The Rise & Fall of Under Armour

Summary

This script explores the rise and fall of Under Armour, a once-promising sportswear brand that challenged giants like Nike and Adidas. It delves into the company's strategic missteps, including overemphasis on tech and big data, lack of a flagship product, and founder-led governance issues, ultimately leading to a loss of market relevance.

Takeaways

• 🏃 Nike dominates the sportswear market, selling the most athletic footwear and apparel globally, with Adidas struggling to compete effectively.
• 💸 Adidas made costly mistakes like the Reebok buyout and overinvestment in retail, leading to a loss in market position and profits.
• 🌟 Under Armour emerged as a strong competitor in the 2010s, growing sales in North America and taking market share from Nike with endorsements from notable athletes.
• 🚀 Under Armour's success was attributed to its focus on quality, premium pricing, and a passionate fan base, positioning it as an underdog in the industry.
• 📉 Despite initial success, Under Armour's performance declined, falling behind not only Nike and Adidas but also other brands like New Balance, Puma, and Lululemon.
• 🔍 The company's downfall is tied to poor governance, failed technology bets, and the challenges of being a founder-led company.
• 💼 Founder Kevin Plank's leadership played a significant role in both the rise and fall of Under Armour, with his decisions impacting the company's direction and culture.
• 🤖 Under Armour's pivot to technology and data with its Connected Fitness initiative failed to deliver expected results, diverting resources from core product development.
• 👟 The lack of a flagship shoe or defining product made it difficult for Under Armour to compete in a market where brands were increasingly defined by their footwear.
• 🌐 International expansion was challenging for Under Armour, with sales in key markets like Europe, China, and Latin America failing to meet expectations.

Q & A

What is the dominant position of Nike in the sportswear market?

Nike is so strong and dominant in the sportswear market that it sells the most athletic footwear and apparel in the world, leaving its rivals, including Adidas, far behind.

What were the major mistakes made by Adidas that set them back in the market?

Adidas made expensive mistakes such as the $3B buyout of Reebok, overinvestment in retail, and overexposure to international markets, which eventually cost the CEO his job and set Adidas back years in profits and popularity.

How did Under Armour manage to grow sales in North America and become a significant competitor to Nike?

Under Armour grew sales in North America by focusing on quality over price, having a passionate fanbase, and securing endorsements from generational athletes, which allowed them to leapfrog past Adidas and become the new No.2 sportswear brand in the United States.

What were the key endorsements that helped Under Armour establish its brand?

Under Armour secured endorsements from notable athletes such as Tom Brady, Steph Curry, Michael Phelps, Lindsay Vonn, The Rock, and Captain America, which significantly boosted their brand recognition.

How did Under Armour's product aesthetics affect its market position?

While Under Armour's products like SpeedForm Fortis and Apollos were highly praised for their quality and performance, their aesthetics were criticized, which affected their overall market appeal.

What was the primary challenge Under Armour faced in its transition from a specialized brand to a mass-market brand?

Under Armour's primary challenge was balancing its premium positioning with the need to appeal to a broader audience, which required them to lower their prices and make their products more accessible.

How did Under Armour's approach to innovation and technology contribute to its downfall?

Under Armour's heavy investment in big data and IoT, particularly through the acquisition of fitness tracking apps, diverted resources and focus away from core product development and design, leading to a lack of competitive products in the market.

What was the impact of the Apple Watch on Under Armour's Connected Fitness strategy?

The Apple Watch, with its superior features and form factor, dominated the wearable market, effectively crushing the demand for fitness trackers, smart apparel, and connected shoes, which were part of Under Armour's Connected Fitness strategy.

How did the leadership changes at Under Armour affect the company's direction and performance?

The leadership changes, particularly the appointment of Patrik Frisk, led to a shift in focus back to apparel innovation and selling shirts and shoes, away from the failed Connected Fitness strategy. However, the company's growth remained solid but unspectacular.

What are the key lessons from Under Armour's experience for other companies in terms of corporate governance and strategic focus?

The key lessons include the importance of maintaining a balance between innovation and core business focus, the risks of over-reliance on founder-led decisions without proper checks and balances, and the need for a clear and consistent brand identity in a competitive market.

Outlines

00:00

🏃‍♂️ Nike's Dominance and Adidas' Struggles

This paragraph discusses the overwhelming presence of Nike in the sportswear industry, highlighting its unmatched sales of athletic footwear and apparel. It also touches on Adidas' attempts to compete, which led to costly mistakes such as the Reebok buyout and overinvestment in retail and international markets. These missteps resulted in the CEO's departure and a setback for Adidas. The narrative then shifts to Under Armour, an American brand that managed to grow sales in North America and take market share from Nike. Under Armour's rise was attributed to endorsements from popular athletes and a focus on quality over price. However, despite its initial success, the brand faced a rapid decline, falling out of the top sportswear brands in the US market.

05:03

💼 Under Armour's Growth Strategy and Retail Dynamics

The second paragraph delves into Under Armour's growth strategy in the 2000s, focusing on its transition from a specialized brand to a mass-market one. The company's success was built on its performance-oriented products and its ability to charge a premium, which appealed to retailers for higher profit margins. Under Armour's approach to retail was cautious, prioritizing wholesale and gradually gaining retailer confidence. The company also ventured into direct-to-consumer sales, albeit on a smaller scale. The paragraph emphasizes the importance of maintaining pricing integrity through a mix of brand stores and outlet stores. Under Armour's goals during this era included expanding into footwear and international markets, with a focus on building credibility and leveraging its success in the US to fund global expansion.

10:06

🌟 Under Armour's Rise and Market Positioning

This paragraph outlines Under Armour's rise in the sportswear market, emphasizing its premium positioning and innovation in athletic apparel. The company's strategy was to charge higher prices for its products, which were rarely discounted, unlike competitors like Nike and Adidas. Under Armour's focus on performance and quality helped it establish a strong brand identity, even in the face of economic recession. The company also leveraged its success in the US to fund international expansion, though it faced challenges in entering new markets. The paragraph highlights the importance of Kevin Plank, the founder and CEO, in driving the company's vision and growth.

