Anyone who knows me, knows that I’ve been actively tracking Under Armour as a company for over 5 years. I, at one point, used the company as a model for my own shoe company. In this time I’ve written 491 posts that have either discussed UA directly or indirectly. That’s enough to write a book about the company. What I never expected was a company that sat at $41/share less than 5 years ago would now be at $8.32 and continuing to trend down. I continue to think the company has under its umbrella a means to slow down their problems, but it seems they get in their own way. This has always been because the brand tried to grow too fast. In 2016 Under Armour’s last opportunity to make waves was taken away as Nike regained its footing after working on their infrastructure before removing Futures as a measurement for growth.
When Nike Wins, Who Loses? Part 2: The Brand that Loses with Nike’s Big Win…Starts With a U
While I subscribe to different services and do my own research of the stock market, I have never asked the question, “What happens when a stock hits zero?”
Here is a source to begin reading and you can perform your own search:
https://www.sapling.com/6384209/happens-stocks-fall-zero
Is it realistic to ask if Under Armour will hit zero? Will they encounter bankruptcy? Yes and No. Sportswear companies tend to find their way by being purchased by equity groups or other brands. They reemerge as a lesser form of themselves, but even after bankruptcy they tend to reenter the market. Will Under Armour go into bankruptcy? No. Someone will buy the company before that happens, or UA could reinvent itself, but they have never adjusted well, so that is a stretch.
My thought is that we could see Nike add Under Armour into its family. adidas has Reebok. The acquisition of Reebok is probably the most closely related story to what could potentially happen to Under Armour.
Source: https://www.company-histories.com/Reebok-International-Ltd-Company-History.html
In the same way that analysts believe Reebok lost ground to Nike by emulating the Swoosh with a pivot to sports and performance, and a move away from fashion and fitness, there is an obvious precedence in the sports world for this situation for Under Armour.
I’ve always explained that UA pursuing performance is not a problem. When a look back to Reebok and the fact that analysts looked at their pivot to performance as the death of the company, it seems that no one looks at Nike as the constant. When Reebok slumped Nike was rising. As Under Armour began to slump in 2016, both adidas and Nike were rising. In the post on the link below,
Why “Under Armour Sprinting Past Its Footwear Sales Goals” Is Dead Wrong
I made this statement:
I have said over and over I’m a huge Under Armour fan, but the source article is the narrative being created and I think it does huge disservice to shareholders and potential buyers. Under Armour needs a product and marketing shake up. I’m talking a serious shake up because at the most important place of growth for the brand they are missing the target in a major way. Until UA begins to build the narrative with the retail places carrying their brand, they are not going to see any growth in the footwear department. Their focus shouldn’t be on the international market until they have nailed the domestic market.
In that post I explained that international expansion would break the company. I had been discussing Connected Fitness as problematic and their incorrect approach to casual compounded everything else. Under Armour’s stock price tomorrow when the market opens will continue to drop. The fact that the company applied for a line of credit does very little to inspire shareholder confidence. COVID-19 is accelerating what UA needed to do anyway:
- Close stores
- Trim C-Suite positions
- Slow expansion in new territories
- Fix North America
- Shed college sports contracts
While the fall of Reebok parallels Under Armour and they both pivoted to performance, that was a last ditch effort to keep up with Nike in both situations when the reality was they could have continued with fashion and fitness, but it would not have mattered. Reebok in the 90s spent too much money on signing athletes. Under Armour in the 2010s spent too much money on digital acquisitions and expansion. The best thing a company can do when it’s failing is to return to its core and reset. Under Armour grew because it operated in conjunction with other brands. Those aren’t my words. That’s from sneaker executive Drew L. Greer. He couldn’t be more right. UA has to get back to what it was to protect its house and to do so it will have to hit rock bottom and return to being a private company. Does that mean bankruptcy? No, but maybe New Balance should be UA’s measuring stick.
This article is my opinion and is meant to inspire dialogue. Use the source link to read more about the stock market and when a stock hits zero. Use the source link to read more about Reebok’s decline in the 90s and subsequent sale to adidas.