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3 big reasons Under Armour has cooled off

Daniel Roberts

Under Armour’s biggest star athlete, Steph Curry, is headed to the NBA Finals. But that hasn’t helped buoy the brand.

Under Armour (UA) stock is down nearly 30% so far this year. (In the same time period, Nike is up slightly and Adidas is way up.) Its CFO Chip Molloy left the company. In its last earnings report at the end of April, the company reported its first ever quarterly loss. More importantly, and more ominous for Under Armour: its footwear sales were up 2% in Q1 2017. In Q1 2016, they rose 64%.

The scrappy Baltimore sportswear brand is having a very bad year. What’s the problem?

1. The decline of basketball sneakers

The basketball sneaker business has been bad for nearly two years now, but it may be reaching a nadir: basketball sneaker sales are down 26% since the start of 2017.

That’s bad for the whole sports footwear industry, so it’s not only hurting Under Armour, but it is especially bad for Under Armour, which overemphasized basketball footwear on the back of Steph Curry, its biggest star endorser.

Golden State Warriors star and Under Armour endorser Steph Curry (Getty)
Golden State Warriors star and Under Armour endorser Steph Curry (Getty)

Why have basketball sneakers declined? Simple fashion trends, experts say. For a time, kids would also wear basketball performance sneakers (“performance” as in designed for playing basketball) for fashion purposes, but that has waned as kids gravitate more toward shoes that are designed with fashion in mind (i.e. running shoes that people wear all day). That change in trend isn’t Under Armour’s fault, but the brand is at fault for focusing too much on one star and one sport.

“I had expected that at some point the fashion headwinds would catch up to Curry,” says NPD Group sneaker analyst Matt Powell. “They had a nice run with him, they signed him at the peak of his popularity, but now basketball going out of fashion has hurt them significantly.”

While basketball has declined the most, it isn’t the only sport where performance sneaker sales are down. “There is not a single performance category that is trending positively right now,” Powell says. “Not basketball, not hiking, not gym. We are 100% in an athletic fashion trend.”

Here’s why that’s a crisis for Under Armour: The company was always a performance brand. It sold gear meant to be worn for playing sports. It did not prepare for the athletic fashion explosion—a trend you might better know by the term “athleisure.” It is a term that Under Armour CEO Kevin Plank does not like (surprise!) and a trend that has been debilitating for his brand.

2. Under Armour didn’t embrace fashion (Adidas sure did)

Unfortunately for Under Armour, it is faltering just at a time when one of its biggest competitors is flying. Adidas (ADDYY) stock is up this year almost as much as Under Armour stock is down, and in the German giant’s 2016 end-of-year earnings report it issued stunning guidance for 2017 and beyond. Under Armour, on the other hand, lowered its guidance.

Under Armour, Nike, and Adidas stock in 2017
Under Armour, Nike, and Adidas stock in 2017

Nike (NKE) isn’t doing so hot either right now—in its last earnings report the company missed on revenue expectations—but it at least foresaw the trend Under Armour missed.

Both Adidas and Nike have already, for years, offered an array of fashion-focused apparel. Under Armour didn’t. In Adidas’s case, one could argue fashion or “street wear” was what the company (which has its roots in track and soccer) was best known for in America in the 1980s and 1990s. And now those classics are back: the best-performing footwear division at Adidas right now is its Originals, home to designs like the Superstar and Stan Smith.

Design collaborations with artists like Pharrell Williams and Kanye West have also helped boost buzz for Adidas, even if it’s hard to pin down a precise sales impact, since West’s “Yeezy” shoes are only ever released in small doses. Adidas’s performance in 2016 earned it the title of Yahoo Finance Sports Business of the Year, and it is likely to dominate its peers in athletic footwear again in 2017.

The rise of Adidas has eaten into footwear market share for both Nike and Under Armour. While Adidas’s U.S. sneaker share has risen to 11.4%, Under Armour’s has shrunk slightly to 2.5%. Nike, when taking into account Jordan Brand and Converse, still enjoys a lion’s share 54.6%.

US athletic footwear market share, via NPD Group
US athletic footwear market share, via NPD Group

Under Armour must quickly adapt to compete, or look on from the sidelines. “They needed to make the pivot to sportswear much sooner than they did,” Powell says.

3. Kevin Plank and Donald Trump

Back in February, in an interview with CNBC, Kevin Plank was asked for his opinion of President Trump. Plank said: “I think he is highly passionate. To have such a pro-business president is something that’s a real asset for this country. I think people should grab that opportunity.”

He is still paying the price for those comments today.

Under Armour’s stock plunged in the days that followed and a slew of its sponsored athletes spoke out to challenge the sentiment, including Curry, Misty Copeland and Dwayne “The Rock” Johnson.

The company walked back Plank’s comment in a statement days later, saying, “We are against a travel ban and believe that immigration is a source of strength, diversity and innovation for global companies based in America like Under Armour.” But the controversy was damaging.

Plank, of course, isn’t the only CEO (and Under Armour isn’t the only company) that has had to walk a tightrope around the Trump administration: the same issue has affected the leaders of tech companies like Uber, Airbnb and Tesla.

Certainly the mini-scandal around Plank and Trump isn’t Under Armour’s biggest problem by any means, but in a year of disappointing financial performance, it did not help.

To be sure, there is more pressure on apparel brands to be on-trend than ever before. And trends are changing faster than before, too. 20 years ago, Powell says, fashion trends would last for nearly a decade; now they last less than three years. The good news there for Under Armour: basketball shoes will soon come back into fashion.

And make no mistake: Under Armour’s brand remains strong. Athletes know it, and young kids like it. But to catch up to the athleisure trend, which is not going away, “I think we’re going to see them add a layer of fashion to everything they do,” says Powell. “I think we’re going to see them do a lot more product that doesn’t look like it’s meant for the gym, but does have performance characteristics. And that’s a hard shift to make, but it’s not impossible. Every brand has had to do this. Even Nike and Adidas, they were performance brands that kind of looked down their nose at people who bought performance sneakers to wear as fashion, but they changed their approach and won. At some point Under Armour will have to do that.”

Daniel Roberts is the sports business writer at Yahoo Finance. Follow him on Twitter at @readDanwrite.

Read more:

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