15:06

🚀 Under Armour's Expansion and Challenges

The fourth paragraph discusses Under Armour's expansion efforts and the challenges it faced in maintaining its growth momentum. The company's success in the US market was not easily replicated internationally, where it struggled to compete with established brands like Nike and Adidas. Under Armour's premium pricing strategy, which worked well in the US, was less effective in other markets. The company also faced difficulties in transitioning from a brand focused on athletes to one that appealed to a broader audience. The paragraph highlights the tension between maintaining high margins and achieving rapid growth, as well as the need for Under Armour to adapt its strategy to different consumer preferences and market conditions.

20:10

🤖 Under Armour's Tech Pivot and Connected Fitness

This paragraph explores Under Armour's strategic shift towards technology and the Internet of Things (IoT). The company invested heavily in fitness tracking apps and big data, aiming to leverage consumer data to drive product development and market insights. Under Armour's CEO, Kevin Plank, envisioned a future where the company would be a leader in digital health and fitness, using data to enhance its apparel and footwear offerings. However, the execution of this strategy was fraught with challenges, as the company struggled to integrate these technologies into its core business and failed to generate significant revenue from its tech investments.

25:11

📉 Under Armour's Decline and Strategic Missteps

The sixth paragraph details Under Armour's decline in the sportswear market, attributing it to a series of strategic missteps. The company's focus on Connected Fitness and big data diverted resources away from product innovation and design, leading to a loss of market share. Under Armour's attempts to enter the mainstream market with high-priced products failed to resonate with consumers, who were more interested in style and performance. The company's reliance on wholesale also proved problematic, as retailers began to favor other brands. The paragraph highlights the need for Under Armour to refocus on its core strengths and address its product design issues.

30:15

🛑 Under Armour's Restructuring and Leadership Changes

This paragraph discusses the restructuring efforts at Under Armour under new leadership. The company shifted its focus back to its core business of apparel and footwear, abandoning its previous emphasis on big data and Connected Fitness. The new CEO, Patrik Frisk, aimed to restore the company's reputation and financial health by cutting losses and refocusing on product innovation. However, despite some improvements, the company has yet to regain its former growth trajectory. The paragraph also touches on issues of corporate governance and the challenges of founder-led companies, highlighting the need for balance in decision-making and strategic direction.

35:15

🏆 The Importance of Product and Governance in Under Armour's Future

The final paragraph reflects on the lessons learned from Under Armour's journey, emphasizing the importance of product innovation and effective corporate governance. The company's initial success was built on its ability to create high-quality athletic apparel, but its later focus on technology and data failed to deliver tangible benefits. The paragraph also critiques the founder-led model, suggesting that while founders can be instrumental in a company's early stages, they can also become liabilities if they retain too much control. The need for a balanced approach to leadership and strategy is highlighted, as is the importance of having a clear, defining product that resonates with consumers.

Keywords

💡Nike

Nike is a leading global brand in athletic footwear and apparel, often considered the industry benchmark. In the video, Nike's dominance is highlighted as it sells the most athletic footwear and apparel in the world, setting a high bar for competitors. The script mentions how rivals, including Adidas and Under Armour, struggle to match Nike's market share and influence.

💡Adidas

Adidas is a major sportswear company and a key competitor to Nike. The script discusses Adidas' attempts to challenge Nike, which included the costly buyout of Reebok and overinvestment in retail, ultimately leading to setbacks in profits and popularity. Adidas is also noted for its successful collaborations, such as with Kanye West's Yeezy line, which helped it regain some market presence.

💡Under Armour

Under Armour is a sportswear company that gained significant attention in the 2010s for its rapid growth and potential to challenge industry giants like Nike. The script details Under Armour's rise as a promising underdog with a focus on quality and performance, backed by endorsements from celebrated athletes. However, it also outlines the company's subsequent struggles, including declining sales and executive turnover.

💡Founder-led companies

The concept of founder-led companies is central to the video's discussion of Under Armour. It refers to businesses where the founder maintains significant control and influence over the company's operations and strategic decisions. The script explores how Kevin Plank, Under Armour's founder, played a pivotal role in both the company's success and its challenges, highlighting the potential pitfalls of founder-led governance.

💡Innovation

Innovation is a recurring theme in the video, particularly in the context of sportswear technology and product development. The script emphasizes the importance of innovation for companies like Under Armour to differentiate themselves in the market. It also discusses how Under Armour's focus on performance and quality, such as with the SpeedForm line, was initially well-received but eventually faced challenges in terms of aesthetics and market appeal.

💡Market share

Market share is a critical measure of a company's success in its industry, representing the percentage of total sales it captures. The video discusses how Under Armour managed to take market share from Nike in North America during the 2010s, but later lost ground to competitors. The script also explores the challenges of maintaining market share in the face of changing consumer preferences and competitive pressures.

💡Retail

Retail is a significant aspect of the sportswear industry, as it involves the sale of products directly to consumers. The script mentions how Under Armour's retail strategy, including its approach to wholesale and direct-to-consumer channels, played a role in its growth and eventual challenges. It also discusses the impact of retail trends, such as the shift to online shopping, on the company's performance.

💡Athlete endorsements

Athlete endorsements are a common marketing strategy in the sportswear industry, where companies partner with famous athletes to promote their products. The video highlights how Under Armour leveraged endorsements from athletes like Tom Brady and Steph Curry to build its brand and challenge competitors. However, it also suggests that these endorsements alone were not enough to sustain the company's growth and market position.

💡Connected Fitness

Connected Fitness is a term used in the video to describe Under Armour's strategic pivot towards technology and data analytics, particularly through the acquisition of fitness tracking apps. The script details how this initiative was intended to give the company a competitive edge by leveraging consumer data, but ultimately proved to be a costly diversion that did not deliver the expected benefits.

💡Corporate governance

Corporate governance refers to the system of rules, practices, and processes by which a firm is directed and controlled. The video discusses the impact of corporate governance on Under Armour, particularly in the context of founder-led decision-making. It suggests that the lack of checks and balances in the company's governance structure may have contributed to its strategic missteps and financial challenges.

💡Product differentiation

Product differentiation is a marketing strategy where a company seeks to make its products stand out from competitors' offerings. The script explores how Under Armour initially differentiated itself through performance and quality, but struggled to maintain this differentiation as the market evolved and consumers began to prioritize style and aesthetics alongside performance.

