Under Armour's Attack on Nike | Dropping the Ball | 2

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0:20It's late 2014 in Baltimore, Maryland. Under Armour CEO Kevin Plank rubs his hands over his face and leans back in his chair. He's been in his office for hours with two of his top advisors debating a decision that could redefine the company's future. and he's exhausted. He stands up and walks over to a whiteboard covered with notes, then picks up an eraser and wipes it clean. I just keep coming back to the same question. Does this move serve our core business? Plank uncaps a marker and draws a line to form two columns on the board. At the top of one column, he writes, Buy. On the other, Don't buy.

1:03Okay, let's go over it all again, starting with the pros. So why should we buy these apps? Under Armour is considering acquiring two different fitness tracking apps, MyFitnessPal, which tracks users' calorie intake and exercise, and Endomondo, which offers virtual fitness training. The move would be a continuation of Under Armour's existing push into fitness tracking, an area where they're already playing catch-up. Nike launched its own tracking platform, Nike Plus, in 2006, and already has over 20 million users. It's also invested heavily in wearable technology like the FuelBand, which tracks data and connects users via the Nike Plus ecosystem.

1:47A year earlier, in 2013, Under Armour bought MapMyFitness for$150 million, gaining access to its 20 million registered users. It was their first ever acquisition and a big step into unfamiliar territory. But now they're considering an even bolder move, buying two apps for$560 million. That's more than 15 % of their annual revenue. The younger of the two executives stands up and takes the marker from Plank. Under Buy, he writes, product development. From my perspective, this is a major reason to make this investment. Buying these apps will give us data on roughly 100 million users. will know exactly how people exercise, when they exercise, where they exercise, and all this data will drive significant product innovation.

2:39The older executive shrugs. He takes the marker and writes, no concrete path to revenue under the don't buy column. I'm not saying data isn't a plus, but we're talking about spending roughly$6 per user. That's a lot of money if we can't convert it into actual product sales. The younger executive snatches the marker back and writes, Targeted sales under buy. We can do targeted ads. If data shows that a person is running in winter, we'll send them ads for our winter running line. Not to mention, these apps are popular with women. Over half their users are female. That's a customer base with real growth potential for us.

3:17Plank nods thoughtfully. He has a point. Sure, but all of this is going to take labor, innovation. Are we going to spend more mining the data than we ever will earn from it? I mean, Nike thinks the data is worth it. They have a whole suite of fitness apps. Do we really want them collecting all this consumer data while we just sit on the sidelines? Plank leans back in his chair. Spending more than$500 million on apps, that's a big risk. And another step away from their bread and butter of selling apparel. But he firmly believes that data is the future. even if he's not totally sure how it's the future.

3:57He stands up, takes the marker, and he circles by. We're doing it. But for a split second, his eyes linger on don't buy, and he has a glimmer of doubt. He's chasing Nike, but are they already too far ahead?

4:26From Audible Originals, I'm David Brown, and this is Business Wars.

4:54In 1996, University of Maryland football player Kevin Plank founded Under Armour, pioneering performance wear designed to wick away sweat and boost athletic performance. Over the next two decades, the company expanded its product line and built a dedicated customer base among athletes who saw the brand as gritty and authentic. By 2015, Under Armour had become the second largest sports apparel company in the United States, Only Nike was ahead of it. Now, Planck is determined not just to compete, but to surpass the industry giant in both technology and retail sales. But in its quest to take on Nike, Under Armour is at risk of drifting away from what made it successful in the first place.

5:44This is Episode 2, Dropping the Ball.

5:53In early 2015, Under Armour buys MyFitnessPal and Indomondo for over$550 million. The company hopes the data they gather from these apps will help them target ads and drive product innovation. But they also see it as part of a larger transformation. Under Armour doesn't just want to be an apparel company. It also wants to be a tech company. The company's putting all of its eggs into the wearable tech basket so that eventually their shirts, shoes, and other products will collect fitness data and help wearers track their performance and overall health. But developing this kind of technology is a large and costly undertaking.

6:37And while this vision takes shape, Under Armour is counting on a major revenue driver, Steph Curry's signature shoe line.

