Sports

Can Under Armour Afford to Play Nike Abroad?


A Boston College player's Under Armour basketball shoes

Photograph by Don Juan Moore/AP Photo

A Boston College player's Under Armour basketball shoes

On fields and in gyms across the United States, Under Armour (UA) has been keeping up with—and by some measures, beating—such sports apparel giants as Nike (NKE). Now, as it prepares to expand its efforts overseas, the company is stepping onto a rougher playing field.

Selling jerseys, workout shirts sneakers, and cleats outside the U.S. doesn’t take rocket science; it just takes the cash required to sponsor pro teams and marquee events. For ages, Adidas (ADS:GR) and Nike have been locked in a spending arms race akin to that of the Yankees and the Red Sox or Manchester City and Manchester United (MANU). (Puma (PUM:GR) was in the hunt for a while, but it faded in recent years as it shifted some marketing focus from athletes to artists; the company issued two profit warnings in the past year and posted a 32 percent drop in income for the most recent quarter.)

Under Armour does a lot of things well. But the Baltimore-based company has built its brand organically—largely without big, splashy marketing campaigns. Bootstrapped by Chief Executive Officer Kevin Plank shortly after he hung up his college football uniform, Under Armour grew by exploiting overlooked niches: focusing on undershirts instead of uniforms, sponsoring the XFL instead of the NFL (at least at first). It buttressed the occasional major-league publicity play with a rash of camps and clinics for high-school athletes.

Indeed, Under Armour’s value-bent marketing is one reason that shares of the company have done so well. Even though Nike consistently posts better results in metrics that matter to investors—namely, return on equity and return on assets—Under Armour ‘s price-earnings ratio (the share price divided by earnings per share) suggests that investors value it much more highly than they do Nike.

Under Armour is no longer just a scrappy underdog. As a percentage of sales, it spent as much on marketing last year as Nike. But measured in dollars, Nike spent 13 times more. Under Armour sponsors one English Premiere League team, Tottenham Hotspur. Nike, meanwhile, has its swoosh on three, including Man U. And there’s no sign that Nike will slow its pace on sponsorships. At the end of its most recent fiscal year, Nike had contractual obligations for $3.8 billion in future endorsement payments, according to U.S. Securities and Exchange Commission filings.

Under Armour may be able to pick its spots abroad to generate some of the grassroots success it has cultivated in the U.S. The company has already signed on as an official supplier of the U.S. women’s and men’s gymnastics teams for the next two summer Olympic Games. Then again, that won’t help it in the $5 billion global soccer market, and analysts are worried that the cost of international expansion will serve as a drag on Under Armour’s otherwise-impressive performance.

Meanwhile, Under Armour continues to position itself as a Nike rival. It launched a marketing blitz in February under the mantra “I will,” echoing Nike’s seminal ad phrase, “Just do it.” Little more than a week later, it sued Nike for trademark infringement, arguing that the apparel giant was unfairly using the same phrase in its marketing materials. Nike recently denied the allegations, arguing that the phrase “is not famous” and has been in its ad materials since 1995.

Game on.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • UA
    (Under Armour Inc)
    • $67.97 USD
    • 0.18
    • 0.26%
  • NKE
    (NIKE Inc)
    • $96.29 USD
    • 0.32
    • 0.33%
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