Under Armour's fall from grace

November 19, 2019 09:18
Under Armour says its disclosures and accounting practices have been 'entirely appropriate'. Photo: Bloomberg

The Wall Street Journal reported last week that Under Armour had sent a large amount of products to off-price chains in the past in order to jack up sales artificially.

The company’s sales growth has slowed dramatically in recent years. Despite aggressive expansion overseas, overall sales were up only 4 percent last year. Worse, same-store sales posted a decline.

Company founder Kevin Plank is stepping down as CEO in January next year.

At a time when the sportswear firm was already in bad shape, the Journal reported, citing former company executives, that Under Armour had in 2016 leaned on retailers to take goods early. 

The US Justice Department and the Securities and Exchange Commission are looking into the company’s accounting practices.

"We firmly believe that our disclosures and our accounting practices have been entirely appropriate," Under Armour responded.

The firm's share price has slumped more than 20 percent over the last 12 months, against a 25 percent gain in its bigger rival Nike, and 26 percent gain in Adidas.

Under Armour has had its share of luck in its early days. The yoga boom after year 2000 was a huge boost to the company’s business.

A decision to sign Golden State Warriors’ Stephen Curry in 2009 turned out to be a very successful bet that substantially lifted Under Armour’s popularity.

At the peak, Under Armour’s sales in the US surpassed that of Adidas to trail only Nike, and its market value reached US$28 billion, far above the current level of less than US$8 billion.

Under Armour may have gotten too aggressive after the taste of success. Instead of focusing on niche areas, it wanted to challenge the dominance of Nike and Adidas in the mass market. But mass market consumers are typically unwilling to pay a 20 or 30 percent price premium for the brand.

Sending products to outlets might have been the route that Under Armour took to avoid outright price reductions at official stores.

This article appeared in the Hong Kong Economic Journal on Nov 15

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist