SBJ/May 29 - June 4, 2006/This Weeks News
Under Armour tests cachet in cleat wars
Published May 29, 2006
When Clayton Hillyer, 16, discovered Under Armour’s new cleats on a lacrosse message board, the high school football player began envisioning what they would look like on his feet. Hillyer already knew the brand well. He owns several Under Armour shirts, gloves, shorts and socks. He wears the brand every time he takes the field, but he can’t wait to add the footwear to the list of items when they hit retail stores June 3.
|Endorsers (from left) Bloom, Hawk and Davis
clicked in an Under Armour cleat ad.
Hillyer is one of many future cleat buyers that Under Armour hopes to cash in on this summer when its new football cleats hit retail shelves. The shoe line is the company’s first move outside of its specialty — performance-apparel products — and into a category dominated by Nike, Reebok and Adidas. The Maryland-based company hopes to sell $8 million worth of cleats this year, and whether it sprints or stumbles could influence the brand’s further expansion into the world of footwear.
“They’re blazing new territory now,” said Neil Schwartz, a sporting goods analyst with the research company SportsOneSource Group. “No one knows how they’re going to do.”
But many sporting goods experts have their guesses. To meet the company’s $8 million target, analysts say Under Armour will need to rely on the mixture of brand identity, quality management and buzz-building marketing that has helped it build a $1.7 billion market capitalization.
Under Armour came out of nowhere in the late ’90s, billing itself as a performance-apparel company built around shirts that wicked moisture away from the body. From 2000 to ’05, company revenue rocketed from $5.3 million to $242.2 million.
While Under Armour didn’t invent the technology, it did fuel the performance-apparel market, which grew from almost nothing in 1996 when the company began to become a $500 million category last year, according to SportsOneSource Group. The performance products also drove the growth of the Under Armour brand. Today, Schwartz said the company has a 43 percent share of performance apparel sold across the United States.
Riding on that growth, the company went public last fall with one of the most successful initial public offerings in years, rising more than 100 percent in its first day, from $13 to $31. The offering helped Under Armour raise more than $157 million to fund its increasing expansion and its entrance into new categories such as socks and bags, through licensing its name to manufacturers such as Moretz Sports and JR286.
Under Armour’s next test comes this summer when the brand steps into the footwear category with its football cleats. Athletic footwear, with a market size of $16.7 billion, has long been considered one of the most important sporting goods categories. Shoes fueled Nike’s staggering growth and helped sustain brands such as New Balance and Asics. Under Armour’s entrance into the category has captured investors’ attention.
|Jonathan Vilma will keep wearing
his Nikes and wait to battle test
Under Armour cleats.
Market sources have said the company has begun plans for new running shoes later that year, according to Matt Powell, an analyst with SportsOneSource Group.
For the launch of the football cleats, the company has increased its marketing expenditures. It typically spends between 10 and 12 percent of revenue on marketing, but the company will spend more than average this quarter to promote the cleats.
During that April conference call, Plank said demand for the cleats was exceeding expectations. But even high footwear sales may not be enough to meet Wall Street expectations for continued growth of 25 percent a year, considering the lower margins footwear offers compared with apparel.
Plank was not available for comment for this story.
The company also faces more competition than in the past. Currently, the market for football cleats is $250 million and growth is anticipated to be 4.5 percent, according to research by SportsOneSource Group. It’s also currently divided among three major players, with Nike having a 63 percent share, Adidas 20 percent and Reebok 13 percent.
For its cleats to succeed, Under Armour will have to steal a share of that market, which has not fluctuated since 1999.
Under Armour began developing its footwear four years ago. The resulting Click-Clack line of cleats incorporate the brand’s wicking HeatGear fabric in the upper interior of the shoe and will range in price from $45.99 for kids’ editions to $109.99 for high-end styles. Bill Kraus, senior vice president of marketing, called the move into cleats a natural progression, saying, “We wanted to … truly make our presence on the field ‘head-to-toe.’”
