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Under Armour:PEST and
Industry AnalysisBrian Teufel
MGT 490-004Assignment #2
Professor McDermottMarch 17, 2011
Kevin Plank, the CEO of Under Armour developed a blue ocean strategy
Created Performance Apparel market – enhances consumers performance while offering greater comfort
Total sales over $1.0 billion in 2010 First-mover advantage has allowed UA to gain
70% of the U.S. market and about 15% of the global market
Performance Apparel has evolved from niche to mainstream in terms of target market and competition (Nike and Adidas)
Under Armour Snapshot
Key Dependencies
Proof of Dependency Future Challenges
Innovation 1/4 of 3,900 employees in R&D
Ratio likely to decrease as UA branded stores continue to open
U.S. Market 95% of sales come from U.S.
International market development
Performance Apparel
85% of sales come from PA
Product development of non-PA products
International Subcontracting
Product suppliers mainly from Asia
Diversify supplier locations as costs and inflation increase in China
Retailers 2 retailers make up about 50% of sales
Brand development and franchising
Under Armour Snapshot (cont.)
Under Armour owns branded retail stores in 28 U.S. states (30+ stores) and 23 other countries (25+ stores). - First UA branded retail store opened on November 1, 2007.
Factor Trend Evaluation;O=OpportunityT=Threat
Impact (1=Low; 5=High)
Rank in terms of importance
Political - FDI policies T 2 -
Economic - Economic Recovery- Increase in cost of raw materials and resources; shipping costsi.e. cotton, all man made fibers, and the big one being OIL/GAS- Growth of performance apparel industry (Domestic and International)- Increase in interest rates - Inflation in China increasing- Chinese labor costs increasing
OT
O
TTT
35
5
233
-1
1
543
Social - Consumers focus on quality, not price- Aging population and increase in physically active seniors- Increase in physically active women- Consumers becoming more health conscious- Obesity rates in U.S.- Sport participation is a key aspect of U.S. culture- Increase in sports participation in emerging markets
OO
OO
TO
O
32
33
33
4
4-
--
25
2
Technological - Increase in e-commerce- Increase in m-commerce
OO
43
33
Pest Analysis• Opportunities and Threats are ranked in terms of importance separately; top five of each are ranked accordingly.(1 = extremely important, 5 = Not very important.
FDI Policies - Some foreign countries have policies in place that prohibit 100% ownership of retail stores which poses threat to internationalization
Chinese Labor Costs Increasing ◦ Costs of international labor is on the rise.◦ Hourly compensation costs of manufacturing employees in China from
2002-2008 is shown below.
Political Factor
Year National Currency Basis (Yuan)
U.S. Dollar Basis(U.S. $)
2002 4.74 .57
2003 5.17 .62
2004 5.50 .66
2005 5.95 .73
2006 6.44 .81
2007 8.06 1.06
2008 9.48 1.36
Economic Factors
Economic Factors (cont.)Factor Comment
U.S. and International Economic Recovery
Consumers have more disposable income
Growth of Performance Apparel industry
PA industry is on the rise and shows no signs of slowing down
Chinese Inflation Chinese inflation is on the rise and expected to continue to rise
Increase in Cost of Raw Materials/Resources
Cotton, Man-made fibers, are on the rise but GAS is the big factor
•The growth of the performance apparel industry is the greatest opportunity. •More Consumers = More Revenues
Obesity rates in U.S. show people not physically active
Consumers focus on quality more than price Increase in physically active women Increase in health conscious consumers = more
exercise/physical activity Sport participation is a key aspect of U.S. culture Aging population and increase in physically
active seniors Increase in sports participation in emerging
markets
Social Factors
Increase in e-commerce
Increase in m-commerce (trend is to always have digital connection)
Technological Factors
Opportunity Rank in terms of importance (1; least important, 5; most important)
Comments
Growth of the performance apparel industry (domestic and international)
1 Protect products and the industry
Increase in sports participation in emerging markets (foreign markets)
2 Marketing will be key
Increase in commerce (electronic and mobile)
3 Take advantage
Consumers focus on quality more than price
4 Innovation and Differentiation
Sport participation is a key aspect of U.S. culture
5 Sport participation will always be a key aspect of U.S. culture
PEST Summary
Threat Rank in terms of importance (1; most important, 5; least important)
Comments
Increase in cost of raw materials and resources, shipping costs
1 Buy in higher quantities; volume discounts
Obesity rates in U.S. 2 Marketing will be key
International labor costs increasing
3 Explore new options for production
Inflation in China increasing
4 Explore new options for production
Increase in interest rates 5 Keep debt as low as possible
PEST Summary
Under Armour is in the extremely competitive performance apparel industry which is defined as anything that is worn which enhances the performance of the user.
