Let's play a word association game. I will mention three well-known companies, and you say what comes to mind. (To make things awkward, say it louder if you're in the office).
Nike (NYSE: NKE)
For Nike, did you say, "Just do it," or "sports?" Maybe you mentioned a particular athlete, like Michael Jordan or Lebron James. With Apple, you probably said "iPhone."
When you think of Victoria's Secret, you may have said "sexy" or "pink." Did you just scream out "lingerie!" from your cubicle? If so, stop reading and start explaining yourself to your boss.
The impression left on you by a company is called a brand image. For a consumer-goods company, there may not be a more powerful determinant of success or failure than the strength of its brand.
At the 2008 Berkshire Hathaway annual meeting, Warren Buffett made the following comment on the power of brands: "If you own important branded assets in this country, and you have good assets, it is not easy to take on those products." Buffett is basically saying that a brand is a powerful competitive advantage. It would be very difficult for another company to start anew and take shelf space away from Heinz Ketchup.
A new smartphone maker would have difficulty taking market share from the iPhone. During the last two decades, the same could have been said in the sportswear market with Nike and Adidas (NASDAQOTH: ADDYY). However, a new player has emerged.
In 1996, Kevin Plank, Founder and CEO of Under Armor (NYSE: UA), sold $17,000 worth of moisture-wicking t-shirts out of the trunk of his car. In 2015, Under Armour expects to report just less than $4 billion in revenue. The company's success can largely be attributed to how it has created a brand that resonates with consumers.
Underdog to champion
The highest-profile athlete to promote the Under Armour brand is 2015 NBA MVP Steph Curry. Through the first three quarters of 2015, Under Armour's footwear sales increased 48% from the same period last year. With the release of Steph Curry's signature shoe during the critical retail holiday season, expect that percentage to increase significantly.
Curry has become a global phenomenon over the past year. He recently surpassed Lebron James to lead the NBA in jersey sales, and is having another MVP season as his team makes a run for back-to-back championships. In 2013, however, when Under Armour signed Curry away from Nike, he was not a well-known player outside of Northern California. He was coming off two ankle surgeries, and zero all-star appearances.
Nike believed $2.5 million per year was too rich to have Curry endorse its brand. Curry signed with Under Armour and began marketing a signature shoe. Today, Under Armour's goal is to build a $1 billion basketball brand.
This underdog-to-champion story is a microcosm of the Under Armour journey. The company has done an excellent job of selecting athletes before their primes to help endorse the brand. According to company executive Matt Merchin, "Young, underdog, and next" are the key attributes Under Armour targets with its athlete endorsers. A few notable athletes who fit this mold are:
Jordan Spieth: Professional golfer who signed a 10-year deal with Under Armour at the age of 21, and went on to win two major tournaments, including the coveted Masters. He is now the No. 1 ranked golfer in the world.
Buster Posey: Major League Baseball catcher who signed with Under Armour as a rookie. His accolades include Rookie of the Year, Most Valuable Player, and three World Series wins.
Clayton Kershaw: Major League Baseball pitcher who signed with Under Armour at the age of 21 and became a three-time Cy Young winner for being the best pitcher in baseball.
The Under Armour roster is also rounded out by veterans such as Tom Brady, Michael Phelps, Lindsey Vonn, and Andy Murray -- a group that combines for four Super Bowl victories, 24 Olympic Medals, and 33 tennis titles. With an impressive group of endorsers, Under Armour should continue to build a brand that wins.
Capturing the women's market
One of the keys to Nike's success has been that it has been able to balance sales of men, women, and youth sportswear. In order for Under Armour to close the gap with Nike, its brands must resonate with a diverse group of consumers. Under Armour has come a long way from being known as a macho brand that made its way into footwear selling football cleats.
Today, women's apparel accounts for nearly 30% of Under Armour's revenue. Considering that Nike's sales to women account for 22% of total revenue, achieving this level of success in such a short period of time is quite an accomplishment.
Similar to the underdog story with Curry, Under Armour's main female endorser has defied the odds. This summer, Misty Copeland became the first African-American to be named a principal dancer with the American Ballet Theater. She was also named one of Time Magazine's 100 most influential people in the world. Under Armour management once again showed its keen eye for talent as they signed Misty in 2014, a year before she received her highly publicized accolades.
Management focus on brand
The importance of brand is not lost on Under Armour management. During the company's Investor Day, the word "brand" was mentioned more than 300 times. CEO Kevin Plank stressed the importance of building a brand with the following comments:
Brands are aspirational. Brands are meant to be inspirational. So what does that mean? It means that people don't buy our logo just because it happens to be hot or cool at any one particular time. It's about everything that goes into the brand, every detail considered... And we know [that] is what helps shape that impression of what is a company. That's from the marketing all the way down to the product, and that's what builds brand.
Plank's words are backed up by action, as Under Armour, during the last year, spent 11.4% of revenue on marketing. Nike's marketing spend over the same period came in at 10.1% of revenue.
Under Armour sports an impressive roster of brand endorsers, appeals to a broad demographic, and has an aggressive marketing strategy. Look for this feisty underdog to continue its quest to be a champion.
Palbir Nijjar owns shares of Apple, Nike, and Under Armour. The Motley Fool owns shares of and recommends Apple, Nike, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.