Under Armour has passed Adidas to become the no. 2 sports brand in America behind Nike. This is quite astonishing given that Adidas commands a $15.55 billion market cap and earned $18.59 billion in revenue in 2013. Adidas also ranks no. 61 on Forbes Most Valuable Brands as well as no. 91 on Forbes Most Innovative Companies. Under Armour is quickly catching up, with a $14.96 billion market cap and earned $2.66 billion in revenue in 2013.
Last month, Under Armour stood out along with U.S. Steel and Facebook for seasonal earnings and witnessed a surge in stock prices. Even though Kevin Durant chose Nike over Under Armour, the company sponsors a broad range of athletes from Tom Brady, Lindsey Vonn, and Michael Phelps to fashion model Gisele Bundchen and ballet dancer Misty Copeland.
Adidas has been shaking up its North American business model since last October when it announced that Reebok North America President Uli Becker would be leaving. Adidas has a strong presence in European soccer, sponsoring the World Cup winners Germany as well Champions League winners Real Madrid. However, the new president of the North American division, Mark King, believes that the company lacks focus. Mr. King’s comments came a month before Adidas announced a 17 percent drop in its shares as well as a decrease in its expected revenue from $1.11 billion to $870 million. Herbert Hainer, chief executive of the Adidas Group, recently announced that new style-savvy products should hit U.S. shelves in the forth quarter, but the fiscal effects will not be seen until 2015.
Where Adidas has been lagging, Under Armour is ready to pounce. The U.S. athletic apparel market has been taking off and Under Armour dominates 70 percent of this brand-obsessed market, which along with its footwear make up 89 percent of the company’s value. Sports store chains like Hibbert Sports and Footlocker have emphasized the success of Nike and Under Armour, while Hibbert admitted that it only sells Adidas sports apparel in certain stores.
On top of its success in other stores, gross margins in Under Armour’s direct-to-consumer segment is 30 percent higher than its wholesale channel. Direct revenues were boosted in the U.S. by 21 new factory stores in 2012. Adidas is not going anywhere, but the company had better sharpen its teeth if it hopes to stay competitive in North America. Also, Adidas should keep a keen eye in Europe where Under Armour plans to more than double sales from 6 to 8 percent to 16 percent by 2016. Under Armour has been carefully opening stores overseas and even though it sponsors only Tottenham in the English Premier League, we may find stars like Barcelona’s Neymar wearing Under Armour apparel and shoes in the future.