Analysts who follow the company count Under Armour’s name among its strongest assets as it moves into the footwear category. Consumers age 13 to 25 wear the brand year-round. Retailers call them “Under Armour heads” because of their brand loyalty, said Gina Vitale, a buyer at Modell’s Sporting Goods, the New York-based retailer with 125 stores.
“The logo stands for something,” Vitale said, “just like someone who wears the Nike swoosh or Adidas three stripes.”
|CEO Kevin Plank with athletic director Jay Jacobs
at Auburn, an Under Armour school
Plank, who created Under Armour in 1996, has developed a reputation for being very particular about the products he puts on the market, said Tom Conner, the director of equipment operations at Georgia Tech University, the first school to buy Under Armour apparel, in 1997. He also has positioned Under Armour to sell the cleats by enhancing the company’s sales force, hiring Matt Mirchin, formerly with Champion and Russell, to head the sales division in 2005.
Just how fast the cleats move off the shelves ultimately may be determined by Under Armour’s advertising. The company began teasing the cleats last July during the ESPY Awards when commercial viewers first heard the sound of cleats on a concrete walkway leading to a football field. The slow reveal of the product continued with print advertisements in ESPN The Magazine and Web promotions on ESPN.com that featured the promotional phrase, “I think you hear us coming.”
A deluge of “Click-Clack” commercials followed on April 29 during the NFL draft. Throughout the day, ESPN showed an ad featuring athletes including first-round draft picks A.J. Hawk and Vernon Davis and fifth-round pick/Olympic skier Jeremy Bloom, as well as the Dallas Cowboys’ Julius Jones and Eric Ogbogu. The players maneuvered through on-field exercises while repeating “Click-clack” over the sound of violin strings and an electric guitar.
“It’s a great spot,” Powell said. “They’re talking about connecting with a player — not a fan or a weekend warrior — and the commercial typifies it.”
By teasing the product early, the company has built grassroots buzz. The cleats have been the subject of Internet message boards such as lacrosseforums.com, the one that first exposed Hillyer to the footwear.
Still, convincing athletes to buy the shoe and keeping them committed to it are two different things. The former is a product of marketing, while the latter depends on the quality of the product.
Getting football cleats to perform presents a greater challenge than developing a pair of basketball shoes, said Mike May, a spokesman for the Sporting Goods Manufacturing Association. The cleats on the shoe’s sole cause premature aging of the footwear, so they must be durable, he added.
Other brands that have made transitions into categories outside their competency have stumbled because of product quality.
Converse, which was built behind the successful sales of the Chuck Taylor All Stars basketball shoes, tried to enter the apparel business in the 1990s by acquiring Apex One, which was loaded with debt. Following the move into apparel, Converse’s share of the athletic-shoe market plummeted and the company eventually filed for bankruptcy.
Kirk Wakefield, a professor of marketing at Baylor University, said Under Armour may face similar struggles convincing consumers to trust them in a new category.
“I’m doubtful they’ll succeed,” Wakefield said. “It’s an uphill battle they are facing. They have a chance of making a dent early on because kids will buy the shoes because of the brand image. Then it will be up to the quality.”
So far, the cleats have passed preliminary tests at Auburn and Texas Tech. Maryland, which also has a contract with the company, will wear the cleats this year as well.
But not everyone is embracing the new footwear. Jonathan Vilma, a linebacker with the New York Jets endorsed by Under Armour, will most likely keep wearing Nike shoes, his agent Tony Fleming said.
“Under Armour understands there’s a transition,” Fleming said. “It’s not part of the deal for him to wear their shoes, so he’s waiting to battle test them.”
Similarly, it’s not part of Hawk’s contract with Under Armour to wear the footwear on-field, and Hawk was wearing Nike shoes during his debut minicamp with the Green Bay Packers this month.
Still, executives are confident the shoes will perform. During the company’s first-quarter conference call last month, executive vice president Wayne Marino said Under Armour already has received positive feedback from retailers and increased its sales outlook as a result, raising it above the $8 million mark set earlier in the year.
“They’re hitting on all cylinders, and footwear adds one more cylinder to the engine,” Powell said. “It will be fun watching where it goes.”
Tripp Mickle is a writer in New York.