Photo: Under Armour
Under Armour does a Nike me-too and expects success
The world of team sports is known for copycatting. If a team wins a championship with a certain type of offense or defense, other organizations follow suit by the time their preseason training comes around. The same has been known to happen in the retailing and consumer brand industries, as well.
The latest evidence is Under Armour’s announcement last week that it planned to cull “undifferentiated retail partners” from its distributor list to focus more on its own consumer-direct digital initiatives. Under Armour said it expects to pull its products out of 2,000 to 3,000 stores by 2022, lowering its total to about 10,000 locations.
The move appears very similar to Nike’s strategy. The athletic wear brand giant, according to reports, planned to end its relationship with a wide number of retailers, including Belk, Boscov’s, Dillard’s, Fred Meyer and Zappo’s. John Donahoe, Nike’s CEO, has said the brand’s consumer-direct strategy is helping it gain strength even in the face of the novel coronavirus pandemic. All reports point to the brand increasing its focus on building “one-to-one” relationships with its members (Nike-speak for customers).
Under Armour CEO Patrik Frisk told analysts on the company’s third quarter earnings call, “Our efforts remain centered around becoming a best-in-class retailer capable of providing a premium Under Armour experience whenever and wherever consumers directly engage our brand.”
Mr. Frisk called e-commerce a “bright spot” for Under Armour, with sales growing more than 50 percent during the third quarter.
“With the majority of our global e-commerce sites on one scalable platform,” he said, “we are working to unlock a more robust functionality to power our CRM efforts to help us drive more resonant and personalized interactions with our consumers.”
As to Under Armour’s retail stores, Mr. Frisk said the company has been moving in the right direction as it evolves concepts that “are more scalable, brand right and profitable.” He said Under Armour was “obsessing every moment along the consumer’s brand journey to help us make better decisions to drive greater relevance and connectivity.”
- It’s getting harder to find Nikes—and that’s just how Nike wants it – Quartz
- Under Armour Reports Third Quarter 2020 Results; Provides Outlook For 2020 – Under Armour, Inc.
- Under Armour, Inc. (UAA) CEO Patrik Frisk on Q3 2020 Results (Earnings Call Transcript) – Seeking Alpha
- What? Should Nike drop Zappos and others to focus on consumer-direct? – RetailWire
- Will Nike’s digital drive build stronger ‘one-to-one’ relationships with consumers? – RetailWire
- Nike debuts member-driven concept – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you think Under Armour has the right strategy in place to grow its business? Do you expect more brands in athletic wear and other categories to continue increasing their focus on consumer-direct channels and reducing wholesale partnerships?
Poll
BrainTrust
Athletic wear brands have been extremely successful during the pandemic as many employees are working from home and trying to find new ways to stay fit by avoiding health clubs. This sudden increase in sales may be temporary. There is no doubt that the move to a strategy of more direct-to-consumer sales will boost profit margin percentage, but it comes with some risk. Reducing the number of retail stores that offer Under Armor may cause some non-loyal shoppers to switch to other brands that are available in the stores they shop. Time will tell if the strategy pays off.
Building upon scarcity is a strategy that streetwear and athletic apparel brands are pursuing. Applying this at a mass market level, it means limiting the points of distribution to fewer retailers and having greater control of customer experience.
Not every brand can pursue this. But brands that built aspirational image and financial strength can pull it off. On that account, Under Armour is likely to do well even if it is a copycat strategy.
From a consumer’s perspective Under Armour products are reliable, comfortable, attractive and there is no reason that, in addition to selected retail outlets, UA could not be the athletic wear equivalent of an L.L.Bean or a Lands’ End. Consumers go to their catalogs and their websites to buy their products because the trust, loyalty and reliability have already been established.
It’s not new news for a brand to be diligent in managing its retail partnerships. And it’s not new news for better brands to be pulling back from their presence in overly promotional environments. So Nike had their moment of clarity before Under Armour had theirs. Managing the retail execution of a brand is the bedrock to long term brand management. Growth can be brand dilutive. Scarcity can be a brand’s best friend.
One of the reasons that Nike might be more successful than Under Armour in consumer-direct channels is that it can leverage the connections made through the Nike Member Rewards program. Under Armour should consider launching a robust loyalty program and move from a transactional relationship to an emotional one to connect with its customers on a deeper level.
The world has changed. Traditional retailers who used to be the main point of control between the manufacturer and the consumer have lost their significant power to decide what products will be available to the shopper. Online companies and marketplaces give brands plenty of alternative opportunities to get their products in front of and to the consumer bypassing the bricks. If you own a brand that shoppers want then you are in the driver’s seat. This isn’t just a me-too, it’s an inevitable trend.
Nike may have pioneered this strategy in the athletic apparel world, but they did this with a multi-pronged approach. One was the scarcity aspect of limiting retail partners while simultaneously enhancing their own self-branded store experience. Then they have the Nike loyalty program and their mobile apps. That following has helped them cement their status and success during the pandemic. While Under Armour may be ready to embrace the scarcity strategy, they may need to look at their store experience and look to copy Nike’s approach of making that experience unique and compelling for their customers. Then there is the loyalty program. Under Armour once was on a path to leverage their strong collection of mobile apps to drive that loyalty but they’ve been on a new path of selling those apps of late. It’s not clear how they will incorporate the loyalty aspect to this overall strategy but I believe if they can execute that well, they will have a winning plan overall. That will leave Adidas with some thinking to do!
We are seeing more and more brands shifting to a heavy direct-to-consumer model for many reasons—but one, in particular, is that they have more control of the brand experience. When CX is king, distribution channels are queen.
Of course, with more control, you often have more things to manage (increase in transactions on owned channels) so brands should always evaluate processes and technology against the “does this enhance or hurt the customer experience?”
While Under Armour has lagged Nike considerably in new market share capture, controlling your brand is absolutely critical. Many of the third- or fourth-tier may drive some incremental sales, but brand dilution from uncontrolled retail environments and poor brand delivery at the customer touchpoint ultimately is not a good trade off.
Under Armour as it is has struggled to leverage some of its brand assets, like Steph Curry, and failed largely to bring digital into its retail storefronts. It’s time to go back to basics, establish a loyal customer base, capture more first-party data, collaborate more closely with retailers including bring digital into store, and then build from that base. Nike’s results make it clear that this is the far better path, unless you want to be a commoditized brand.