Performance apparel global sales = $6.4 billion in 2010 and is expected to grow to $7.6 billion by 2014.◦ In 4 years, the industry is expected to grow by 15%.
Industry Analysis Overview
Participants in the PA Industry
Buyers/Buyer Groups Physically active and want to enhance their performance, especially athletes. Groups include both domestic sports teams, international teams, and retailers
Suppliers/Supplier Groups Third Party Suppliers (100+)
Competitors Nike, Adidas, Columbia Sportswear
Substitutes Conventional apparel or no apparel
Potential Entrants Anyone is a possible entrant in this industry because of the high growth rates, especially organizations that produce apparel, sportswear, or equipment.
Porter’s 5 ForcesForce High/Moderate/Low Underlying Drivers
(Strong or Weak)
Threat of New Entrants
High Weak
Threat of Substitutes - Core Athletes = High
- Non-Core Athletes = Moderate
Strong
Bargaining Power of Buyers
- Athletes and Teams = High
- Non-Core Athletes = Moderate
Strong
Bargaining Power of Suppliers
Moderate Weak
Intensity of Rivalry High Strong
Threat of New Entrants - High
With the expected growth of the performance apparel industry, there will be new entrants in the industry from all over the world.
Most companies who enter the performance apparel industry are unable to compete due to existing brand loyalty and the high barriers to entry.◦ Examples include New Balance, Velocity, and
Sugoi
Substitutes are limited to conventional apparel or no apparel at all.
Core athletes have a large number of substitute options to choose from.
Threat of Substitutes – Moderate to High
Factor Under Armour
Lack of Direct Competition Exceptions include Nike and Adidas
PA not essential to participate in sports or physical activity
UA products enhance performance and allow comfort
Potential Substitute Products Low
Switching Costs Low
Buyer/Buyer Group
Bargaining Power
Comment
Core Athletes High Exposure to the public and builds relationshipsProfessional Teams
Non-Core Athletes Moderate - Limited competition and substitute products- UA’s products differentiated from competition- Consumers do not need performance apparel to compete or be physically active
Non-Professional Teams
Recreational Buyer
Bargaining Power of Buyers – Moderate to High
The bargaining power of buyers depends on the consumer’s skill level and the level of the team.
Factor Under Armour
Switching Supplier Costs Moderate
# of Different Suppliers Very High
Product Uniqueness Moderate
Third Party Suppliers Very High
Bargaining Power of Suppliers - Moderate
The use of third party suppliers allows performance apparel companies to chose their suppliers based on highest quality and lowest production cost.
Third party suppliers have high bargaining power by being able to choose the companies that they want to supply for.◦ The best third party suppliers can select the company or companies
that treat them the best and provide the best compensation.◦ There are thousands of third party suppliers all over the world.
Currently, the performance apparel industry is growing rapidly at 15%; this allows rivalry to grow rapidly as well.
There is a high # of competitors but UA, Nike, and Adidas make up the majority of the industry due to a quality advantage over other competitors.
Rivalry Intensity - HighFactor PA Industry
# of Competitors High
Brand Loyalty High
Industry Growth Rate Extremely High
Quality differences between competitors Moderate to High
Blue Ocean Strategy
InnovationDifferentiation
Enhance Performance
Niche R&D
The opportunities for the performance apparel industry outweigh the threats.◦ Labor and gas costs are increasing but opportunities such as the
global growth of the PA industry, global increase in sport participation, and increase in both e-commerce and m-commerce outweigh the threats.
Rivalry is extremely high in the performance apparel industry.◦ The competition between Nike, Adidas, and Under Armour is fierce
and it continues to heat up. Participants in the performance apparel industry must always
be aware of new entrants because the industry is on the rise.◦ Create high barriers to entry.
Blue Ocean Strategy was the basis for Under Armour and it allowed them to achieve success in the PA industry. ◦ Innovation, Differentiation, R&D, Creating Niche of performance
apparel that enhances performance while allowing comfort.
Conclusions