Highlights

Nike's dominance in sportswear is unparalleled, selling the most athletic footwear and apparel globally.

Adidas' attempts to challenge Nike, including the costly buyout of Reebok, led to significant setbacks.

Under Armour emerged as a strong contender in the 2010s, growing sales in North America and taking market share from Nike.

Under Armour's success was attributed to endorsements from generational athletes and a focus on quality over price.

The company's early products, like SpeedForm Fortis and Apollos, were praised for comfort but criticized for aesthetics.

Under Armour's rapid rise and subsequent fall is a case study in governance, technology, and the pitfalls of founder-led companies.

In the 2000s, Under Armour transitioned from a specialized brand to a mass-market one, focusing on moisture-wicking fabrics.

The company's initial success was driven by wholesale sales and a premium pricing strategy.

Under Armour's direct-to-consumer channel was limited but valuable for capturing full profits.

The company aimed to grow its core apparel business, expand into footwear, and drive international business.

Under Armour's footwear business grew to account for 10% of annual sales in the 2000s, maintaining a premium positioning.

International expansion was a strategic move, with early efforts in Japan serving as a barometer for the brand's global potential.

Kevin Plank, Under Armour's founder and CEO, played a central role in the company's rise and eventual challenges.

Under Armour's growth in the 2010s was fueled by a shift towards everyday wear and a focus on innovation.

The company's premium positioning and high prices limited its appeal to a broader audience.

Under Armour's pivot to tech and IoT, driven by Kevin Plank, led to significant investments in fitness tracking apps.

The Connected Fitness initiative was intended to leverage big data and IoT to enhance product development and consumer insights.

Despite significant investment, Connected Fitness failed to deliver the expected business value and contributed minimally to revenue.

Under Armour's decline was marked by declining sales, executive turnover, and failed strategic pivots.

The company's focus on tech and data overshadowed the need for aesthetic improvements and consumer engagement.

Under Armour's leadership under Kevin Plank and subsequent CEOs struggled to balance innovation with practical business needs.

The company's financials were marred by allegations of fraud and manipulation of sales data to meet targets.

Under Armour's recent efforts under new leadership have focused on returning to its roots in apparel and footwear innovation.

Transcripts

In the world of sportswear, Nike is so strong, so dominant, so invincible that its rivals

never refer to it by name.

There are simply no equals as Nike sells the most athletic footwear and apparel in the

world.

The closest adversary would have been Adidas, but as we covered back in Season 1, their

attempts to challenge Nike only resulted in expensive mistakes like the buyout of Reebok

for $3B, overinvestment in retail, and overexposure to international markets.

These mistakes eventually cost the CEO his job and set Adidas back years in profits and

popularity.

It was only through UltraBoost and Kanye that Adidas caught up, but now that UltraBoost

is at the end of its lifecycle, Yeezy is dead, and the latest CEO is on his way out, the

future looks uninspiring for the Germans.

In the 2010s, there was one American brand doing what no one else had been able to do

for decades - to grow sales in North America at double digits every year for 13 years straight

and take market share from Nike in its own backyard.

This company came out of nowhere to leapfrog past Adidas as the new No.2 sportswear brand

in the United States with endorsements from generational athletes.

This tiny company had everything - it was an upstart brand with a passionate fanbase,

a business that competed on quality over price, and marketing backed by some of the most celebrated

athletes in the world.

While Nike had Cristiano Ronaldo, Lebron James, Kevin Durant, Nadal, and Tiger Woods, they

had Tom Brady, Steph Curry, Michael Phelps, Lindsay Vonn, The Rock, and Captain America.

This was Under Armor.

Under Armor in the 2010s was hyped as a promising, scrappy underdog a few years away from taking

on Goliath.

While Under Armour was nowhere near the scale of the swoosh, in the eyes of the media and

investors, it was the closest to a Nikeslayer that the industry had ever seen - and that

enormous potential was quickly priced into the stock.

At the peak of Under Armor’s hype, I was in college.

As a consumer, my own experiences were similar to the market consensus.

I picked up UA’s SpeedForm Fortis, Apollos, and AMP 2.0s - the Fortis and Apollos were

mind-blowing-ly light, soft, and had a level of comfortability that I’ve not found anywhere

else, not even in the latest UltraBoosts.

The biggest issue was the aesthetics.

The Fortis and Apollos were like clown shoes, the colorways were hideous, the heels were

ugly, but in terms of quality and performance, they were memorable.

As training shoes, the AMPs had better design but no utility beyond weightlifting.

While the design needed work, I swore to friends that Under Armor was underrated and the company

had genuinely compelling shoe technologies.

Yet fast forward to the present - just a few years after the hype and my own experiences,

Under Armor is a shadow of its former self.

What used to be the No.2 athletic brand in the US is now so far out of the picture that

it can barely be considered in the Top 5.

Armor these days lags behind not just Nike and Adidas, but also New Balance, Puma, and

Lululemon.

In retail, UA is an afterthought as retailers the brand seems barely stocked.

Even the collaboration with Steph Curry, which was meant to rival Nike’s billion dollar

Jordan product line has fallen short.

While Air Force Ones, Yeezys, UltraBoosts, Air Maxes, Blazers, Converse, 574s, and Jordans

dominate on the field and on the streets year after year, Under Armor has remained non-existent.

And every year, things only seem to get worse for this once red-hot brand.

Declining sales, executive turnover, terrible acquisitions, failed pivots, expensed trips

to strip clubs, and federal investigations into dodgy accounting have plagued the company

year after year.

Under Armour these days has reduced to a little more than a penny stock.

How could so much have gone so wrong in just 5 years?

How could a promising brand with generational athletes like Steph Curry and Tom Brady collapse

in such a short time?

In this episode, we’ll cover the 4 eras of Under Armor and how their rapid downfall

is a timeless case study on governance, tech, and the unspoken dangers of founder-led companies.

In the 2000s, Under Armour was in its first era of transitioning from a specialized athletes-only

brand into a mass-market brand aimed at the average consumer.

Since Under Armour lacked the history, prestige, and legacy of Nike and Adidas, the company

had to compete on merit to cut through the noise.

