Sneaker comeback: Under Armour looking for footwear to return to growth this year

Company is rebuilding the brand after a year of change

March 01, 2011|By Andrea K. Walker, The Baltimore Sun

Under Armour CEO Kevin Plank quickly built a sports apparel empire that went public in less than a decade. But when the Baltimore business mogul launched cross-training and running shoe lines a few years ago, he hit a speed bump.

The shoes flopped with some consumers and ended up on clearance racks across the country.

Now Plank's company is hoping to make a footwear comeback after what he called a "reset" period. Under Armour spent months cleaning house. The company replaced the footwear team, redesigned shoes and switched marketing strategies. When Plank talks about footwear these days, he characterizes the company's plan to gain a solid foothold as more a marathon than a sprint.

"It's a long-term play," Plank said during a recent conference call with Wall Street analysts. "Look at what we've done in the past, and give us the ability to be patient with that and ensure that success."

Under Armour executives hope this year will mark a turning point in the slow rebuilding of the footwear division, a category crucial to placing the company in the same realm as athletic gear giants such as Nike and Reebok. Footwear is one of the biggest money-makers for the largest athletic companies.

The athletic shoe market reached $20 billion last year — the highest ever, according to SportsOneSource, a research company that tracks sales of shoes and sports gear. Under Armour expects footwear to return to growth this year after sales declined 7 percent to $221 million in 2010.

The company plans to launch its second-generation basketball shoe in the second half of the year, when it expects most of the footwear division's growth to happen. The company also is banking on the success of new models of football and baseball cleats, one category that has proved to be a big seller. Last month, the company became the official footwear supplier of Major League Baseball.

At the same time, Under Armour appears to have pulled back on plans to launch new versions of the running and cross-training shoes, which the company had indicated might debut this year. Instead, executives are looking at 2012 for the launch of those new models.

"We want to be clear with the market about what we are building here, and that this is a long-term approach we're taking to be successful in footwear," Plank said during the recent earnings call with analysts.

"We've been putting infrastructure and personnel in," he added. "Allowing that infrastructure and that personnel to start gelling and working together is what you're going to start seeing come into fruition."

But questions about footwear from analysts remain.

Paul Swinand, an analyst with Morningstar, wonders about pricing and the competition. He said some of Under Armour's earlier shoes didn't have the technology to justify the premium prices. He worries the footwear division will be a drag on income and said the international market would be a better focus.

"They need to improve it," Swinand said about Under Armour's footwear. "I'm not saying they can't do it. I'm just concerned they are always in a rush."

When Under Armour released its basketball shoe late last year, it was an understated event with little splash and build-up — a departure from the pumped-up releases of other products it had launched.

Some analysts said it was a sign that the company — still a relatively young player in the global athletic apparel market — learned from past mistakes.

Under Armour initially jumped into the footwear business fast and aggressively five years ago. It found wide success in the cleat market, where there was little competition but much consumer demand for new product options.

But the fanfare with the 2008 and 2009 launch of the cross-training and running shoes proved premature. After entering the market with momentum, sales slumped, analysts said. That prompted the company to revamp its footwear division.

Last year's introduction of the basketball shoe might be a glimpse into their new strategy — and whether it might succeed. Despite the lack of hype, some analysts said it held its own in a year when competitors released an unusually large number of shoes, including Nike's new Air Jordan and Kobe Bryant shoes and Reebok's John Wall sneaker.

"It wasn't a sensation that sold out in the first 48 hours," said Mike Powell, an analyst with SportsOneSource. "But I don't see that shoe on clearance racks either."

Powell said the company is taking the right approach by taking things slow. Moreover, some analysts who follow Under Armour believe the company risks losing customers with too many misfires.

"If Under Armour's shoes don't sell, and retailers are stuck with another weak footwear product from the company, the company could be handicapped in footwear for a number of seasons," Swinand of Morningstar recently wrote in a report.

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