After nearly 25 years at the helm of the sports apparel brand he started in 1996, Under Armour (UA) CEO Kevin Plank is stepping aside, the company announced on Tuesday morning. (Separately, in a stunning apparent coincidence, Nike announced its CEO Mark Parker is stepping aside.)
Plank’s resignation came as a surprise to some, but others have been expecting—and calling for—some form of major change at Under Armour for the past few years, as the brand’s North American sales have flagged and stock dove 35% over the past five years. The stock closed up 6% on Tuesday on the news.
On Jan. 1, 2020, current COO Patrik Frisk, who joined Under Armour from Aldo in 2017, will become CEO. Plank will remain as chairman of the board and “brand chief,” and is still the largest shareholder.
Frisk, as he well knows, inherits the reins with a lot to fix.
Under Armour’s problems begin on its home turf of North America, where its previously booming sales growth has stalled out for the past few years.
In August 2017, Under Armour announced it would cut 2% of its global workforce, and Plank declared, “We’re pivoting” in the following ways: “From a product company to a consumer-led and category-managed brand; “From predominantly men’s to distinct collections for men, women and kids”; “From US/mostly apparel centric to a global/apparel, footwear and accessories portfolio”; “From mainly wholesale to a more balanced, direct-to-consumer offering”; “From a historically top-line driven P&L to a return-focused, more disciplined financial model”; and, “From Good to Great operations.”
The pivot has not yet borne fruit. In 2018, North American sales declined 2% for the year, and this past July, Under Armour reported a 3% sales decline in North America for its second quarter and lowered its outlook for 2019.
International growth is a bright spot, and now makes up 30% of the company’s overall sales, but Wall Street has been unable to overlook the losses in America, where the athleisure trend has been debilitating for Plank’s brand, which has always emphasized performance products and a hardcore sports image. Adidas, Lululemon, and to an extent Nike have thrived with the rise of athleisure, while Plank has been unwilling to adapt to the trend, saying back in 2016, “It’s not about what people are conveniently referring to as athleisure” (but in the sports apparel industry for now, it really is), and reiterating, in February of this year, “We’re going to double-down on performance.”
Doubling down on performance has looked stubborn at a time when every single performance category is in decline. “For the first 40 or 50 years of what I would call the modern sneaker marketplace, we have always had at least one performance category that has been in fashion and trendy,” says NPD Group retail analyst Matt Powell. “We’re now going close to four years with not having a single performance category in the plus column. We are very much in an athleisure cycle and this a fundamental shift for the industry.”
The decline of basketball sneakers, in particular, has hurt Under Armour. Performance basketball shoes, as a category, has seen 20% declines in recent years, and that’s happening as Under Armour’s biggest push in sneakers has been with Steph Curry basketball shoes. Adidas has stolen U.S. sneaker market share from Nike (NKE) with popular retro releases, while Under Armour still hasn’t figured out footwear.
The brand has also too often sold at discounts, hampered by the liquidation of Sports Authority, Sports Chalet, and other chains—a problem, of course, for all the sports apparel players. But too much price promoting has watered down Under Armour’s brand image, some analysts say.
Even Under Armour’s objectively impressive stable of athlete endorsers, including Curry, Tom Brady, Cam Newton, Lindsey Vonn, Bryce Harper, Clayton Kershaw, Misty Copeland, and Dwayne “The Rock” Johnson, have not been enough to really move the needle.
And all of those are financial performance problems; Under Armour has also suffered P.R. scandals over the past few years.
In 2017, Plank said in a CNBC appearance that President Trump, as a “pro-business president,” was “an asset for this country,” resulting in a backlash from some of Under Armour’s own athletes, including Copeland, Curry, and Johnson.
Last year, the Wall Street Journal reported that Under Armour employees had been visiting strip clubs and charging the visits to their corporate cards. Plank vowed, “We will embrace this moment to accelerate the ongoing meaningful cultural transformation that is already under way at Under Armour. We can and will do better.”
Despite the recent troubles, make no mistake: Kevin Plank and Under Armour are often cited as the classic American entrepreneurial story. Plank came up with the idea for a sweat-wicking undershirt when he was still a football player at the University of Maryland; he sold the shirts out of the trunk of his car, driving across the country handing them to equipment managers at college football programs. He grew the brand to a $5 billion-in-sales success story and a challenger that Nike and Adidas could not ignore. And Under Armour never lost its underdog spirit.
It saw 27 consecutive quarters of at least 20% revenue growth in the U.S. It was the 2014 Yahoo Finance Company of the Year.
But it hit a wall in 2017, and now, post-Plank, shareholders will expect a new era.
Patrik Frisk has his work laid out for him: fix the ailing U.S. business. Toward that end, he must reduce discounting, improve the women’s product line, release better footwear, make the brand cool again at home, and clean up the culture.
As for athleisure? Frisk has a choice to make: finally embrace the trend fully, or batten down on Under Armour’s performance roots and hope athleisure goes away soon.
Daniel Roberts is the sports business writer at Yahoo Finance. Follow @readDanwrite on Twitter.