Through the 2000s, Under Armor successfully made a name for itself by reinventing athletic

apparel from plain cotton tees and into moisture-wicking fabrics.

The focus on athletes helped Under Armor not only achieve differentiation, but also build

the confidence of wholesalers and by extension, establish the fundamentals for a healthy business.

In the 2000s, Under Armor was a small player with revenues of less than a billion dollars.

The majority of Under Armour's business came from wholesale, where the company sold its

products in bulk at a discount to retailers like Big 5, Sports Authority, and Dick’s

Sporting Goods.

These retailers in turn sell these products to customers at the recommended retail price.

As an emerging brand, Under Armour did not have the starpower of Nike to occupy the best

shelf-space and demand retailers to buy as much product as possible every quarter.

Retailers by nature are cautious creatures.

They want to minimize every risk of being stuck with unsellable goods that no one wants

and any guarantee possible that the products they’re buying in bulk will be bought quickly

at maximum markup and minimal returns.

If retailers don’t believe that the product will sell, they won’t stock it or if they

do, they’ll ask for a significant discount in exchange for taking on risk.

While athletes were a niche, they appreciated Under Armour’s focus on performance and

would seek out the brand.

This gave retailers the gradual confidence to buy more Under Armor products every quarter.

The other benefit to winning athletes was that Under Armour could charge more since

they weren’t going after the soccer mom or beer belly dad just looking for a cool

T-shirt.

Retailers liked Under Armour’s premium pricing, which allowed them to reap higher profits

on each unit of clothing sold even at a lower unit volume.

Under Armour set high prices in an era where most brands were conservative, selling $25

tees when everyone else was selling for $10-15.

Under Armor products were also rarely discounted.

In comparison, Nike and Adidas would push tons of products every quarter to the point

that retailers were accustomed to aggressively discounting their unsold inventory to make

room for new styles.

It took years for retailers to warm up to Under Armor, but once that channel was established,

it led to consistent growth and opened up doors for the company to expand beyond apparel.

Only a small slice of sales every year was generated through Under Armor’s direct-to-consumer

channel.

But just like with wholesale, Under Armour did not have the capital or supply chain like

its competition to open up stores everywhere it wanted to.

Similar to Nike and Adidas, Under Armour owned and operated two types of stores - the first

was a brand store that sold the newest products at full-price and evangelized customers in

a high-traffic area.

The second was an outlet store where the company would funnel and sell discontinued and excess

inventory at a discount while maintaining full price for in-season products in every

other channel.

Having both outlet and brand stores are essential for pricing integrity.

Through the 2000s, Under Armour had less than a hundred stores in the United States whereas

Adidas and Nike each had thousands of locations worldwide.

As a brand for athletes-first, Under Armor relied most on wholesale to propel the company

forward.

Yet DTC, in the form of online sales or transactions at company stores, was still valuable as a

high-margin channel where profits could be captured in full without giving up a cut to

a retailer.

In Under Armour's first era, the company had 3 goals: grow the core apparel business, expand

into footwear, and drive international business.

The credibility that Under Armor established with athletes and retailers in apparel enabled

entry into adjacent, higher-margin markets like shoes.

The hope was that the footwear business would eventually overtake the core apparel business

to drive higher profits as you can charge more for a shoe than you can a T-shirt.

The company opted for a crawl-walk-run approach as it forged relationships with Foot Locker

and shoe retailers.

Under Armour started with its bread-and-butter athletes by rolling out football cleats in

2006, baseball cleats in 2007, training shoes in 2008, and then running shoes in 2009.

In the 2000s, footwear had grown to account for 10% of annual sales.

Even in a recession, the company stuck to its premium positioning, selling shoes for

$90 in an era where customers paid $60 for a pair.

The majority of Under Armor’s business remained in apparel while accessories like mouthguards

and gloves made up the rest.

While most of Under Armour's resources went towards duking it out against Nike at home,

the real battles were being waged overseas in growth markets like Brazil, Russia, India,

and China.

Under Armour wanted a piece but could not jump into wars it couldn’t afford.

Growth in the core apparel business and in the US market was necessary to fund international

expansion.

There were some signals in the 2000s that the brand would translate well in the East.

Under Armour licensed away its marketing and distribution rights in Japan to a local partner,

who took on generating demand, closing sales, and tailoring existing products to the Japanese

market.

The Japan business was significant not so much in the dollars it brought in, but more

so what it represented - as a barometer or proving ground for how the brand would be

received overseas.

Revenue from licensing represented less than 5% of Under Armour’s top-line in this first

era as the company willingly gave up monetary value in exchange for presence in the East.

Yet this was not an overnight success as it took nearly 15 years before the Japan business

broke $100M in sales.

It’s impossible to analyze Under Armor without talking about Kevin Plank.

As the founder and CEO, Kevin is the single common factor in every era of Under Armor.

He is as much responsible for the rise as he is for the eventual fall of his own company.

Under Armor was a founder-led company in every sense of the term.

Kevin was not afraid to break the conservative, cryptic speak of corporate America.

As a founder, his voice was naturally the loudest, the most meaningful, and always correct.

Kevin was a natural storyteller and that skill was on display in Under Armor’s first era.

“We charge $5 or 10 more because we have a better product and that is something that

the consumer will always pay for in any market.

The last thing the market needs is someone else to come in and say “Buy my brand because

my logo is cooler than the guy next to me.”

That’s not at all what we’re doing.

It’s all about innovation.

The smartest college graduates in the world say - if I want to work in IT, I’m going

to work at Google.

If I want to work in finance, I’m going to work for Goldman Sachs.

Who is out there thinking about making the world’s next great T-shirt?

Somebody should be worried about building the next great T-shirt.

If Google is developing the next great software, who is thinking about your apparel?”

Spurred on by its three growth drivers, Under Armor broke a billion dollars in revenue in

2010.

This would be the seventh consecutive year in which Under Armor had posted double digit

growth in revenue.

The company was averaging 40% revenue growth every year even during a recession and the

brand was hotter than ever.

Strong sales and sponsorships with Tom Brady, the college football champion Auburn Tigers,

the No.1 overall pick Cam Newton, and baseball champion Buster Posey all helped establish

Under Armor as a major up-and-coming player in this new decade.

