Under Armour Shoes: How To Kick Back At Adidas
(Bloomberg Gadfly) -- Retro trends from the 1990s have restored Adidas to relevance in the U.S., the world's largest sneaker market, rattling rivals Nike Inc. and Under Armour Inc.
Nike, which in 2016 ceded its top spot as purveyor of the best-selling sneaker to Adidas's Superstar, will probably be just fine. It still has nine out of the 10 best-selling sneakers:
Like every fashion craze, the retro look Adidas helped bring back in style will eventually fade. And Nike is the most popular brand among teenagers, suggesting it's at no risk of losing its title as largest U.S. sneaker seller.
I'm not so sure about Under Armour, though. Adidas's resurgence couldn't have come at a worse time for Under Armour, which was just gaining a foothold in the sneaker business.
Under Armour's diversification into footwear was a big impetus behind its shares skyrocketing in recent years. It's a far more lucrative business than selling t-shirts. Under Armour fans knew the company for its performance gear and were also starting to trust its shoes.
A broad trend toward athleisure -- wearing activewear outside the gym -- also helped Under Armour. But its early success with sneakers made for basketball star Stephen Curry was what really gave investors hope Under Armour could grow from a company with $4.8 billion in annual sales last year to one matching Nike's $32 billion in annual sales.
But then came Adidas and the big shift to more casual looks and away from performance styles, which stunted Under Armour's nascent shoe business.
In a panic to catch up after sales growth in the latest quarter dropped below 20 percent for the first time in 26 quarters, Under Armour resorted to discounts and selling stuff for the first time to downmarket stores such as Kohl's Corp.
Plank has blamed fashion for falling sales and said he wants Under Armour to sell more fashion-forward items. But unlike Nike and Adidas, Under Armour is too young of a brand to trot out the kind of retro shoes shoppers want right now. And although it launched a lifestyle fashion line last year, Under Armour Sportswear, it's too small to make a difference to the bottom line.
Spending the kind of time and money Under Armour needs to make a real fashion statement would be a waste, chasing a trend that will eventually flame out, notes Bloomberg Intelligence analyst Chen Grazutis. Instead, Under Armour should follow Nike's lead and stay focused on giving customers the performance products at the heart of its brand.
While Nike has always been a fashion powerhouse, it gained credibility by first making sure its shoes and gear worked for athletes. Anyone can make a t-shirt or a pair of canvas kicks, but customers who trust Nike's performance gear are more eager to buy its products to wear off the court.
Under Armour has the breathing room to make a comeback: Investors have become so downbeat on the stock that consensus estimates call for zero earnings growth over the next three years, compared to 25.4 percent average growth over the past five years. Shares are down 56 percent in the past year.
Plank didn't set out to make fashionable athletic gear when he built Under Armour in the first place. He wanted his sweat-wicking tee to serve a practical purpose for customers. Under Armour's shoe business needs the same approach.
Fashion trends come and go. Quality products rooted in real performance -- and the ability to focus on something other than quarter-to-quarter growth -- are what create an enduring brand.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Shelly Banjo is a Bloomberg Gadfly columnist covering retail and consumer goods. She previously was a reporter at Quartz and the Wall Street Journal.
To contact the author of this story: Shelly Banjo in New York at firstname.lastname@example.org.