Return of the Jedi: The Under Armour Rebound

A year after being embedded in carbonite by Jabba the Hut, Han Solo is rescued by Princess Leia. Their freedom abruptly ends when the couple is recaptured by Jabba. Cue Luke Skywalker, who shows up to rescue his friends but soon falls into a pit with a rancor—a nasty carnivore with bulging eyes and razor-like teeth. Skywalker defeats the rancor as Leia strangles Jabba with a chain and she, Luke, and Han Solo escape. And that’s just the first half hour of George Lucas’ 1983 epic space opera Return of the Jedi.

Lately, sports apparel brands and stock market analysts alike have been eyeing the return of another Jedi: Kevin Plank. Plank, who walked on to play football for the University of Maryland Terrapins, has recently returned as CEO and President of Under Armour—a field position he now holds for the second time.

Plank’s history with Under Armour is a bit of an opera in itself. He founded the company with seed money earned during college selling roses for Valentine’s Day. What really launched Under Armour was his pioneering work in moisture wicking fabric technology. As a walk-on for the Terrapins, he found that he was always the sweatiest player on the field, and those ordinary cotton t-shirts just didn’t cut it. So he spent some R&D dollars—a combination of his own cash, credit cards, and a loan from the SBA until he had a workable prototype. Voila! A t-shirt that could wick sweat away from the body and keep athletes dry.

As a CEO, Plank has always been a risk taker. In 1999, when the company was running on fumes, he asked his Under Armour employees to forgo their paychecks for a few weeks so he could invest $25K on advertising in ESPN Magazine. The gamble paid off big-time. In 2000, Under Armour posted $1 million in direct sales behind that advertising as athletes and teams began buying. A decade later, the company had swollen to $1 billion in annual revenues. At 39, Plank became a billionaire. For 13 consecutive years, Under Armour had posted double-digit sales gains, overtaking Adidas and nipping at the heels of market leader Nike. 

Everything was going swimmingly until 2015, when Plank concluded that his company wasn’t making data-driven decisions and would miss out on the wave of the future: IOT. The Internet of Things promised to revolutionize life as we know it by connecting humans, the internet, and the digital devices that run our lives. As we brushed our teeth in the morning, our mirror would display today’s weather report. Our fridge could tell us when we needed another head of iceberg lettuce. Health monitoring devices like Fitbit exploded onto the market. “Connected Fitness” was the wave of the future! Plank believed that if he could capture data on his consumers and use that data to drive strategic decisions, Under Armour could guarantee its growth far into the future.    

This sent Plank down a rabbit hole. He spent $700 million buying up three of the most popular fitness tracking apps—MapMyFitness, EndoMondo, and MyFitnessPal. With these acquisitions, Plank now owned the largest fitness data set in the Cyberverse. He banked on the idea that all this consumer data would lead to enlightenment, enabling Under Armour to be on the leading edge of product development and giving him a strong competitive advantage. In Plank’s own words, “The data is going to be extraordinary.” It was at that point he declared that they were no longer a sports shoe and apparel company. Under Armour was now a tech company.

Despite his vision for transforming the company through technology, neither Kevin nor anyone else back at Under Armour corporate had given serious thought to how this bubbling vat of “big data” might translate into selling shoes and apparel. And instead of sticking to the R&D approach that had made them successful, they shifted their focus to developing various high-end, technology-enabled products like $150 running shoes and heart rate-reading chest straps and a $180 scale that connected to bluetooth and WiFi.

Unfortunately, when the Apple Watch came on the market, it overtook the fitness tracker market within two years. With no way to produce revenue streams outside of user subscriptions, the three apps Plank invested in began to tank and posted big losses. For its $700 million spend, connected fitness contributed a paltry 3% of revenue to the company. The cruelest blow was that the “big data” didn’t tell Under Armour corporate anything they didn’t already know—including their biggest barrier to further growth: consumers thought that, compared to Nike and Adidas, their shoes and apparel were ugly. Performance, which had been Under Armour’s historic differentiator, was no longer enough. Performance was expected. Now people wanted fashion. Attempts to stop the company’s falling revenues did little good. Their much-heralded collaboration with NBA superstar Steph Curry on a $120 shoe turned out to be a dead ball.   

This should serve as a cautionary tale about the allure of “big data.” Plank and Under Armour weren’t the first to answer the Sirens’ call and get dashed against the rocks, and I doubt that they’ll be the last. But the company has entered a new chapter in its saga. With Jedi Plank back at the helm, helped by Adidas expat Erik Liedtke (UA’s new Executive VP of Brand Strategy), Under Armour has returned to what they ought to have been doing all along—refocusing on the brand values that made them successful in the first place and some good old-fashioned brand storytelling.

Today’s Zacks Investment Management report on the company states that Under Armour, Inc. stock may now be a good value pick. That ought to wick away some investor sweat.