Fast-growing Under Armour sets its sights on sportswear giant Nike

A selection of Under Armour shoes at a Sports Authority Store on North LaSalle Street, Chicago (Nick Kariuki/Medill)
A selection of Under Armour shoes at a Sports Authority store on North LaSalle Street, Chicago (Nick Kariuki/Medill)

By Nick Kariuki

In August Under Armour Inc. offered a shoe deal of between $265 million and $285 million to Kevin Durant, the NBA’s most valuable player.  The big-ticket bid was aimed at luring Durant away from his current sponsor — Under Armour arch-rival Nike, Inc.

For Under Armour, the proposal would have been its biggest endorsement deal ever.

But it didn’t happen. Instead, Nike exercised its contractual right to outbid any competitor and countered with a $350 million offer, which the Oklahoma City Thunder star accepted.

Baltimore-based Under Armour, through a spectacular decade of growth, came from nowhere to become the No. 2 sports apparel and shoes brand in the U.S. But the rapidly growing company still has a long way to go before before it comes close to the industry-leading Swoosh. The effort to snatch hoopster Durant away, however, shows that Under Armour won’t stop trying.

Under Armour’s aggressive growth strategy allowed it to pass Adidas and claim the number-two position in the U.S.  in September. Sterne Agee and SportScanInfo reported that Under Armour posted domestic apparel and footwear sales of $1.2 billion through the end of August, beating out its German competitor’s total of $1.1 billion.  But the leader remains far in front: Nike’s total was $8.9 billion.

Adidas, still No. 2 in the global markets, slipped to third in the U.S. because of lower sales and lagging performances in its Reebok and Taylor Made brands. Under Armour’s surging performance hasn’t escaped investor notice:   The company’s stock has risen 60 percent over the past twelve months, just about five times the 12.2 percent that the S&P 500 has risen.

In October, Under Armour reported a stunning 30 percent rise in sales in the last quarter, the fourth consecutive quarter it had done so. This year the 18-year-old company is also projected to surpass the $3 billion revenue milestone, a doubling in just three years from $1.47 billion.

While many consumers still think of Under Armour exclusively as a maker of apparel,  growth is slowing for the company’s “performance wear,” and strengthening shoe sales are providing much of the company’s momentum.

“We are successfully making that transition from a company learning how to make great shoes to a disruptive voice in the global footwear market,” said founder and Chief Executive Officer Kevin Plank in the third-quarter earnings call.

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Year-to-date share price changes of sportswear makers and S&P 500

Two standouts were footwear (with a 41 percent jump in year-to-date sales) and international sales (which doubled in the latest nine months), William Blair analyst Sharon Zackfia said. Under Armour has been growing these two sectors over the past few years.

Adding athletes and performers like Durant would reflect well in the company’s expansion into the global shoe and apparel markets, where Nike still far outpaces it. Under Armour’s current endorsement stable includes New England Patriots quarterback Tom Brady, swimmer Michael Phelps, Alpine skier Lindsey Vonn and NBA stars Stephen Curry and Brandon Jennings.

The battle rages on other fronts as well.  Both Under Armour and Nike are pushing to claim a bigger share of the highly-coveted women’s segment, often referred to as “activewear.”

In September, Under Armour added Brazilian supermodel Gisele Bundchen, Brady’s wife, to its “I Will What I Want” campaign, which featured ballerina Misty Copeland the month before. Under Armour also added Karen Katz, CEO of luxury retail chain Neiman Marcus, to its board in October.

As part of the fight for the emerging women’s segment Nike held a runway show in New York two months ago, featuring top models Karlie Kloss and Joan Smalls and current and former athletes Allyson Felix, Li Na and Paula Radcliffe. Nike Chief Executive Mark Parker stated that the women’s sector was a $5 billion business for the company. With the emerging sector of activewear, Parker hopes to raise that to $7 billion in the next three years.

After the dust settled on the battle for Durant sponsorship, loser Plank was triumphant that his competition was forced to dig deeper into its endorsement budget.   “Do I take pleasure in that [Nike] paid $150 million more than they planned on paying?” Plank told an interviewer on Bloomberg TV. “Absolutely.”