Under Armour Asia sales soared 61 per cent in the 12 months to December – a highlight in the US-headquartered sportswear retailer’s year in which it lost US$48 million.
Global revenue was up a mere 3 per cent to $5 billion with the company losing ground in the wholesale sector, but raising its direct sales – which now account for 35 per cent of turnover – by 14 per cent.
Asia was by far Under Armour’s top-performing market, with sales in Latin America up 28 per cent and in Europe, Middle East and Africa, by 42 per cent. It is in the company’s core North American market where the damage is being done – sales fell 5 per cent
The loss was caused by restructuring costs and impairments of $124 million. Those excluded, Under Armour achieved an operating surplus of $87 million.
While noting a small improvement in the company’s fourth quarter, retail analyst Neil Saunders, MD of GlobalData Retail, said the results “show signs of a company in difficulty”.
Fourth-quarter sales rose 4.6 per cent, a sharp turnaround from the 4.5 per cent decline of the preceding quarter, but that growth came entirely from overseas markets, led by Under Armour Asia, up 66 per cent.
“While overseas growth is to be applauded, it carries investment costs and also accounts for just 25 per cent of group revenue,” noted Saunders. “As such, Under Armour is reliant on its North American operation to drive performance on both the top and bottom lines. Unfortunately, the North American division had a lamentable quarter and is the main source of Under Armour’s woes.”
Saunders said the brand has “lost power” in North America.
“Compared to last year, Under Armour was firmly off the radar for holiday gifting. Far fewer people thought of or requested the brand for gifts, and consequently fewer people bought into it. Under Armour has spent too much time trying to expand its footprint and product coverage, and too little time building connections with customers.”
He said Under Armour was failing in terms of customer experience.
“Customer service at some of its own stores leaves a lot to be desired. Meanwhile, expansion into retailers like Kohl’s has weakened exclusivity and made the brand feel commoditised and ubiquitous.”
GlobalData Retail’s consumer data reveals Under Armour has lost its way, with consumers unsure what the brand stands for, what it specialises in, and why they should use it.
“For many, it has become something of an also-ran,” said Saunders. “These shallow roots are dangerous: they leave Under Armour vulnerable to competition and the vagaries of changing market conditions.”
In contrast, rival Lululemon has a very clear sense of identity, and its approach is more disciplined and focused, which has helped it maintain price integrity and remain a destination of choice for many consumers.
“While we do not believe that Under Armour should simply emulate Lululemon, we do think it can learn some lessons from its playbook.”
Saunders said Under Armour has already warned of further full-year revenue decline in North America this year and operating profit will also be weak thanks to restructuring and impairment costs.
“For all of this, Under Armour still has potential; but it needs to use the year ahead to regroup and rethink its strategy. The company that once believed it could challenge Nike has come down to earth with a bump. Humble reflection is now the order of the day.”