But to reach the next billion, the company had to evolve.

Appealing to athletes and performance alone wasn’t going to cut it.

Moisture wicking microfibers was good for workouts but had no place in the day-to-day

leisure or work of the average American.

To enter the mainstream audience, Under Armor ported over elements of its athletic products

to everyday wear like hoodies, bras, pants, and tees.

The underlying thesis was that innovation would drive product quality which would then

enable pricing premiums.

$70 water-resistant sweatshirts, $30 tees that dried 5 times faster than regular cotton,

$80 infrared cold weather jackets, and $100 carbon-plated running shoes were all aimed

at the top end of the consumer market.

If Under Armor could combine annual double digit sales growth with industry-leading margins,

the company could challenge Nike in ways no one else had before.

Under Armour even went so far as to keep its products off Amazon as it believed the promotion-heavy

online environment would hurt the brand’s premium positioning.

Yet the line between adoption, margin, and pricing is a difficult one to balance.

The more Under Armor transitioned away from specialized athletes and towards Average Joes,

the greater the tension below the surface.

Under Armour was anchored to its premium positioning - it was the company’s DNA, it had been

essential in cutting through the market, and still needed to generate funds for expansion.

But high prices restrained the company from realizing its ambitions of rapid growth and

greater market share - which was a function of unit volume rather than unit margins.

Premium positioning made international expansion even more complicated.

Most Americans were balking at $70 Under Armor hoodies - to the average European or Asian,

that same price tag would be unfathomable.

Nike and Adidas had their own high-priced products, but both brands still offered plenty

of options for budget-conscious consumers - identical to the barbell strategy of the

fast food industry which we covered in the Burger King episode.

This had not been an issue in the football and baseball markets as UnderArmour sold full-priced

apparel alongside cleats and accessories to committed players.

But pricing became an issue in running, where the line between average Joe and serious runner

was a lot less clear.

As Under Armor progressed, the company learned that if they were serious about going mainstream,

they had to come down on price.

The market for a $100 running shoe was tiny.

No amount of innovation or marketing would convince Average Joe to make such a big purchase

for a hobby sport.

Under Armor begrudgingly walked back on price to make its footwear more accessible.

Kevin could not hide his frustrations.

“We have a product in the market that’s done nicely.

It’s a $70 running shoe.

It’s a fine shoe.

But the fact is, a brand as powerful as Under Armor should be building a much higher price

point than that.

What I believe is that we're supposed to appeal on such a broad level that we should be driving

price points for our retail partners, so Under Armor shouldn’t be 30% off on Black Friday.

You won’t find us there because we don’t participate.

We may have an item that we’ll use with some partners, but Under Armour is not for

discount or on-sale.

We believe we are a $10 billion brand doing $2 billion of business today.”

In 2013, Under Armour entered its Nikeslayer era - a four-year period of red-hot growth

and hype where the company blew past Adidas to become the No. 2 sports brand in the United

States.

Investors and media alike crowned the brand to be the next Nike in-the-making.

The company enjoyed its greatest business performance in its history with annual revenue

exploding from $2 billion to nearly $5 billion by 2016.

It had previously taken Under Armor 4 years to go from 1 to 2 billion, this time, it only

took 3 years to go from 2 to 5 billion.

The streak continued for 13 consecutive years of 27% top-line growth.

The company had not sacrificed its bottom line to drive sales as Under Armour maintained

a consistent double digit operating margin.

Under Armour had gone toe to toe against the King in his own backyard, in the most competitive

and lucrative sportswear market in the world.

The international markets, in comparison, would be a cakewalk compared to North America.

As the sponsor of Notre Dame, UCLA, UC Berkeley, Naval Academy, Tottenham Hotspur, Southampton,

Colo-Colo, Cruz Azul, Steph Curry, and the US Olympic team at Sochi and Rio - Under Armor

looked every part of a kingslayer.

Yet it was also in this same era in which the success would go to their heads and would

be the beginning of the end for the company.

As Under Armor matured, the company embraced its premium positioning as a positive force

and accepted the reality to innovate or die.

The challenge with innovation is not only the high cost, but also the indeterminate

timeline.

It was around this time in 2012 when Adidas had stumbled onto Boost from a random demo

at a local chemical manufacturer and it took the Germans another 3 years to figure out

how to harness the material into a shoe.

Under Armour had been manufacturing running shoes for nearly 5 years and only in Year

4 did the company achieve the breakthrough it was looking for to break into the mass

market.

SpeedForm was built off of Under Armour's investments in everyday apparel from its prior

era.

The company applied the lightweight, breathable, abrasion-resistant concepts, material, and

design from its women’s bra line to shoes.

SpeedForm shoes were manufactured in bra factorie and some of the lightest ever made, weighing

in at 6 ounces.

The strong reception to SpeedForm propelled Under Armour’s footwear business grew from

$300M in 2013 to a billion-dollar business by 2016.

Kevin couldn’t resist the chance to talk up the company’s achievements - “If you

look at the football cleat market, we’ve been at it for 7 years, which means we have

the most depth and experience.

It took us 7 years to become really good at football cleats.

We’ve created the #1 cleat, $130 per consumer, with a unique look built after Muhammad Ali’s

boxing shoe.

It’s an unbelievable product that’s been authenticated on the field with more than

60 NFL players.

The cool kid on the field is wearing our product.

For running, we’re in Year 4.

SpeedForm was on the cover of Competitor magazine with 100,000 runners who are putting 80 miles

a week in these shoes.

We’re going to keep getting better.

The fact is that if we believe it bleeds, we can kill it.

We definitely think we’re drawing some blood and we’re going to keep running very hard

and do a good job.”

Kevin’s comments could be interpreted as standard founder bravado just as much as arrogance.

As a former high school football player and aspiring D1 walk-on at the time, I can say

that the #1 cleat was in no way Under Armor.

The cool kids wore Nike Vapors and Speeds.

There are also 1,600 active players in the NFL - 60 players represented just 4% of the

entire league.

In its first era, Under Armour took a bottoms-up marketing approach to match its product-led

differentiation, relying on athletes to generate awareness to peers and fans.

In this second era, the company poured more money into advertising than ever before for

top-down mass marketing.

