Under Armour Downplays Department Store Cannibalization Threat
While Under Armour has opened up selling to department stores particularly to expand its women’s lines, the brand doesn’t feel the extension will impede on the gains being seen in its core sporting goods retail partners.
Asked at Goldman Sachs’ Global Retail Conference about the roll non-traditional channels versus core channels will play in driving growth on the women’s side, Kevin Plank, UA’s Chairman, CEO & President, said the brand’s overall distribution ultimately comes down to “selling product where the consumer shops.” It starts “first and foremost” with the sporting goods channel, has extended to mall specialty,” and now “we're happily excited about our entrance into the department store channel as well. So I believe that we're making really good strides in all of those.”
Regarding the sporting goods channel, Plank said the company has delivered double-digit growth in men’s, women’s and kids for “many, many, many years” at its core partners in both apparel and footwear. The brand sits as the leader there in men’s, the “far and away” leader in kids and has grown to the number two brand in women’s in the SG channel.
Plank noted that women’s “typically is not really a strength for many of our partners but I think we're finding that the opportunity Under Armour brand brings is the chance to build out that business as well. So we like first of all, the foundation we have in our existing distribution.”
With mall specialty stores, primarily Finish Line and Foot Locker, UA has been “relatively successful” on an item-driven basis, but is now doing a better job with head-to-toe hookups to seize a bigger growth opportunity across genders there. Plank said mall players are looking for a “brand with a point of view” and UA supports that with its performance innovations such as Coldblack. On the women’s side, UA’s $58 Armour Bra has done “very well” both in the sporting goods and mall channels.
With regards to its departments store entry, Plank said the move is “about continuing to drive positive comps in our existing distribution base and never cannibalizing any of it.”
Plank said UA has instituted a “few meaningful tests” in places like Macy's as well as Belk’s and some other southern department stores where the brand hasn’t had access from its sporting goods partners to certain consumers. But he stressed that UA plans to slowly expand into the department store area.
He adds, “There are certainly broader places where we can go and what you'll see is that there is no major rollout that we've had at any of these shops. We've gone very slow, very methodically and again, the formula that we're putting in place is a formula that we expect to take place over the next six, eight and ten years versus the next six, eight or ten months.”
Besides Macy’s and Belk’s, UA is also selling to Nordstrom, Dillard’s and Bloomingdale’s on the department store side.
Asked whether Under Armour would enter the department store area as a classifications business or through shop-in-shops, Plank said the company struggles with those options in existing channels. He admitted to being “frustrated” walking into sporting goods stores where the brand is a leader and “being outspent on an investment in-store basis it seems by large amounts of money” by its competitor.
On the positive side, UA’s brand equity is enabling it to enter the department store channel in “legacy stores and we have the chance to do it right from the outset.”
For example, he points to a mens’ underwear display in Macy’s Herald Square where the brand competes with Calvin Klein and others in the Herald Sport basement.
“There is a little bit of product but mostly just light base layer product and our belief there is what is a $40 million or $50 million business for us today, that we should be the number one underwear brand in the world as well,” said Plank. “While we are very proud of what we are building in terms of making sporting goods a relevant experience and shopping experience to find something like men's underwear and driving those premium $20, $25, $30 price points, we think that we can also be just as important if not more important in taking that number one position. But we need to also go and sell product where people are shopping for it and that historically has been in places like the department stores.”
Overall, Plank indicated he feels “very good about our business” with the second-quarter marking its eighth consecutive quarter of 20 plus percent growth in its apparel business. Footwear grew over 40 percent in the period. Women’s has grown from 15 percent of its business at the time of its IPO in 2005 to nearly 28 percent of its total apparel business currently, with annual revenues at $400 million.
To further drive growth on the women’s side, Plank said UA will soon announce the hiring of a head of women's creative in recognition that “fashion is something that has become much more important of the wearability of sports performance products.” While not straying from its “authentic” athletics roots, Plank said the company was looking for someone “who would bring a fashion bent to the Under Armour brand” to better reach women.
The new head of women’s creative, who will join UA’s executive team, will also oversee a new showroom in Manhattan. Plank said this also supports the 12 to 15 people living in Manhattan who regularly commute to Baltimore.
UA continues to expect 2012 revenues in the range of $1.80 billion to $1.82 billion, representing growth of 22 percent to 24 percent over 2011, and 2012 operating income in the range of $205 million to $207 million, representing growth of 26 percent to 27 percent.
Also speaking at the conference was Brad Dickerson, UA’s CFO, who said said possible upside to the back half of the year may come with the help of “weather being colder than last year” and that would likely occur in the fourth quarter.
Another opportunity is improvement in e-commerce, which was hurt by some lower conversion rates experienced in the first half as a result of the launch of a new site last November. With improved ease in shopability and other enhancements, the conversion rate has been improving in the last five weeks. Added Dickerson, “That's a good sign for the back half of the year too but again, ecommerce heavily weighted towards the fourth quarter.”
