The 2018 Winter Olympics are scheduled to begin Feb. 9 in Pyeongchang, South Korea, and few companies will have a bigger presence there than Under Armour (NYSE:UA)(NYSE:UAA), whose logo will adorn 375 athletes from 16 countries.
After the debacle of 2014, when the apparel company's uniforms were blamed for the U.S. speed skating team's failure to win any medals in Sochi, Russia, Under Armour needs a big win -- not only to salvage its reputation, but also to help turn around its business.
It's doubtful it will work, though, regardless of how any Olympic team or athlete performs while wearing Under Armour's apparel.
Pulling at a thread
Growth in the sports apparel industry has peaked after years of being one of the strongest sectors. Not only is Under Armour expected to report struggling fourth-quarter sales in the face of a challenging North American market, but Nike also experienced a revenue fall in the domestic market in its fiscal 2018 second quarter. Everything has a season, but the bankruptcy of Sports Authority and other sporting-goods retailers over the past few years hasn't helped, and Under Armour also seems out of step with the prevailing fashion trends.
According to Wells Fargo, consumer tastes have changed from the performance styles that drove the industry for years -- and which Under Armour specializes in --toward more of a fashion-forward sensibility, which helps explain why Adidas has gained significant traction.
As the athleisure trend swelled, causing a blending of outlooks and a dilution of identity, Under Armour, Nike, and lululemon athletica all began crossing over into each other's territories. But the latter has survived and even thrived because its particular focus on the active-lifestyle market skews toward an older demographic, as opposed to teens, with which the other companies are stronger. That's part of the reason why Under Armour has fallen especially hard -- because teenage males, the primary purchaser of athletic shoes, is no longer dominant.
A perfect storm
As Under Armour founder and CEO Kevin Plank admits, the company is at the "intersection" of a confluence of events: the decline of its domestic markets even as international markets expand, Amazon.com's upending of the retail space, an increasingly competitive marketplace, and the fickle consumer who can no longer differentiate between commoditized products.
That means Under Armour is forced to swing for the fences with events like the 2018 Winter Olympics. It is possible there can be a payoff, since its broad coverage of athletes means it can continue to build on the global gains it has made.
In the third quarter of 2017, Under Armour's international revenue grew 34% on a constant currency basis and represented 22% of total revenue, with the Asia-Pacific region growing 53%, followed by Latin America at 27%, and Europe and the Middle East with 20%.
Fending off a chill wind
Though the apparel maker doesn't reveal what it spends on R&D or product development, Under Armour is leaving nothing to chance that its investment pays off in South Korea. It is cladding Olympic athletes with its most technologically advanced footwear and clothing, after testing more than 100 fabrics and 250 designs during the development of this year's uniforms.
For example, the Canadian Olympic team will be outfitted with Under Armour's Govie Boot, the HOVR Phantom running shoe, and Ultimate Speed training shoe. The U.S. speed skating team will be wearing new H1 fabric in its uniforms, which Under Armour says features the most aerodynamic design it has ever produced. The U.S. bobsled team will have on Under Armour's ColdGear Infrared fabric that contains a proprietary blend of compounds, including ceramic material, to help absorb and retain body heat.
Yet it's looking increasingly difficult for Under Armour to make a marked difference in a commoditized industry. Though the research and development Under Armour put into its Pyeongchang uniform efforts suggests it won't have a repeat of the public relations disaster of four years ago, it's hard to see the company having a big enough impact to reverse the forces working against it.