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How Under Armour Is Taking a Page From's Playbook

By Steve Symington - Jan 6, 2016 at 2:04PM

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It could have huge implications for future growth.

Under Armour Connected Fitness, UA stock

Credit: Under Armour.

Under Armour (UAA 1.83%) just unveiled a slew of high-tech Connected Fitness products at CES 2016 this week, including a smart scale, a new fitness chest strap, heart-rate tracking ear buds, and even a smart shoe that accurately relays workout information to its mobile apps. But arguably, Under Armour's most important digital innovation wasn't detailed at CES. 

In short, it's a recommendation engine. Or as Under Armour management calls it, a "consumer insight engine."

"What we can do with these insights is extraordinary."
Speaking during Under Armour's most-recent quarterly conference call in October, CEO Kevin Plank likened the company's plans to something for which online retail juggernaut (AMZN 2.07%) is already well known:

[T]he ability to use data and analytics to drive business is something I don't even think we've quantified yet. I use the example -- and I think it's a really good one -- that Amazon, how they credit 40% of their revenue is what they call their recommendation engine. And that's basically just based on toothpaste. I know if I sold you a tube of toothpaste five weeks ago and toothpaste has a six-week life cycle, I can ask if you want me to send you a new tube. Not only do we know purchasing history, but we can tie that to activity, to fitness, to sleep, to nutrition, and data information that our consumers are voluntarily giving to us. And we recognize that as they do that, our job is becoming this destination, this daily dashboard of your health and fitness that we think we can become.

Plank then hinted at Under Armour's impending (and now complete) "large announcement" at CES, calling the company's new approach "an incredibly exciting space that is just partially contemplated as we look forward." Of course, Under Armour's product focus is comparatively narrow to that of, so it might seem overzealous at first to think Under Armour might ultimately be able to credit nearly as much revenue (40%!?) to its own recommendation engine.

But perspective is in order here. First, the size of Under Armour's Connected Fitness community is unrivaled, with 150 million registered users between its various fitness apps. According to Plank, as of late October, those users had already logged more than 6.5 billion foods, and more than 1.5 billion workouts in 2015.

What's more, Plank says that Under Armour knows "exactly how far they go, what they do, and 600,000 to 700,000 of them in our gear tracker are telling us what shoe they are wearing and when the shoe breaks down. What we can do with these insights are extraordinary."

A matter of time
As it stands, Under Armour is already working to make the most of its already vast troves of data. But that raises the question: When will Under Armour be able to enjoy the full fruits of this project?

According to management during the company's investor day in September, the insight engine will be created as part of Under Armour's ongoing work with enterprise software specialist SAP (SAP 0.74%) during the next three years. Specifically, Under Armour is investing to implement a single global instance of SAP's market-leading platform across all lines of its business -- a prudent move in these early stages of its global growth.

"Building this powerful Insight engine allows us to combine multi-channel commercial data with connected fitness lifestyle and behavioral information," explained Under Armour CIO Paul Fipps at the time. "This will add holistically to our relationship with our athletes and, more importantly, make them better."

While Under Armour won't technically enjoy its full-fledged consumer insight engine for some time yet, it seems clear it could have an enormous impact on both Under Armour's growth and rapport with consumers going forward.

Steve Symington owns shares of Under Armour. The Motley Fool owns shares of and recommends 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.

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