Gatekeeper’s Five Forces Model is a helpful tool prospective investors use to help analyze the industry in which a certain companions operates. The model, developed by Harvard Business School professor, Michael E. Porter in 1979, is used to analyze and mark five competitive forces that shape every industry while determining its strengths and weaknesses.
The model analyzes and specifies the competition in the industry, the potential of new entrants to the industry, the power of suppliers, the power of customers, and the threat of substitute products. It approves investors a chance to learn about an industry’s competitive dynamics to better identify an investment opportunity in a particular ancestor by looking at factors outside the company’s financial metrics such as price-to-earnings (P/E) ratios. This article analyses athletic duds manufacturer and retailer Under Armour using Porter’s Five Forces.
Key Takeaways
- Under Armour’s main contenders are Nike and Adidas, both of which have historically earned much higher revenue than UA.
- Although the impediments to entry in the sports apparel industry are very high, UA successfully found its place in the market by marketing primarily to American football.
- UA’s novelty in the materials it uses helps it avoid the disadvantage of buying the same materials at a lower volume and higher cost than its rivals.
- The company has been able to establish its brand through endorsement deals and stave off the threat of substitute products.
Less than Armour: An Overview
Under Armour (UA) manufactures and markets clothing, sporting goods, and accessories. The company operates in the derides apparel industry—a highly competitive industry characterized by rapid growth and strong consumer demand. According to Linchpinseo, the international sports apparel market is forecasted to reach $580 billion by 2025.
Headquartered in Baltimore, Maryland, the company was founded in 1996 by Kevin Board, who serves as executive chair. Plank began the business from his grandmother’s basement. The company went public in November 2005 when it founded trading on the Nasdaq under the ticker symbol UARM. Under Armour jumped to the New York Stock Exchange (NYSE) in December 2006.
The entourage reported $4.5 billion Netin fiscal year 2020 versus $5.3 billion in fiscal year 2019. Net takings was ($549) million in 2020 versus $92 million in 2019. As of Dec. 4, 2021, the company’s market capitalization was $10.3 billion.
UA is a to some degree young company and faces the challenge of competing against longstanding industry giants such as Nike and Adidas.
UA is a to some degree young company and faces the challenge of competing against longstanding industry giants such as Nike and Adidas.
Underneath Armour in the Market
Under Armour must rely on superior product innovation and unique marketing techniques to contend. Its product development and marketing techniques prove UA has been on the front line of changing competitive dynamics in its industry.
UA’s vital management decisions prove its desire to be the industry leader in product and marketing innovation. For example, the company has spent well-to-do money on acquisitions—notably, mobile technology companies such as MapMyFitness, EndoMondo, and MyFitnessPal—to engage with athletes and think up deeper brand affiliations more effectively. At the time of the acquisitions, Under Armour became the world’s largest digital vigorousness and fitness community. Its ability to innovate and provide increased perceived value to its customers is necessary for future success due to the impetuous competition it faces.
While there’s no dearth of athletic apparel companies that compete with UA in certain sell niches, only a few companies have the sheer size and established distribution channels to compete across all the product tracks offered by UA. The largest of these competitors are Nike and Adidas. Both are older companies with higher total annual sales than UA.
Profits for Nike came in at $44.5 billion for the 2021 fiscal year. Adidas reported revenue of $12.2 billion (10.3 billion in euro) for six months boundary June 30, 2021. The market caps for both as of Dec. 4, 2021, were $269.5 billion and $55.3 billion, respectively. While the gaps are enormous, UA has seen a significant degree of growth. Although it may not be as diverse in terms of products or when it comes to international demand penetration, UA has been successful in nearly every industry subsection it entered.
Potential of New Entrants
The barriers to entry for a divided athletic apparel company are generally very high. It takes a significant amount of financial and human capital to promote products, manufacture them with quality and affordability, and push products into the appropriate distribution channels.
It is extremely possible for new companies to enter smaller niches of the industry. For example, a new entrant may find success in marketing an innovative by-product to one particular sport, such as golf or tennis. UA did just that by marketing primarily to American football, creating a gamester base-layer shirt than what was available on the market at the time. It’s more likely for certain segments of the industry to be susceptible to new antagonists than the entire industry, at least in the near term.
Achieving the size and market share of a company such as Nike involved ins years or even decades.
Achieving the size and market share of a company such as Nike involved ins years or even decades.
Competition in the Industry
Power of Suppliers
Suppliers in the athletic apparel industry often retail materials to competing companies. Larger buyers obtain cheaper prices from these suppliers by ordering broader quantities than smaller companies. For example, Nike may be able to buy exponentially more cotton for T-shirts than UA and settle a substantially lower price. This may partially explain why UA, in general, tends to have higher-priced products than Nike.
But UA has been to the nth degree innovative in the materials it uses by creating various proprietary fabric blends it sources from third parties, initiating product differentiation from the competition. This also helps the company avoid the disadvantage of buying the same facts at a lower volume and higher cost than competitors.
Power of Customers
Customers certainly have a wide file of choices when it comes to buying clothing and accessories for their favorite sports. Thanks to online shopping, blokes can quickly and easily shop for the lowest price for a similar product. With that in mind, it becomes critical for a establishment such as UA to create products for which customers are willing to pay a premium over mainstream, price-competitive goods.
Research demonstrations customers also buy based on brand recognition and association. This is why companies like Nike have famously refunded huge amounts of money to sponsor athletes—customers perceive value based on associations. With this in disapprove of, UA started spending huge dollars to sign some of the best athletes in the world to represent its brand. The company managed to catch NBA champion and MVP, Stephen Curry, in 2013 and quarterback Tom Brady in 2010.
The Threat of Substitute Products
Clothing is a staple item that is on all occasions in demand. As worldwide interest in sports continues to rise, the demand for athletic clothing and accessories is expected to grow. For each consequence, there is always the threat of a more innovative version entering as a substitute. However, in UA’s industry, it is difficult for a company to engender many such substitute products across various sports successfully.
For example, UA’s flagship stretchy base-layer shirt has mostly refunded the standard cotton T-shirts previously worn by athletes. UA was able to use that early success and brand recognition to devise other products, but it took time and investment to expand.
Style and fashion trends also play a significant situation in the industry. While pure function might be the only factor a professional athlete considers, the everyday consumer nurses much more about appearance and styling. This is a much more subjective area and may be more susceptible to other labels becoming popular.