But Under Armor had not actually made it into the big leagues.

There were only so many teams and athletes that the company could afford on its shoestring

budget.

Under Armour tried to sign Kevin Durant in 2014 with a 10-year, $250 million deal, which

would have cost 75% of the company’s annual ad budget.

In comparison, Durant’s final $350M deal made up just 11% of Nike’s annual 3-billion

dollar marketing budget.

At this time, sportswear was evolving and quality was no longer enough for differentiation.

Adidas had achieved its own breakthroughs in 2015 with UltraBoost and Yeezy, which captivated

the market with style and comfort.

Now that performance was ubiquitous, the market was placing a greater weight on aesthetics.

SpeedForm was like all Under Armor products - performance and comfort without style.

But to Kevin, investing in design was not enough.

That playbook was too boring, too straightforward, and too slow to be the main growth story for

his company.

In an industry where Under Armor was always playing catch-up, Kevin was desperate for

first-mover advantage.

He opted for a hard pivot in pursuit of futuristic pastures that would, on paper, amplify penetration

into the mass market and create competitive advantages that Nike could never replicate.

Kevin found his inspiration in tech, the one sector that you can count on every year that

comes up with new buzzwords and grand futuristic visions to cover up the failures and undelivered

promises from the prior year.

This cycle happens all the time in tech - take this year for instance: the crash of crypto,

mass layoffs, startup implosions, and unsustainability of SaaS have all been swept under the rug

by hype for AI and buzz around Chat-GPT.

Tech is always about shiny new things.

During Under Armor’s second era, big data and IoT were the flavors of the year.

Big Data promised a world where companies could harness data and derive deep insights

that would increase sales, lower costs, and identify trends before they appeared.

Silicon Valley warned that any company not leveraging big data and not making data-driven

decisions would be at a disadvantage.

IoT promised a future where everything in the world would be connected to the Internet

and that would forever transform how humans work, live and play.

(Their words, not mine).

With IoT, your lights would automatically turn on when people entered the room, your

fridge could track how many eggs you had left, your bathroom mirror would show the weather,

your shirt would measure heart rate, and the gym mirror could teach technique in real-time.

Wearables like JawBone, Pebble, FitBit jumped into the mainstream attention, big data vendors

like Hortonworks and SumoLogic exploded, and startups who built their entire business on

analytics like Stitch Fix got funded.

Big data and IoT spread through hype alone to every industry - even home security as

we covered earlier this season with ADT.

To Kevin, the future was coming and he was determined not to miss it.

Big data and IoT is based on the idea that data is power - he who collects, processes,

and analyzes the most data can do things no one else can.

By 2015, Under Armor had spent over $700M buying up three popular fitness tracking apps

- MapMyFitness, Endomondo, and MyFitnessPal.

Through these three acquisitions, Under Armour amassed the largest base of fitness users

and by extension, the largest consumer data set of nutrition, workouts, and biometrics

in the world.

In Kevin’s mind, these millions of users and the billions of metrics they generated

every day on these apps could fuel a big data engine which would uncover insights into product

development and consumer trends - this would give Under Armour the leg up on its competition.

“Connected Fitness is the future of sport and a place where Under Armour has to be.

If Facebook is social, if LinkedIn is business, then who owns health and fitness?

We’ve now created the world’s largest digital health and fitness community with

more than 120 million unique members and growing every moment.

We want to be the ones to synthesize all this data to make it easy and digestible for anyone

to get a complete view of themselves in terms of sleep, activity, exercise and nutrition.

Think about the scale at which this community is growing.

136,000 registrations a day, 40 million new users combined in 2014, 1 in 5 Americans has

our 1 of our 4 apps, 62% of which are women, 43% live outside of North America.

A large percentage of users may be seeing our logo for the very first time.

We believe we now have the ability to understand what makes them like the athletes we’re

already selling to in North America and inform us to be a better and smarter company.

We’ll have the ability to impact and mine consistent elements about individuals that

can help inform new markets.

The data is going to be extraordinary.”

By 2016, Kevin was banging a new drum on national TV and showing up at tech conventions, proudly

proclaiming Under Armour as

a “tech company”.

Despite the rawness of both space and vision, Connected Fitness suddenly became the main

identity and principal strategy for Under Armour.

Yet it became obvious that no one at the company, not even Kevin, had been given thought to

how these apps would actually tie back into selling shirts and shoes.

Under Armor shifted its R&D focus away from conventional material innovation and design

and towards realizing this connected future - launching $150 smart running shoes that

would log steps and pace, a $150 chest strap that captured heart rate, a $180 fitness tracker,

a $180 BlueTooth and WiFi connected scale, and a free mobile app called Records that

would consolidate all your health data into a single pane of glass.

While no other sportswear company had bet the farm on this like Under Armour, Nike and

Adidas still placed chips on the table by launching fitness trackers of their own.

Yet all of these products turned out to be for naught as Tim Cook would single-handedly

crush the wearable market.

With deepeR tracking, full-color displays, superior software, better sensors, and an

unmatched form factor - the Apple Watch sucked up all demand for fitness trackers, smart

apparel, and connected shoes within 2 years.

For Under Armour, Connected Fitness as a business in itself was unsustainable.

MyFitnessPal, Endomondo, and MapMyFitness had all been bleeding, unprofitable, venture-backed

startups whose only revenue sources were through in-app ads and membership subscription.

MyFitnessPal, which was purchased for $475M, posted a $6.5M operating loss on just $14M

in revenue before its acquisition.

The Denmark-based Endomondo, which was purchased for $85M, posted a $1M loss on revenue of

$2M. It’s apparent that all three companies were purchased for their user data and talent

and not for their technology or fundamentals.

Connected Fitness contributed less than 3% of Under Armour’s annual revenue throughout

its existence.

Kevin was quick to remind outsiders that the purpose of Connected Fitness was not to generate

income, but instead to enhance its apparel and footwear businesses.

Yet there was nothing that big data would discover that the company didn’t already

know.

You didn’t need a billion data points, hundreds of software engineers, and fitness tracking

apps to tell you that Under Armor’s biggest problem was that its products were ugly.

By 2016, the answer was starring Kevin in the face.

There were cracks in the core apparel business as revenue had slowed.

Connected Fitness had become a costly diversion that had resulted in the company ceding ground

to its rivals and ironically losing touch with customers.

Even fast fashion brands were bringing innovation to their products, making differentiation

on performance and quality alone an inadequate sell.

“We need to become more fashionable with the products we have out there.

We were counting on the core basic products to generate more sales but the consumer today

frankly has more options.

The core basic apparel business is no longer just a few brands in sporting goods that are

participating.

Consumers want a product that looks great, that wears great, but also performs and performance

has just become a given.”

The long-awaited debut of Curry signature off-court shoes and apparel line was seen

as not just an invaluable entry into the mass market through the NBA’s hottest player,

but also a huge opportunity for the brand to break into mainstream consciousness.

Yet the $120 Curry sneakers were widely mocked before the product even went on sale.

The company combated the negative press by pushing out new models months later with upgraded

materials and revamped designs, but these moves only reinforced that Under Armor simply

could not make good-looking shoes.

While the Curry basketball shoes sold well on-the-court, the company had to admit that

signature sales were “sluggish” and the lifestyle business was “softer-than-expected.”

Like the tale of Icarus, Under Armour had flown too close to the sun.

In the three years between 2017 and 2019, the company found itself in free-fall, incapable

and helpless to stop the drop.

Revenue, which had grown at 27% on average every year since 2003, plummeted to the single

digits to as low as 1%.

The bill had come due for Connected Fitness and Under Armour’s operating margin was

decimated from healthy double digits and into single digits.

Under Armour blamed their multi-year underperformance on a hostile retail environment that had disrupted

wholesale and reduced demand for premium products.

In the three-year span between 2017 and 2019, major retailers like Payless and Sports Authority

went bankrupt as consumers went online to shop.

Yet this excuse rang hollow as Nike and Adidas did not experience the same nose-dive, even

if we compare sales by geography.

Anecdotally, this excuse seems even less credible as people were going bananas at the time for

$300 Yeezys and $100 yoga pants.

People were clearly still spending - just not on Under Armour.

FitnessPal, Endomondo, and MapMyFitness had grown from 120M users in 2015 to over 220

million users - but no business value had actually been generated.

After millions in R&D, the big data engine was still incomplete.

The company had built out the capability to ingest millions of data points in real-time,

but had no idea how to interpret and apply those findings.

It was now 2019 - 6 full years since Under Armour first embarked on Connected Fitness

and Kevin was still rehashing the same incoherent script about opportunity and potential.

“Connected Fitness will become a powerful instrument to address this rapidly changing

consumer environment.

From insight-driven product creation to purchase through end use, this data-fueled ecosystem

creates one of the most powerful and unique consumer connections in our industry, a true

2-way consumer-led conversation that will directly integrate and strategically influence

our strategy.

This highly sophisticated engine represents a critical asset and competitive advantage

as we work towards becoming a $10B business.

The enormous data opportunity that we have here is incredible.

What’s different now is that we have an ability to act on it.

We have an ability to take that and make it actionable.

And I think this is what is so exciting about our future.”

Unintelligible statements like these made it even apparent that Kevin was in over his

head.

Connected Fitness remained the top priority despite the lack of results.

Despite a flashy multi-million dollar top-line, Connected Fitness posted loss after loss with

nearly $600M of “goodwill” tied to this failing business.

The company replaced SpeedForm with HOVR as its new flagship technology and running shoe,

but it was an obvious UltraBoost knockoff in design and material.

To demonstrate its newfound tech capabilities, Under Armour launched its own data-driven

subscription service where you could get a box in the mail of personalized Under Armour

merchandise every month.

Like Stitch Fix, you could keep the pieces you wanted, return what you didn’t, and

the company would use that data to send better personalized boxes over time.

None of these products succeeded in breathing life into Under Armour’s footwear and apparel

businesses.

The multi-year diversion of Connected Fitness and product flops fractured Under Armour’s

wholesale business.

Retailers had lost confidence and quietly gave away Under Armour’s shelf space to

better-selling brands.

Overseas traction was slower than expected as sales in Europe, China, and Latin America

combined for less than a quarter of Under Armour’s annual revenue.

In an attempt to restore confidence, Kevin subjected investors to an in-person, 8-hour

long, 200-slide fire hose filled with some of the most over-dramaticized, over-designed,

and meaningless slides ever produced in corporate America.

If it wasn’t clear before, it was apparent now.

Change was needed.

Under Armour would enter its 4th and present-day era in 2020 led by a new CEO for the first

time in company history.

Under Patrik Frisk, Under Armor would return to its roots with a laser focus on apparel

innovation and selling shirts and shoes.

There was no more talk of big data, insights, digital, or Connected Fitness.

Less than a year on the job, the long-floundering tech division was entirely gutted - ArmourBox

was canceled, Edmondo was shut down, and MyFitnessPal was sold off to private equity at a loss.

Under Patrik’s tutelage, Under Armour’s top-line and bottom-line has recovered but

not close enough to double digit growth of the past.

Patrick awas burdened with turning things around not just in terms of product direction,

but also culture and compliance.

Reports emerged that under Kevin, company employees visited strip clubs on company dime

while male executives engaged in sexual misconduct, had romantic relationships with subordinates,

and threw parties where female employees were invited based on their attractiveness.

It was only in 2020 under Patrik that an HR policy was put in place that banned the expensing

of adult entertainment for employees and executives alike.

Things only got worse when the SEC reported that it had uncovered fraud in Under Armour’s

financials.

In the Nikeslayer era in which Under Armour had enjoyed the biggest hype, greatest stock

appreciation, and most significant sales growth - executives had manufactured double digit

sales growth by pulling forward revenue on weak quarters to hit analyst targets and exceed

guidance.

Under Kevin’s leadership, executives would ask finance and sales to look for orders that

retailers had placed for the future and ship them out early in order to recognize the sale

in the current quarter.

These retailers would take on inventory well in advance before they could even be sold,

like shipments of spring products during winter.

To convince retailers to take on this inventory, they were given bigger discounts to accept

early delivery.

Under Armour had pulled forward nearly half a billion dollars of orders between 2015 and

2016 to maintain growth.

While pulling forward revenue is accepted in accounting, not disclosing it is illegal.

