{"id":26474,"date":"2017-11-15T22:26:45","date_gmt":"2017-11-16T03:26:45","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/under-armour-chasing-digitization\/"},"modified":"2017-11-15T22:26:45","modified_gmt":"2017-11-16T03:26:45","slug":"under-armour-chasing-digitization","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/under-armour-chasing-digitization\/","title":{"rendered":"Under Armour: Chasing Digitization"},"content":{"rendered":"

Under Armour (UA) reached mass market through traditional retail channels.\u00a0 E-Commerce has been the digitization of traditional retail and the inability of UA\u2019s retail partners to compete in the space spelled their demise.[i]<\/a>[1]<\/a> \u00a0\u00a0\u00a0Digitization is of particular concern to UA because the company\u2019s supply chain is rigid, takes 18 months to bring product to market, and empties into a distribution network reliant on retail partners.[ii]<\/a>[2]<\/a><\/p>\n

The retail industry is evolving at an alarming pace; if this piece was written one year ago, it would laud UA for digitizing its consumer interface through the integration of MapMyRun, Endomodo, and MyFitnessPal into its offering.[3]<\/a> However, the dissolution of the traditional distribution network has transformed the digital integration of the end-to-end value chain from a priority to a necessity.<\/p>\n

UA CSO Colin Browne, indicated the opportunity that digitization presents to connect silos throughout the supply chain is transformative.\u00a0 Browne explained that \u201cthe UA Lighthouse is the tip of the spear in driving this [digitization] change.[iii]<\/a>[4]<\/a>\u201d Beyond the local innovation and production that the UA Lighthouse provides, Browne shared that his vision for near-term digitization within UA leverages the connected fitness platform and an ERP software from SAP to give the firm a \u201csingle view of the consumer.[iv]<\/a>\u201d This output, when combined with a flexible supply chain will facilitate the customization and co-creation that consumers desire in the new retail environment.\u00a0 Browne acknowledged that this will be a seismic shift for the UA supply chain, but did not indicate that the process will become full autonomous within the next 10 years.\u00a0 Browne stated \u201cit will remain cheaper to produce in low-cost countries with AI and technology helping production as opposed to a fully automated model.\u201d[v]<\/a><\/p>\n

UA must continue to develop their supply chain as the company has fallen behind competitors. While UA was creating visibility throughout their supply chain, Nike\u2019s was redesigned in its entirety. At Nike\u2019s October 2017 investor day COO Erik Sprunk highlighted the impact that Flex has had on Nike Production:<\/p>\n

\u201cWe’ve just moved into a new nearshore purpose-built footwear factory with Flex that will deliver over 3 million pairs to North America in fiscal year ’18 alone\u2026 This strategic relationship allows us to take our standard time from just manufacturing to market from about 60 days to 10 days or less.\u201d[vi]<\/a><\/p>\n

He continued:<\/p>\n

\u201cToday, we are building a scalable solution capable of delivering a pair of midsoles and outsoles, the bottom, on average, in 2.5 minutes, compared to more than 50 in the past. Our new process uses 75% less energy, 50% less tooling cost and has a 60% reduction in labor.\u201d[vii]<\/a><\/p>\n

Nike\u2019s reduction in time to market makes innovation and the integration of customer preferences far more feasible, while the reduction in costs of labor, energy, and tooling will fall straight to the bottom line.\u00a0 UA must step back and acknowledge its most important relationship is with the consumer, if the firm continues to scale along the traditional retail channel it will not add depth to this relationship.\u00a0 UA must enable the consumer to co-create the product in a way that larger scale competitors do not.\u00a0 This will require a radical shift in the supply chain, but it starts with the integration of robotics into the workflow.<\/p>\n

Questions:<\/p>\n

As Nike becomes more efficient and profitable, how quickly will the positive feedback loop spin into a cycle of doom for UA?<\/p>\n

Digitization in athletic wear has outpaced other segments of the market, what are potential reasons for his and what will catalyze other industries?<\/p>\n

(798 words)<\/p>\n

[1]<\/a> Sports Authority and Dicks Sporting Goods were responsible for 22% of Under Armour revenues in 2013<\/p>\n

[2]<\/a> Morgan Stanley estimates that current new product takes 18 months to bring to market<\/p>\n

[3]<\/a> MapMyRun, Endomodo, and MyFitnessPal, are mobile applications owned by Under Armour that collect data on the consumption habits of their users<\/p>\n

[4]<\/a> The UA Lighthouse is a digitally enabled facility that places designers and manufacturers under the same roof<\/p>\n

[i]<\/a> \u201cForm 10-K.\u201d SEC.GOV, United States Securities and Exchange Commission, 31 Dec. 2013, www.sec.gov\/Archives\/edgar\/data\/1336917\/000133691714000008\/ua-20131231x10k.htm<\/a>.<\/p>\n

[ii]<\/a>Green, Dennis. \u201cNike and Adidas Are Making Huge Investments That Should Terrify Under Armour.\u201d Business Insider, Business Insider, 7 June 2017, www.businessinsider.com\/morgan-stanley-note-on-adidas-nike-2017-6<\/a>.<\/p>\n

[iii]<\/a> The Apparel Sourcing Caravan\u2019s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15\u201315, The Apparel Sourcing Caravan\u2019s next Stop: Digitization.<\/p>\n

[iv]<\/a> The Apparel Sourcing Caravan\u2019s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15\u201315, The Apparel Sourcing Caravan\u2019s next Stop: Digitization.<\/p>\n

[v]<\/a> The Apparel Sourcing Caravan\u2019s next Stop: Digitization. McKinsey Apparel, Fashion & Luxury Group, 2017, pp. 15\u201315, The Apparel Sourcing Caravan\u2019s next Stop: Digitization.<\/p>\n

[vi]<\/a> Sprunk, Eric. \u201cNike Investor Day 2017.\u201d Nike Investor Relations, Nike, Inc., 27 Oct. 2017, s1.q4cdn.com\/806093406\/files\/images\/irday\/ES-Transcript-with-slides.pdf.<\/p>\n

[vii]<\/a>Sprunk, Eric. \u201cNike Investor Day 2017.\u201d Nike Investor Relations, Nike, Inc., 27 Oct. 2017, s1.q4cdn.com\/806093406\/files\/images\/irday\/ES-Transcript-with-slides.pdf.<\/p>\n","protected":false},"excerpt":{"rendered":"

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