6:52It's 2015 near Portland, Oregon. Under Armour senior director Aaron Miller lies flat on a surfboard, rising and falling with the swell. The ocean is cold and the sky is still gray, but out here, he can finally think. Miller is a relatively new hire at Under Armour. He joined the company a year and a half ago after spending the previous 18 years with Nike. When Under Armour hired him as senior director of footwear, he was excited to help the younger company grow. But as he plays back the conversation he had earlier that day, he feels like he made a mistake coming here. The company is preparing to launch the Curry 2, the second edition of Golden State Warrior star Steph Curry's signature shoe, later this year.

7:42The first edition sold out quickly, so Under Armour wants to capitalize on the hype and manufacture even more units of the Curry 2. Generally, Miller agrees with this choice, but Under Armour executives want to produce a lot more, six times as many Curry 2s as Curry 1s, and Miller thinks that's way too many too soon. He doesn't think there's enough demand for that many shoes. The overstock will end up getting sold at a deep discount, and in the long term, this oversaturation could hurt demand for future editions of the shoe. Miller believes the way to create a brand with lasting cachet is to keep consumers wanting more.

8:26You have to make the shoe rare so the resellers are hyped to find and sell the shoe. Miller has explained this to his colleagues repeatedly. This kind of expertise is why he was hired away from Nike. But he feels like everything he says falls on deaf ears. The executives say they just feel it in their gut that they should produce more. Over the past year and a half, Miller has learned just how much Under Armour executives base their decisions on gut feelings and how loyal they are to each other. Many of the top-level executives go back to the earliest days of the company. It feels like a club Miller can't break into.

9:10He catches another wave and pops up on his board, holding steady for a few seconds, carving against the swell. For a brief moment, everything feels aligned. Then the wave loses shape and he slows, wobbling, before dropping back into the water. That's the thing about waves. You can't force them to be bigger than they are. And that's how it feels at Under Armour. Miller often feels like he's paddling against a current that won't change direction. As he catches his breath, he comes to a realization. He doesn't want to work there anymore. He's tired of fighting battles he can't win. The company is obsessed with growth, but they're ignoring the people who can help them achieve it.

9:57Miller exhales before paddling out again. He's had enough. Under Armour can figure out their shoe strategy without him. When the Curry 2 launches in October 2015, production numbers are indeed significantly higher than the Curry 1, although Under Armour doesn't release the exact numbers. And just as Aaron Miller predicted, inventory piles up and the shoes hit the discount table. It's not a great look for a brand trying to create the next cultural touchstone, the new Air Jordans. Then, in mid-2016, Under Armour releases a low-top version of the Curry 2. The all-white design is quickly roasted online for looking like a dad's shoe, something a senior citizen might wear.

10:48Twitter users unleash their best jokes. What's your best name for these new Steph Curry shuffleboard lows? Hi, Under Armour, did you steal these from my grandma? Do the new Steph Curry Under Armour shoes come with a pack of Werther's Heart candies? You get the idea. The message is loud and clear. This is not a hip shoe. But despite the mockery, the low top sells well. Within a month of hitting the market, they sell out online. It's a victory for Under Armour. But it also speaks to the confusion around what the brand stands for. In the early days, Under Armour's identity was clear. They made apparel that boosted performance.

11:33The brand promised that whatever your level of fitness, if you wore Under Armour's products, you would be a better athlete. But the reaction to the low-top Curry 2 centers around its appearance, not its functionality. Still, Under Armour isn't concerned with this shift in the conversation. They're going full speed ahead to catch up to Nike, and they've decided to go back to their roots. In 2016, when UCLA's contract is up with Adidas and the school puts out a call for bids, Under Armour is determined to win. Not only will it help the company keep expanding into the college market, it will give Under Armour a firmer toehold on the West Coast, where Nike currently has the advantage, given that their headquarters are in Oregon.

12:20Under Armour signs a record-breaking deal estimated to be worth$280 million. Under the terms of the agreement, the company will provide shoes and apparel to UCLA's athletes for 15 years. But around the same time, in May 2016, just as Under Armour feels like it's flying high, it faces a major setback. The retailer Sports Authority announces plans to close all of its 450 stores. At its heyday, Sports Authority was the largest sporting goods chain in the country. But it struggled in recent years and took on heavy debt. They faced increased competition from rival Dick's Sporting Goods, as well as from online shopping.