This manipulation is a much better explanation for the massive drop between 2016 and 2017,

when Under Armor’s growth plummeted from 22% to 3% in a single year.

In reality, the NikeSlayer era was just 2 years long and the decline in apparel and

footwear business had been happening long before 2017.

While Under Armour was a shadow of its former self, the company was objectively in a better

place under Patrik’s leadership both by the measure of business performance, brand

identity, and culture.

Growth was solid, but unspectacular.

Yet Patrick lasted just 2 years at the helm before unexpectedly stepping down in 2022

without an explanation.

Under Armour had appointed a new CEO in Stephanie Linnartz, a Marriott executive with nearly

30 years of experience in the hotel industry - but at this point, no one is paying much

attention anymore.

The media has tried to explain Under Armour’s collapse, pointing to the typical “doing

too much, too fast” as the root cause.

But to chalk it up to a few incompetent executives is poor analysis as that kind of dirty laundry

exists in every company.

While Kevin was out chasing tech, IoT, and big data, the market was evolving to the point

where sportswear brands were defined by their footwear rather than their slogans.

If we look at the messaging and marketing across Nike, Under Armour, Adidas, Puma are

all homogeneous - positive, fitness, empowerment, speed, performance, grit, determination, etc.

When everyone is saying the same thing, no one is actually saying anything.

Adidas is defined by UltraBoosts, NMDs, Stan Smiths, Sambas, and Yeezy while Nike is defined

by Jordans, Air Maxes, and Air Forces.

Under Armour’s lack of a flagship shoe and product meant that there was nothing visible

to anchor, define, and embody the brand for modern customers.

Throwing half a billion dollars in advertising every year will not fill that void and the

company should have kept iterating on SpeedForm until they perfected the design.

The second piece is Connected Fitness.

It’s unfair to fault Kevin for falling victim to Silicon Valley hype as he is not the first

nor will he be the last CEO to get caught up in a venture capitalist’s pump and dump

scheme.

But the founders behind the MyFitnessPal, Endomondo, and MapMyFitness who were paid

handsomely and the ones coming up with a vision for Under Armour deserve some attention.

While it’s not politically correct to judge people based on their physique, most of these

founders were not even into fitness or nutrition for themselves.

The point here is not that you have to be an athlete to create value for athletes, but

more so that these were just nerds, for better or worse, that lucked their way into a big

payout.

They had all built their apps when smartphones were just taking off and achieved rapid adoption

through first-mover advantage.

Kevin should have been cautious about greenfield technologies, but at the same time, he entrusted

Connected Fitness to these founders by appointing them as C-level executives after acquisition.

These founders all bounced as soon as they got paid - leaving behind a trail of conflicting

visions and half-assed work that doomed the team from the very start.

MyFitnessPal’s Mike, MapMyFitness’s Robin Thurston, and Endomondo’s Mette all left

at their 2.5 year mark.

The other lesson here is that data is overrated.

While big data and IoT is based on the idea that data is power, the reality is that data

is only useful if you can interpret and apply it.

Collecting data for the sake of ingestion and aggregation in itself is useless.

The central issue with MyFitnessPal, Endomondo, and MapMyFitness is that even with a billion

active users, the data generated in sleep, nutrition, and fitness has no inherent business

value to Under Armour.

Knowing that 10 million people on the West Coast run on average 3.1 miles, consume 2,200

calories a day, and eat chicken for lunch is more useful for a census taker, a data

broker, or a market research firm rather than a sportswear company.

The last piece is about corporate governance.

While the market looks upon founder-led companies favorably, corporate governance is like a

spectrum, in which founder-led companies are one extreme and private equity is on the other.

As we saw in the Burger King episode, private equity leadership can be a problem as the

owners are too detached, they oversimplify the business into a spreadsheet, they’re

tunnel-visioned on short-term optimization, and they take an uncreative peanut butter

approach with strategy.

Founder-led companies are the opposite, where the founder can become too overly attached

for all the wrong reasons despite having good intentions, they’re too involved in every

single decision, they suffer from a god complex, they feel pressured to produce grand pie-in-the-sky

visions like Steve Jobs, and they turn the company into a platform for personal fame.

While founders are invaluable for the charisma and passion they bring to an early-stage startup

vying for survival and relevance, they can just as easily turn into liabilities where

they develop too much power, influence, personality, and aura that people just can’t say no to.

As the founder, Kevin’s vision and enthusiasm were essential for the survival of Under Armour

in its first era.

The company’s early success cemented Kevin as a visionary and granted him unchecked autonomy,

authority, and freedom to run Under Armour in every way he saw fit - even if that meant

allowing employees to expense visits to the strip club.

It also allowed him to assemble a boardroom of obedient executives who wouldn’t challenge

his decisions - like dropping $700M on unprofitable fitness apps whose own private post-money

valuations were nowhere near their purchase price.

Only founders, with their unparalleled privilege and mythical reputations, can make such radical

changes in a company’s direction so quickly and persist with bad investments for so long

without being directly challenged by the board, employees, and investors.

Kevin was not forced out of the CEO role, instead he voluntarily stepped down before

that conversation could even happen and in doing so, gave himself a position where he

would still have control over the company.

Even though Under Armour has had 2 external CEOs in the past 3 years, those CEOs formally

still reported to Kevin and not to the Board exclusively.

Under Armour’s finances even spell out a mysterious Chief Operating Decision Maker

- an individual who makes CEO-like decisions about allocating resources and assessing performance.

All signals point to Kevin as the CODM, which leaves the CEO as nothing more than insulation

and a political puppet.

If Under Armour had a conventional corporate structure, this kind of hierarchy would never

exist, CEOs would be not reporting into the founder, Kevin would not have been allowed

to bet the farm on Connected Fitness without significant due diligence, but at the same

time - Under Armour might not have ever been successful and the brand would likely have

been sold for parts during its initial free-fall.

When you come from millions, you seek billions.

When you achieve billions, you value purpose.

As a billionaire who was born into millions, the last thing Kevin needs is more money.

For Kevin, Under Armour is his life’s work.

As long as the company stays alive and he gets to run the show through a proxy that

keeps him out of public scrutiny, he would happily do so - even if that means running

Under Armour into the ground.