Under Armour: Plank Talk

NEW YORK — Kevin Plank is ready to do it again.

The chairman and CEO of Under Armour, who dramatically altered the athletic apparel business after launching his company in 1996 with sweat-sopping T-shirts, has now turned his attention to replicating that success in the highly competitive athletic footwear market.

Plank, 36, had previously tiptoed around the footwear arena, with a collection of football cleats in 2006 and then baseball a year later. But in April, he made an aggressive move into sneakers — and now Plank is looking to make further strides. Under Armour on Tuesday will debut running shoes in New York. The collection will feature six models — four shoes for roadwork and two for trails — for men and women, ranging in price from $85 to $120.

“Running is the largest athletic footwear category, and we believe it is a huge opportunity,” Plank told Footwear News. “We are going to create the right product for our consumer, come with a strong point of view on the category and tell our story.”

To that end, Under Armour plans to target runners with a new multi-platform marketing campaign — aptly named “Athletes Run” — that will use some high-wattage professional athletes to get the message out.

The new launch caps off a busy year for Under Armour. Earlier this spring, the Baltimore-based company uncorked three crosstrainers, called Proto Speed, Proto Power and Proto Evade. The goal was simple: to revitalize the long-dead cross-training category. Under Armour did so in a big way by airing a multimillion-dollar, testosterone-drenched ad during the 2008 Super Bowl.

So far, the firm’s shoe presence is paying off. In the third quarter, the company posted $232 million in revenues, with footwear accounting for $13.1 million, from $2.2 million a year earlier.

In his first interview with FN, Plank weighs in on a range of issues, from Under Armour’s growth plans and corporate culture to the women’s market and that “other athletic company on the West Coast.”

FN: Under Armour started with cleats in 2006 and this year added crosstrainers. What’s been your strategy?
KP: The heart and soul of Under Armour is authenticity. We started making footwear because there was demand from consumers to get into the category. We didn’t get into the footwear business to build cleats so much as we got into the cleat business to get into footwear. We used our football cleat platform as a launch pad to build our supply chain, sourcing and distribution. The Under Armour brand was already strong, and we wanted to leverage that credibility.

FN: How did you know the timing would be right to enter footwear?
KP: We always knew we were going to make footwear. It was just a matter of which category to take down when. First, we said we wanted to do football cleats, and everyone told us we were crazy and that we should do basketball first, where the bigger market was. We did football in 2006, second was baseball in 2007, where we were leveraging on-field sports. Third was to move off the field, into the training component, which was previously a dead category.

FN: How concerned were you when Nike tried to preempt you earlier this year with its new cross-training shoes?

KP: Competitors or market performance won’t help us succeed or fail. I’ve always said it’s up to us to control our own  destiny. We need to build great product and tell our story to our consumer. If we do that, at the end of the day, we will be OK. When we were entering these categories, people said we couldn’t compete. But we took a No. 2 position in football, took a mid-teen market position in baseball. And now we told the world we’re going to enter running, and we will be successful because we believe in ourselves. We are going to be a footwear brand.

FN: Tell us about the marketing effort behind your push into footwear.
KP: It’s been grass roots first and foremost. It begins with our relationships, with the Under Armour All-American Baseball game, as well as Under Armour-sponsored football and lacrosse games. And it’s about getting feedback from athletes and listening to what they have to say. They all have specific needs. When footwear evolved beyond the Converse Chuck Taylor, basketball players needed a basketball shoe. If you played tennis, you needed a tennis shoe. So if you’re going to train, you need a training shoe. We also have deals with the NFL, NHL and a stable of athletes. It all ties back to relationships. We recently signed a deal as the official sponsor of the NFL Scouting Combine, which is when the top 300 players compete to get drafted. We’re making all the apparel, as well as supplying footwear.

FN: Why is running so important for Under Armour?
Running is the largest athletic footwear category, and we believe it is a huge opportunity. We are going to create the right product for our consumer, come with a strong point of view on the category and tell our story to the consumer.

FN: What’s the biggest lesson you’ve learned so far about footwear?
That it doesn’t necessarily leverage from apparel. Footwear has more complex manufacturing processes — multiple sizes, styles, keeping it fresh. You have to build a completely new infrastructure, a new supply chain and development team.

FN: Under Armour’s price points are higher than the competition. Are you worried about consumer resistance?
They’re not buying a Cadillac. But you are asking them to spend $25 to $30 on a T-shirt. Where we compete, we  continue to outperform against everybody we compete against. We continue to be a growth company. It’s forward, forward, forward. We always talk about what we can control and our ability to dictate the tempo. We’re hiring next year, not cutting people. We’re focused on how we can grow and spend on the growth initiatives in front of us. There’s no loser talk around here.

FN: But are you at all worried about the economy?
Today’s consumer is feeling something out there and it’s very real. But we continue to outperform everywhere we compete. We are the No. 1 or No. 2 apparel brand everywhere we do business. And the same thing is happening for us in footwear. We continue to be a growth story. We grew 53 percent in 2006 and 41 percent in 2007, and our most recent guidance called for 24 to 26 percent growth for the year.

What’s interesting, of our total business, we are so heavily based in the U.S. The opportunity for us is moving beyond U.S. borders — 93 percent of our business is coming from the U.S., and we’ve yet to sell our first T-shirt or piece of Under Armour in Russia, Brazil or China. So we’re just getting started. Sure, [the economy will cause] consolidation at the retail level and probably at the brand level. But that’s why we feel good that we will be one of those brands that benefits in lean years.

