While the Baltimore-based company made big bets earlier this year on the debut of its running shoe, footwear revenues fell 19 percent in the second quarter, leading to major markdowns on inventory. Under Armour will report third-quarter results later this month, but analysts do not expect footwear figures to be much better.
To combat that, McCarthy — who previously served as co-president of Timberland and worked for two decades as a Nike executive, with a stint at Reebok in between — said he is focused on building up the company’s design talent so its footwear has a “distinct design language unique to our brand.” McCarthy is also in the process of overhauling sourcing and development and is fine-tuning footwear distribution.
“Rather than just looking at mass ways to approach the market, I want to make sure we are accessing consumers unique to each product offering, not necessarily using a blanket approach,” he said. “I’m working closely with our sales organization to make sure they understand the idea of distribution-as-an-art form.”
Analysts say McCarthy is on the right path.
“Gene is giving Under Armour clarity of vision, helping them develop a long-term strategic plan,” said Matt Powell, an analyst at SportsOneSource. “He will help them understand the larger picture of how to get into the shoe business and be successful.”
Still, McCarthy — who turned down the SVP role at Under Armour nearly four years ago to keep his family in Boston — has his work cut out for him. By most accounts, the company’s running shoes had been priced 20 percent too high, according to observers, and Under Armour has yet to convince brand-loyal runners to make a change.
Additionally, Thomas Weisel Partners equity research analyst Jim Duffy said Wall Street is looking for Under Armour to improve gross margins on its shoe business. “They’ve been well below industry norms,” he said.
What’s more, industry players are watching how McCarthy will lead the brand into the highly competitive basketball category. Analysts had speculated that Under Armour basketball shoes would hit retail this year, but the company has not announced a target date. McCarthy did acknowledge, however, that when the product is ready — most likely next year — it would be “a very soft launch” without a lot of marketing hoopla.
So far, basketball product has been seeded to certain teams and athletes, and in September 2008, Under Armour signed a multiyear endorsement deal with Brandon Jennings, its first basketball player.
But don’t look for McCarthy to follow the formula used during his days at Nike, which builds brands around star athletes.
“I don’t subscribe to the notion ‘put name on shoe, sell millions,’” he said. “It hasn’t worked, except here and there. We don’t want to do that. We want to have product for Brandon that speaks to his game and his style, and also speaks to kids who love the game of basketball.”
To that end, McCarthy said that in his first few weeks on the job, the company has focused more heavily on two major consumer groups: women and children.
Under Armour is putting together a team “that is for women by women,” as McCarthy described it.
It also has ramped up its positioning of kids’ product. “We have a loyal young consumer base. These kids love our brand and are voting at retail. Our sell-through in kids’ at large retailers is in the double-digits. We can’t treat these consumer groups with mini-me or shrink-and-pink strategies,” he said. “We need to offer them unique product.”