13:05These factors finally proved too much for the chain. It's a big blow to Under Armour. The company had expected to generate$163 million in sales through sports authority for the remainder of the year. Now, they'll have to slash these estimates. And the timing couldn't be worse. Under Armour has increased its spending over the past year as it works to develop wearable technology and expand its digital presence. The company's projected net income for 2016 is already nearly half what it was in 2015. and now it's about to take another major hit. Under Armour needs to find a way to replace the sales they're losing from sports authority and quickly.

13:52Even disciplined companies can make poor decisions under pressure and Under Armour is about to make a major fumble.

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14:59It's mid-2016 in Baltimore, Maryland. Under Armour CEO Kevin Plank sits at the head of a conference table surrounded by his top executives. Plank has called an emergency meeting following the news that Sports Authority has declared bankruptcy and is liquidating. The team needs to come up with a way to replace those sales. They've landed on a potential solution, but it comes with risks. Plank takes a sip of coffee, then folds his hands together in front of him. Look, I know this is a different kind of partner than we've historically worked with, but a deal with Kohl's has a lot of upsides. And maybe it's time to try something different.

15:39Historically, Under Armour's retail partners have been sporting goods stores, places that cater to their primary consumer base, recreational athletes and fitness buffs. But Kohl's is a big box department store known for selling a broad assortment of clothing and accessories and for its aggressive discounting. At the far end of the table, a younger executive nods his head. Yeah, Kohl's will help us reach women. That's a market we've been struggling to grow in for a long time. I think it's a good move. But across from him, another executive leans forward. Yeah, but at what cost? Dick's Sporting Goods is our biggest retailer.

16:17If we move into Kohl's and they start undercutting prices, we risk damaging that relationship. Plank nods slowly. I hear you. I value our relationship with Dick's, and I don't want to jeopardize that either. We're going to have to be careful. We need to be strategic about what products we sell through Kohl's so we don't eat into sales at Dick's. We've been talking about developing a more casual line of clothing, something that can, you know, compete in the new athleisure space. A partnership with Kohl's could help that line reach the right market, don't you think? But the other executive still isn't sold.

16:53Sure, maybe down the line a partnership with Kohl's makes sense, but right now, do we really have enough product differentiation to avoid overlap? Or are we just inviting price competition? Come on, look. Kohl's really wants more athletic wear. They want this. We want this. We can make this work. The older executive turns to Plank. Kevin, it's your decision. What do you want to do? Plank looks between the two executives. Well, I think it's worth the risk. But Nike and Adidas sell at both Kohl's and Dick's. They've figured out how to manage it. So can we. In July 2016, Under Armour announces its partnership with Kohl's and the plan to start selling their clothes there in early 2017.

17:40The company frames the decision as an evolution, a massive opportunity to reach new consumers. And you know what? In the short term, it might be. But here's the tightrope. Distribution builds revenue, but it can dilute identity. When you expand into a discount-heavy channel, you're not just adding shelf space. In a way, you're signaling to consumers what your product is worth. Retail partners notice. Customers notice. And once shoppers get trained to wait for 30 % off, good luck retraining them. Opening more doors sounds good for growth, until you realize you may have just opened the wrong doors.

18:29Under Armour continues to expand aggressively. In 2016, the company signs a lease to occupy the former FAO Schwartz building on 5th Avenue in Manhattan. It'll turn the 53 ,000-square-foot building into a flagship store. The company also invests in developing a casual women's line to entice female shoppers and compete with athleisure giant Lululemon, a brand that was founded just a few years after Under Armour and has been growing rapidly by expanding beyond yoga pants and into a broader range of sportswear, including a man's line. Under Armour hopes that its Curry 3 shoe release will offset all this spending.

19:09The company's optimistic that demand will be high and help buoy revenue. In fall 2016, the Curry 3 launches at$140,$10 higher than the Curry 2. But the shoe struggles. The CEO of Foot Locker tells reporters that the shoe is selling much slower than past editions, and Under Armour's market value tumbles by roughly$600 million. Sales of the Curry 3 never pick up. Retail partners heavily discount the shoe, but there's still inventory overload. Online, Under Armour reduces the price by almost 30%. To outsiders, the move reeks of desperation. Under Armour blames a softening market for signature shoes, but others, including former Nike employee Aaron Miller, believe this is the long tail of oversaturating the market with Curry 2s, it's exactly what he warned would happen.

20:11And now, by having to heavily discount the Curry 3, Under Armour is damaging the brand.

20:23You know, scarcity isn't just a sneakerhead trick. It's oxygen for any brand that's trying to play it cool. When you flood the market, you don't just lower prices, you lower mystique. Growth feels good in the moment. Six times the inventory looks like six times the ambition. But the problem is brand equity compounds slowly and can evaporate fast. If your logo ends up on the discount rack, customers don't forget easily. Sometimes, the hardest thing in business isn't scaling up. It's holding back. Between the spending spree and the disappointing sales, Under Armour's 2016 revenue falls short of expectations.

21:06After 26 consecutive quarters of at least 20 % growth, their fourth quarter growth falls to 12%. The one bright spot in their 2016 report is their partnership with Kohl's. Early sales are strong, But the long-term effects are just beginning.

21:33It's mid-2017 in Coriopolis, Pennsylvania. Dick's Sporting Goods CEO, Edward Stack, paces his office, fuming. He's just gotten the sales numbers for the last quarter, and sales of Under Armour are down across the board. He knows why. To find the answer, all he has to do is walk into the Kohl's in Robinson Township, five miles away. There, he'll see an array of Under Armour products, all marketed at a steep discount. Sure, there are some products that Dick's doesn't carry, but Stack bets over half are products that Dick's does carry. And why would a consumer come over to Dick's and pay full price, when they can get it for significantly less at Kohl's?

22:19Stack picks up a stress ball from his desk and gives it a tight squeeze The only way he'll be able to compete is to lower prices himself Maybe even offer price matching But ultimately, that just means Dix is going to lose revenue All because Under Armour decided to partner with Kohl's The most galling part is that he's not convinced this is the right move for Under Armour Maybe the deal with Kohl's will buoy the company's sales for a few quarters, but in the long run, this partnership will hurt Under Armour. He's certain of it. Stack isn't looking forward to telling Dix investors that their revenue is down due to increased discounting by competitors, but he has a plan to recapture those sales.

23:06Dix has been developing their own line of in-house sportswear. At this point, it makes sense to devote more square footage to their own products and less to Under Armour. There was a time when he would have felt bad about this decision, especially given his close relationship with Kevin Plank. But not anymore. Under Armour has made it clear that it's every company for itself. We all know that saying, right? It's just business, nothing personal. As if the other guy's not going to feel it. True, retail isn't sentimental, but don't kid yourself. If there's anything we've learned on Business Wars, it's this.

23:45Business is built on relationships. Remember the handshake deal that turned Sriracha into a household name? When things broke down between the owner and the supplier of the peppers, the whole brand almost lost it all. See, the moment you weaken your partner's economics, you're inviting them to become your competitor. And sometimes, worse. In response to slowing growth, Under Armour makes a number of leadership changes. The most significant move is hiring retail veteran Patrick Frisk to serve as president and chief operating officer. Frisk formerly worked for VF Corporation, overseeing brands like the North Face.

24:28Under Armour hopes that Frisk's three decades of experience and outsider's perspective will help Under Armour recapture the magic and reposition the company as a true challenger to Nike. But in summer 2018, another crisis hits. Under Armour gets word that Steph Curry is considering leaving. Even though sales for the Curry 3 were soft, Curry is still hugely important to the brand. He's the main driver of the company's footwear business, generating an estimated several hundred million dollars of revenue in fiscal year 2017 and lending the brand cultural legitimacy to Curry. Curry is a superstar, considered one of the NBA's most marketable athletes, known for reigning threes from anywhere on the court.

25:15He's won three championships with the Warriors. It would be a real blow to Under Armour's image if he left. So, Plank and Frisk fly across the country to convince him to stay.

25:34It's summer 2018 in Northern California. After a cross-country flight from Baltimore, Under Armour CEO Kevin Plank steps into a car alongside the company's COO, Patrick Frisk. The car winds through quiet suburban streets before taking them to their final destination, a meeting with their most important athlete, Steph Curry. When Plank and Frisk arrive, Curry and his agent are waiting for them. After some small talk, Plank gets down to business. He wants to clear the air. He knows there's tension between Under Armour and Curry. He's here to reset and talk honestly about where things stand. Curry doesn't hesitate.