Under Armour Bets Big On Wearable Tech

By Sports FOXBusiness

(Associated Press)

Under Armour (UA) is turning to a new lineup of wearable technology products and digital apps in its long-term play to overtake Nike Inc. (NKE) atop the global sports apparel industry. Kevin Plank, Under Armour’s founder and chief executive, was on hand at the Consumer Electronics Showcase in Las Vegas last week as Under Armour unveiled the first major products in its “Connected Fitness” series.

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In the short term, Nike’s status as the dominant force in worldwide sportswear isn’t in doubt. The brand reported revenue of more than $30 billion in 2015 and earned $7.69 billion in sales in its most recent fiscal quarter alone. But a strong entrance into the wearable technology space, coupled with increasingly robust apparel and footwear sales, could cement Under Armour as the greatest threat to Nike’s grip on the market.

For years, Under Armour executives have been transparent about their view that “Connected Fitness” would be a key driver in the push to reach a long-term financial target of $7.5 billion in revenue by 2018. Still, the speed at which the company turned “Connected Fitness” from a business plan to a line of tangible products comes as a bit of a surprise.

“I guess I was surprised that Under Armour took the position to do this so soon,” said Susan Anderson, a senior research analyst at FBR. “Even though they talked about the Connected Fitness platform and having a seamless transition for the consumers, it just seemed like it was going to be further off.”

The “UA HealthBox,” which serves as the platform’s centerpiece, includes a “sports band” that tracks data on sleep and daily physical activity, a heart rate monitor and a Wi-Fi-equipped scale to measure weight and body fat percentage. The company also rolled out its “UA SpeedForm Gemini 2 RE” smart shoe, as well as new wireless headphones and a wireless version of the heart rate monitor.

In addition, Under Armour partnered with IBM (IBM) to create “UA Record.” Powered by IBM Watson, the fitness app will link the digital products by tracking user data related to sleep patterns, nutrition and exercise.

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"For 20 years, Under Armour has changed the way athletes dress and now we will change the way athletes live," Plank said in a press release. "Combining the world's largest health and fitness community with the game-changing connectivity of UA HealthBox and UA Record, we are taking Connected Fitness to another level. With the HealthBox suite of products being introduced, athletes will be empowered with the information to make better decisions and ultimately enrich their lives in a way that's never been done before."

Under Armour projects it will earn $3.91 billion in net revenue for its 2015 fiscal year – an increase of 27% compared to 2014 – and maintains a long-term financial target of $7.5 billion in net revenue by 2018. Under Armour will announce its year-end results later this month.

Even before the launch of “Healthbox” and “Record,” Under Armour had begun to see results from its digital products. The “Connected Fitness” platform produced about $14 million in revenue in the third fiscal quarter – a 221% increase in revenue, year-over-year.

Under Armour spent more than $700 million in acquisitions to bolster “Connected Fitness” platform – a risky investment bereft of an immediate business benefit. But the company’s base of registered users has grown rapidly since its purchase of fitness apps “MapMyFitness” and “MyFitnessPal,” chief executive Kevin Plank told the FOX Business Network’s Liz Claman on January 6.

“We started this [Connected Fitness] journey, like, years ago, but it really began when we started acquiring things in what we call our ‘Connected Fitness’ health system, with an acquisition called ‘MapMyFitness’ in December of 2013 – 20 million registered users,” Plank said. “Our bet was on the community, not the equipment. Here we are now, two years later, more than 160 million registered users that we have in this ecosystem, giving us information, telling us what they ate, telling us whether they worked out.”

Nike and German sports apparel company Adidas are also exploring the wearable tech space. Both companies have digital fitness communities, and Nike is in the process of patenting a “smart shoe” of its own. But Under Armour, by virtue of its new products and base of registered users, has jumped to the front of the race.

“They’re going to be a firstcomer, basically, which I think is good. You really are seeing everyone jump on board with this whole ‘connected fitness’ and wearables and everything,” Anderson said. “They don’t want to get too far behind the game either. If it really is going to be the new trend of the future, they have so many consumers that are already on their connected fitness platforms. It’s just another easy way to sell them new items. I think it’s a good idea.”

Consumers will pay a hefty sum to buy into Under Armour’s new initiative. The UA HealthBox will sell for $400, the UA SpeedForm Gemini 2 RE’s will retail for $150 and the wireless headphones will sell for $180. But a slow sales start won’t necessarily become a significant setback to Under Armour’s growth, especially given the company’s record of overcoming lukewarm initial results for its product launches.

“It would be disappointing, but I think they’ve seen that in the past,” Anderson said. “With footwear, when they first came out with their shoes, they were very disappointing, a little bit of a setback, and they continued to push forward. Now they’re becoming pretty successful in it.”

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