes specific gear recommendations that they can directly buy on their phones.

“Strategically, for us to get to $7.5 billion, we have got to be more to the consumer than just sweat,” says Adrienne Lofton, Under Armour’s svp of global brand management. “We’re trusted when it comes to performance, but the aim now is to become part of that consumer’s life 24×7 through, among other things, connected fitness.”

At the same time, Under Armour is also focused on product innovation and reinventing the manufacturing process at its 140,000-square-foot design and manufacturing lab in Baltimore’s Port Covington area. Called the Lighthouse, the former garage functions as its in-house innovation hub, where a team of designers, developers and engineers toy with high-tech machines to develop new concepts, iterate on ways to make the the production process faster and more efficient and test the next generation of athletic products.

A lightning-fast laser cutter called the Lectra, for example, can slice fabric in a way that generates the least amount of waste possible, while a 3D printer can effortlessly sculpt sneakers from powder in less than 24 hours. It is this commitment to experimentation that has led the brand to pioneer innovation from a product standpoint, making it the first to bring a 3D shoe to market with the UA Architech released in July 2016, for example.

“If we’re always following two steps behind, or doing things the way they’ve always been done, we’re never going to get ahead,” says Haley. “When others zig, we dare to zag.”

But not everyone is convinced.

For Erich Joachimsthaler, CEO at brand consulting firm Vivaldi Partners, these digital investments are the most significant that Under Armour has made over the years. But what was potentially one big opportunity, has not paid off yet. Its connected fitness business isn’t exactly booming — representing only 1.3 percent of Under Armour’s total 2015 revenue of $3.9 billion.

“Somehow, the wheels came off in the company,” he says. “It has not worked as I expected.”

Innovation in Marketing
What Under Armour lacks in size compared to behemoths like Nike and Adidas it makes up for by the sheer footprint of its brand. The company has grown remarkably since it was first started by Plank in his grandmother’s basement in Washington, D.C., in 1996. But it has retained its core brand ethos of being an underdog and a challenger even while innovating at a rapid clip.

The spirit was perhaps best exemplified narratively in its critically acclaimed 2014 campaign “I will what I want,” which celebrated women like ballerina Misty Copeland displaying unyielding determination while fearlessly confronting the challenges in their paths. On the ground, Under Armour has continued to advance through a spate of out-of-the-box digital activations through the course of the year.

In April, for instance, the brand and its agency, Droga5 wittily capitalized on Golden State Warrior basketballer Stephen Curry’s knack for scoring long-distance shots, releasing a new three-second Twitter ad every time the player scored a three-pointer in the playoffs. And in September, the brand hacked Snapchat, converting a Discover ad into a mobile game that allowed users to play as Cam Newton and dodge a variety of obstacles with the swipe of a finger.

“Digital has forced us to rethink how we approach marketing, both from a creative standpoint and a delivery standpoint,” says its vp of global consumer engagement, Jim Mollica. “In each of the cases, we started with a consumer insight and then tried to create unique experiences — and not in the way in which traditional advertising is served.”

The biggest win for the brand in 2016 came with its Rio Olympics campaign, where it outsmarted its rivals and proved that a brand doesn’t need to be an official sponsor — and shell out tens of millions of dollars — to reap the benefits associated with the games.

Its emotional “Rule Yourself” campaign, featuring players such as swimmer Michael Phelps, was not only fully compliant with the Rule 40 restrictions in that it didn’t contain any Olympic intellectual property but was also the second-most-shared Olympics ad in 2016. The brand also proved its social media savviness by craftily using emojis in a tweet to congratulate the swimmer, effectively skirting rules again.

But the company is not immune to setbacks, nor is not in a place where it can get complacent — and Mollica knows it.

“The goal is to innovate to such a degree, through innovative products and cutting-edge campaigns, that technology has to catch up to our vision instead of the other way around,” he says. “That’s how we stay relevant and deliver on our mission to empower athletes around the globe.”

The company is on the right track, says NPD Group sports industry analyst Matt Powell, particularly with its focus on new categories like basketball and Under Armour Sportswear, the athleisure-inspired line it announced this summer.

“Consumers today demand new and fresh products constantly,” he says. “And Under Armour has always delivered on that premise. Under Armour continues to grow at a faster pace than the rest of the industry.”

More in Marketing

In the marketing world, anime is following in the footsteps of gaming

As marketers look to take advantage of anime’s entry into the zeitgeist, they might be wise to observe the parallels between the evolution of anime as a marketing channel and the ways brands have learned to better leverage gaming in recent years. 

With the introduction of video ads and e-commerce, Roblox looks to attain platform status

Roblox is expanding into more areas than just ads in 2024. Much like platforms such as Amazon and Facebook have transcended their origins to evolve from their origins as online marketplaces and social media channels, Roblox is in the midst of a transformation into a platform for all elements of users’ virtual lives.