The Under Armour Sportswear brand will launch in September

The Under Armour Sportswear brand will launch in September

Performance footwear and apparel brand Under Armour is evolving thanks to the imminent launch of a new sportswear line that will broaden its appeal to a more mainstream audience, and the signing of a new partnership deal with Kohl's.

Led by newly-hired creative director Tim Coppens, the Under Armour Sportswear brand – to be called UAS – will launch in the autumn with the aim of being more fashionable than Under Armour's current high-end sportswear lines. The move is part of a three-pronged strategic plan being implemented by the group to reach more customers in three key areas: channels, categories, and geographies.

While specific details on the new brand are scant, Under Armour insists it is not an athleisure line. 

"UAS is not just a category play or a distribution play, it's about bringing a new consumer into the Under Armour brand," CEO Kevin Plank told analysts on a recent earnings call. "UAS will bring a young, fresh and modern voice to sportswear and reflects the insights we've gained as a performance brand now applied to the everyday wardrobe.

"This is not about being on trend or capturing the athleisure market. Consumers have the expectation that performance product is not just functional but is fully executed through fit and style. We don't believe that Under Armour technology should be exclusively for on-field. We don't see it as an either/or thing."

Under Armour says the brand will have a narrow distribution in premium retail as well as a limited range of boutique doors. But UAS is a business that is built for mobile-native consumers, the company says, so while it is partnering with select, high-end wholesale partners to showcase "a best-in-class expression" of the new collection, the launch of UAS is predominantly a direct-to-consumer offering. 

"This initiative represents an ambitious step for our brand and provides a great amount of daylight between it and our existing product range," Plank says. "People are asking and trying to figure out how to wear the brand beyond the pitch, the field, the court.

"And when we look at the market opportunity, our two competitors claim that their sportswear businesses are somewhere between 20% to 30%, so the aggregate number there is roughly $50bn, so we assume there's about a $15bn market opportunity that today Under Armour is playing just a few percentage points for overall growth. So we think there's a massive opportunity, there's massive appetite for those in our space to really be effective in sportswear."

Plank says Under Armour is also targeting the workplace with its the new brand, suggesting the line could also tap into the shift towards more casual and comfortable attire, as well as the need for functionality. With that in mind, wicking, moisture management, stretch and washability are all expected to feature.

Plank, however, is keen to stress the launch is not a move away from the core of Under Armour. "We see styling in the company being more important. Of course we're not going to give up on what we've done to establish ourselves as authentic and on-field, on-court...but we do see there's an opportunity for kids not just to wear us when they're playing sports, but to wear us to school, out at night and other occasions."

The differentiation, however, may not be crystal clear as the line may not necessarily feature a logo. Plank says "you will see UAS [as a] distinct brand, especially in footwear", but adds, "whether the logo will be inside or outside the collar – that's a question."

FBR & Co analyst Susan Anderson says the line will apply Under Armour's "next-level technology" off the field to try to gain share in everyday attire, which tends to favour more casual and comfortable looks.

Cowen analyst John Kernan agrees the move makes sense given the fact that apparel overall carries a mix benefit for UA in a period when lower margin footwear and international segments are outpacing apparel growth. He adds: "With peers Nike and Adidas actively participating in, and generating considerable volume from, their sportswear segments, UA's launch and development of its lifestyle assortment over time will provide the company prospects to raise its low single digit market share profile higher within a $15bn market opportunity."

Kohl's agreement

In keeping with Under Armour's plan to reach new customers, the brand will also go on sale in 600 Kohl's doors – a mid-tier retailer and one of the top for activewear in the US – as part of a new partnership deal starting in early 2017. 

Plank says the move is "not a channel consideration but a consumer consideration" and will help expand its reach towards women and the US West Coast. "We want to reach our consumer where they expect to find Under Armour product, and we'll continue to partner with the retailers that provide us [with] the opportunity to showcase the Under Armour brand."

Under Armour already sells performance athletic gear to department stores including Macy's and Lord & Taylor. And both of its rivals, Nike and Adidas, have existing sales accounts at Kohl's.

The announcements came as Under Armour reported 28% revenue growth to $1bn but lower gross margins and a 58% fall in earnings to $74.1m, weighed down by rising costs and the liquidation of its long-standing customer The Sports Authority. The company did, however, report a rise in its international revenue, in a sign the brand is slowly expanding outside its home market.

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UBS analyst Michael Binetti believes that while Under Armour has a solid long-term opportunity for growth, the company faces intense competition from several established global athletic and footwear brands with significantly larger budgets for product development and marketing. 

"Under Armour has aggressive growth plans that include extending the brand into new categories (particularly athletic footwear) that increase execution risk for the company. A significant percentage of Under Armour's total sales are concentrated with relatively few key retail partners and any disruption in relationships with key retailers could be a risk for the company. 

"Low visibility related to US and Europe consumer spending levels are also a risk for Under Armour. Additionally, the athletic apparel and footwear industry is also subject to volatility due to fashion cycles. Any deterioration in Under Armour's ability to maintain a rapid pace of bringing compelling new product innovation to market would also be a risk for the stock."