FN: How often do you check the stock market and the company’s shares in particular?
These are extraordinary times we’re living in. But the market is the market. It’s not an indication on the health of our business. We’ll make $100 million this year; three or four years ago, we grossed $100 million. If we put a good story out there, the stock price will take care of itself.

FN: At 36 years old, you’re one of the younger CEOs. How do you like running a public company?
We went public in November 2005, and Sarbanes Oxley had already been implemented, Enron had happened and there was a huge reluctance to be public. But I’m a contrarian in that right — now the bar is raised higher. You can complain about what you have to do or you can go out and get a great CFO, internal investor relations, put together a good auditing committee. If you do that, it’s an easy relationship with what you have to do. And you  get a scorecard four times a year of how the market thinks you’re doing, and we’ve been putting good numbers up on the board.

FN: What are the hallmarks of the company culture? And as you get bigger, how do you keep that intact?
It’s a growth culture. The only thing that will get you fi red at Under Armour is saying “that’s the way we’ve always done it.” It’s about instilling constant innovations and creativity. David McCreight, who I hired as president this summer, has  partnered with me as the front-end leader of our business, and COO Wayne Marino is charged with the back-end of our business. It’s a simplistic way I set things up. The partnership the three of us have will drive our business. We’re learning how to become a bigger company, which is not easy to do.

FN: Have you had any growing pains?
One example is how we dealt with inventory this year. In the third quarter of 2007, we had 103 percent inventory growth, the following quarter was 105 percent, and then the first quarter of this year was 111 percent. We had to get the inventory back in line, and we lowered it to 48 percent in the second quarter this year. The past quarter reported less than 20 percent. That speaks to learning how to be a great company.

FN: How does your day-to-day role differ from David’s?
My job is to support, to provide a picture of where we’re headed. David helps me cultivate that and helps me prioritize that. And with the partnership with Wayne, the goal is to build a great company, not a short-term profit maker. We’re building a multibillion-dollar, multinational company, and that requires a broad platform. In my office, I have posted on my white
board my job description, and every day I ask if I’m working toward one of these goals. If not, then I’m not doing my job. They are four simple things: to make great product; tell a great story about our product; service the business; and build a great team of people, people smarter than ourselves, and let them do their thing.

FN: Under Armour’s reputation resonates with hardcore athletes and young men. How are you appealing to women, an area where a lot of companies have stumbled?
You have to be real when you look at the female consumer. Our first step into women’s apparel was in 2002. Like the rest of our company in those days, it was a category we knew was important, but it took us a few years to truly gain our footing in the space. We learned a lot of tough lessons, such as the product had to be built uniquely for her to uphold the high standard we had built on the men’s side. And quite frankly, the idea of “shrinking and pinking” just didn’t fit with the standard. The girl is competing, and she wants a relationship with the brand as well. It’s not a masculine approach as much as it is an athletic approach.

FN: How do plan to go after them?
We’re going after two kinds of women consumers: Team Girl, who is a grade-school-through-college competitive athlete. She spends almost every day in the gym, is a great student, a leader and influencer both on and off the court. She’s every bit as competitive as the boys. It’s who we featured in our ad campaign called “Boom Boom Tap” in 2007.

Our second consumer is a little bit older, out of college and a young professional, but she’s still getting great workouts and sees training as her escape from the everyday. She is the woman you see at the head of the pack in her running club, or in the front row of the toughest spin class, and she expects quality for performance and also looks for a bit of fashion. We will reach her through unique print, online and broadcast executions and will engage her with our newest training product that is built specifically with her regimen in mind.

FN: What’s your marketing approach?
If I had my druthers, I’d leave everything grass roots. Our philosophy is zero-based marketing. That means looking at the list of priorities we have today. We take a holistic view to every dollar spend and compare it to our goals for the year. It takes months to determine the right place to put the money, what the message is we’re trying to tell and the most effective way to tell it. It could be grass roots or TV, but it shouldn’t rely on the past.

FN: But you’ll have a large campaign to promote running, right?
Yes, our largest launch campaign in 2009, which we’ll kick off this month, is our running campaign. The big story is telling consumers we’re serious about running. There are a lot of skeptics out there, but I say bring them on. They ask, can you be relevant, and say we’ll never be able to get into training. Our training product was in the No. 1 spot before the product line even hit. It was the first time in 20 years somebody other than that company on the West Coast was No. 1.

FN: What’s your take on spending big bucks on endorsements from professional athletes?
We have an unrelenting desire to be authentic. That begins with me not wanting to be the highest bidder for an athlete to wear my brand. Our sports marketing philosophy remains the same — we’re not going dollar-for-dollar with other brands. We want to continue to authenticate ourselves on-field, where it makes sense for our brand.

FN: People obviously like to compare your company with Nike and Adidas. What’s your take on Nike’s dominance in sneakers and the athletic market?
First and foremost, we are focused on Under Armour and ensuring that we are delivering the best in class product, and we understand the game and we can go head-to-head and win it.

FN: As a company, where do you see the most room to grow?
We will continue to invest in these areas: men’s, women’s, footwear, direct-to-consumer and international. As our product mix grows, we have a much bigger revenue opportunity as we enter new markets and new distribution.

FN: At the retail level, Under Armour opened two stores in the last year. How many more would you like?
We’ve got four specialty stores open today, and we use them to test all the time. The goal is to learn how to be a better wholesale partner. We now have enough stores to listen, learn and modify the model. We believe in retail as the ability to augment existing distribution, but never to compete with distribution. We have a terrific outlet business, 25 outlet stores. That means we won’t ever have to liquidate product in unsightly places we don’t want to be.

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