Why Under Armour is surpassing Adidas and catching up to Nike
25 Sep 2015
Nike and Adidas beware - there’s a new sportswear brand on the block keen to take a bigger slice of the global sportswear pie, namely Under Armour. The Baltimore-based Under Armour already surpassed Adidas in the US in terms of apparel and footwear sales in 2014 and is predicted to become a runaway success by 2020. But what sets these iconic sportswear brands apart, how will they continue to grow over the next few years and how has Under Armour expanded its reach to become the #1 sportswear brand to watch over the next five years? No time to read the whole article? Click here for the 20 second version.
Let’s begin by taking a closer look at the current leader of the group: Nike. The label is currently listed as the second largest apparel company in the world in terms of market capitalization according to FashionUnited’s Top 100 list with a cool 95,6 billion dollars. Next up from the group is Under Armour, with a market capitalization of 20,5 billion dollars - 5 billion dollars more than its German counterpart Adidas, who currently holds a market capitalization of 15,5 billion dollars.
Under Armour surpasses Adidas
Under Armour first entered FashionUnited’s Top 100 Index in 2010, with a market capitalisation of 1,7 billion dollars, just three years after the opening of Under Armour’s first store. Now the brand holds a market capitalization of 20,5 billion dollars, an astounding 1208 percent increase from its value 5 years ago. Nike, in comparison had a market capitalization of 23 billion dollars in 2009, which increased 42.6 percent in 2010 to 32,8 billion dollars. Overall the brand’s market value has grown 413.5 percent, more than 4 times its value in 2009 over the past 6 years. Our German contender has also witnessed a annual increase in its market value, growing on average 12.2 percent per year - but has reported a decline in both share price and market capitalization since 2014.
So although all three sportswear brands have grown over the past 5 years, Under Armour stands out from its two competitors with a annual average growth rate of 62.9 percent, followed by Nike with 22.3 percent and lastly Adidas with 12.2 percent. According to FashionUnited’s unique business intelligence, both Nike and Under Armour will continue to grow through 2016, with Under Armour increasing its marketing capitalization by 56.7 percent and Nike 18.6 percent. However, Adidas in turn is predicted to return to the green with an average expected growth rate of 3.2 percent.
Although these three major sportswear brands have been working hard to establish their own separate identities, there are a number of similarities between Nike and Under Armour, which may contribute to their ongoing success. Both US athletic wear brands were founded by former athletes for example, who had shared a vision to improve the current sportswear offering - whereas Nike turned its focus to footwear back in 1964, Under Armour entered the market in 1996 with its lightweight anti-sweat shirts.
Under Armour and Nike split the path to success
Both brands also share a similar approach to marketing as Nike and Under Armour first began testing their products on former teammates and eventually wound up signing endorsement deals with renowned athletes to wear and advertise their offering. Nike has already established a strong following in the professional athletics world, spending billions of dollars on endorsements with the likes of iconic footballer Cristiano Ronaldo and golf pro Tiger Woods, but Under Armour's savvy 2010 endorsement of Tom Brady, quarterback for the New England Patriots made headlines when the contract included a share in its equity as well. Not to be left behind, Adidas has been quick to sign on athletes like footballers David Beckham and Lionel Messi to endorse its brands.
Adidas works hard to maintain its share of the global sportswear market by developing new products and designs whilst collaborating with numerous designers. Yet the German sportswear brand still falls behind its US counterparts in terms of innovation. Adidas seems to have turned its focus to a more fashionable approach and less performance based when it comes to product development which has likely hindered its growth. Nike on the other hand is seen as an innovative and creative brand, and stands out as market leader due to its relative size. Under Armour is popular for the same reasons as Nike - its fresh, innovative and creative when its comes to its products. As the brand is also still relatively new in comparison to Adidas and Nike, it also holds onto that appeal as it enters new markets.
This is reflective in the sportswear labels research and development costs (R&D). Whereas Adidas spends on average 2.1 percent of its total annual operating costs on R&D, Under Armour spends a shocking 23.6 percent of its operating costs on R&D on average per year. Although it is clear from Nike’s annual reports that they have a large focus on product innovation, they do not enclose any specific details on annual costs.
Under Armour - the sportswear to watch out for
Nevertheless if Nike remains growing at this pace, it will reach a market capitalization of 204 billion dollars by 2020. Adidas will continue to grow at a 3.2 percent yearly rate after 2016, with a market capitalization of 16,5 billion dollars by 2020. FashionUnited predicts that if Adidas steps up its games in terms of innovation and marketing, it will be able to recuperate to an average yearly growth of 5.5 percent, which will leave the brand with a market capitalization of 18 billion dollars by 2020.
However, the sportswear brand to watch out for remains Under Armour, who will most likely grow around 56.7 percent on average per year, reaching an estimated market capitalization of 161,5 billion dollars by 2020.
This is the second episode of a new series based on FashionUnited's unique business intelligence Top 100 Index. Stay tuned next week's episode on October 2, which compares LVMH and Christian Dior.