Under Armour Takes Chance On Shoe Market

Under Armour CEO Kevin Plank speaks at the launch event for Under Armour's running shoes in New York Dec. 9, 2008. The new footwear line hit stores Jan. 31, 2009. AP Photo/Rick Maiman

There are plenty of bets on Super Bowl weekend, but few with stakes as high as Under Armour's wager.

The relatively young athletic apparel company is launching its first running shoe line Saturday. Under Armour is betting it can compete against the likes of Nike in one of the biggest categories in the shoe world and in the midst of a recession.

"We're dead set on becoming the world's No. 1 performance brand and running is a part of that," said Steve Battista, senior vice president of brand at Under Armour Inc.

Industry experts wonder how a newcomer facing all the same challenges as more-established players will be able to drum up demand when consumers simply aren't spending like they used to.

"This is a really tough time to be launching anything new," said SportsOne Source chief analyst Matt Powell. "The inclination (of the consumer) to try something new just because it's new is low."

The company, while not disclosing specifics, said this will be the largest launch in its history. It has been on an advertising blitz for the line of six shoes, which will sell for $85 to $120.

"We obviously are not oblivious to what is happening to the world outside, but we have a long-term strategy we have built around certain milestones: There are adjustments here and there, but this is the time," Battista said.

In some regards, the move is conservative by Under Armour standards.

The Baltimore-based company's primary business has been in lesser categories. It made its name in the niche of body-clinging "compression" clothing and got into footwear in 2006 with baseball and football cleats and launched training shoes last year. This is the first time Under Armour has gone into a large, established market.

Running shoes are the industry's largest sector specific to one sport, a roughly $5 billion market in the U.S. alone last year, according to SportsOne Source, a firm that tracks sporting goods sales.

The business is dominated by Nike, Asics, New Balance and Adidas - companies that don't surrender their market share without a fight.

But it's also the only sport shoe category where sales rose in 2008, and it's historically a growth category, giving Under Armour some room, whereas sales of shoes for sports like baseball or football are simply a matter of taking market share from another company, analyst Powell said.

"I'm really not expecting it (the launch) to be a blockbuster from an industry point of view, but it may be an opportunity for Under Armour," he said.

Under Armour said it brings research and a loyal following of new, younger consumers that sets it apart. But analysts are wary of whether the line, which they say may be the company's only growth opportunity in 2009, will resonate with consumers dialing back spending.

The company reported Thursday that its fourth-quarter profit dropped 51 percent to $8.3 million because of the stronger dollar, tough economy and higher expenses. Its apparel sales were flat, and footwear was one of the few categories that showed sales growth.

Piper Jaffray and Co. retail analyst Jeffrey Klinefelter was unsettled by the results and said the company's entrance into the running-shoe market is worrisome.

"We believe the risk associated with footwear expansion is high at this time, given the competitive nature of the running shoe-market and the complexity of distribution in the specialty store channel," he wrote in a client note.

While he was more optimistic on the company's long-term prospects, he cut his rating of Under Armour shares to sell from neutral and dropped his price target to $16 from $17 on Friday.

Other analysts said that, with little growth left in cleated footwear, there may be some opportunities for Under Armour's training shoes, but all eyes are on running.
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