Why Under Armour Is Going After a "$15 Billion" Sportswear Opportunity
Image source: Under Armour
Under Armour(NYSE: UA) is about to showcase a new line of gear unlike anything we've seen from the company yet. CEO Kevin Plank introduced the new line as"...forged from the field and built for life," while GQ magazine says it's "Why Under Armour Just Got Awesome."
The new line is called Under Armour Sportswear (UAS), and it's a bold departure from the company's traditional athletic apparel, into a new market altogether that Plank says could be worth $15 billion for Under Armour. Here's why it's launch on Sept. 15 is an event to watch.
Sneak peak at "Under Armour Sportswear"
Earlier this summer, Under Armour announced that Tim Coppens, a New York-based designer known for his blend of luxury and athleisure who has worked for Adidas (NASDAQOTH: ADDYY) and Ralph Lauren (NYSE: RL), would help to create its new sportswear segment. The company said thatthe UAS label is "designed to capture the existing opportunity of a collection that goes beyond the comforts of casual active wear andthe trusted functionality of innovative athletic wear."
The first iteration of this new line will be featured at New York Fashion Week on Sept. 15.
Image source: Under Armour
"UAS is not just a category play or a distribution play," says Plank, "it's about bringing a new consumer into the Under Armour brand. UAS will bring a young, fresh, and modern voice to sportswear and reflects the insights we've gained as a performance brand now applied to the everyday wardrobe."
The fashion industry seems impressed so far. Outlets like GQ, Vogue, and others have praised the first glimpses of the new line, and they're optimistic about what's to come this fall. A GQ article about UAS says that "The precisely cut sweats, streamlined bomber jacket, and transparent parka all look to more luxurious, more modern versions of the sporty staples guys love to wear."
Image source: Under Armour
A$15 billion market opportunity?
When questioned further by analysts during the most recent earnings call about UAS's sales potential, Plank said that "our two competitors [presumably Nike (NYSE: NKE) and Adidas] claim that their sportswear businesses are somewhere between 20% to 30%, so the aggregate number there is roughly $50 billion, so we assume there's about a $15 billion market opportunity that today Under Armour is playing just a few percentage points for overall growth."
Plank went on to say that Under Armour is positioned well to claim market share based on their higher-end brand positioning, which will make athletes want to continue wearing its gear off the field, as well as a shift in the broader workplace away from traditional business wear and toward comfortable performance wear that is still respectable enough for the office.
The risks and opportunitiesof this strategy
Under Armour is now widely diversified among price points and types of retailers. Including its recently announced partnership with retailerKohl's (NYSE: KSS), where it is likely to offer lower-cost, more-basic athletic wear, as well as this higher-priced fashion apparel that will be sold at high-end outlets like Barneys, Under Armour could be spreading itself thin by trying to maintain these various segmentations under one company name, even if UAS will have a distinct logo and website.
Plank addressed that in the earnings call: "This initiative represents an ambitious step for our brand and provides a great amount of daylight between it and our existing product range," he said.
If Under Armour can control its brand image across these various segments, the opportunity for it could be huge. With much better diversification, both in product segments and with types of retailers, Under Armour's audience and sales could expand even more rapidly. With a target of $7.5 billion in sales by 2018, a 50% increase from estimated 2016 year-end sales, Under Armour's strategy with Sportswear looks promising.
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Seth McNew owns shares of Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.