Under Armour exits yet another school sponsorship deal as part of big shrink

Posted on Nov 24, 2020 by Brad McCabe

Under Armour (UA) has backed out of another expensive university apparel sponsorship deal, its third in the past six months.

According to the Baltimore Business Journal, the Baltimore-based apparel company has agreed to a $9.75 million exit fee to get out of its 10-year, $50 million deal with the University of Cincinnati. The contract began in 2015 and had five years remaining on it. Under Armour will also provide $3.65 million worth of product through June 2021, according to the report. (Under Armour declined comment, saying the company “does not disclose contractual details of partnerships.”)

The exit comes after Under Armour in June also sought to exit its 10-year, $86 million sponsorship of the University of California Berkeley (the school called Under Armour’s attempt to exit “improper”) and its 15-year, $280 million sponsorship of UCLA (that school is suing). At the time it was signed, Under Armour’s UCLA contract was the biggest college sports apparel deal ever, but by June UA was citing “lack of marketing benefits” from the sponsorship.

Last February, Under Armour canceled its plan, first announced in 2016, to move into the 5th Avenue storefront vacated by FAO Schwarz and make it Under Armour’s Manhattan flagship store. And last month, Under Armour sold off MyFitnessPal for $345 million, five years after acquiring the connected fitness app for $475 million.

All of this is part of an aggressive and necessary slimming-down effort that Under Armour is engineering in order to survive. The once red-hot underdog brand was in dramatic decline pre-pandemic, then got doubly hit by the retail effects of COVID-19.

Under Armour’s sales in North America have declined in eight consecutive quarters. But Q3 had many bright spots: Direct-to-consumer sales rose 17%, and the U.S. sales dip of 5% was mostly caused by wholesale revenue declining 7%, which made sense considering pandemic wholesale store closures.

Patrik Frisk, who became CEO in January 2020 and inherited a turnaround job from founder Kevin Plank, said on Yahoo Finance Live in September that he aims to “reposition Under Armour as a premium brand.” That is the same sound bite Kevin Plank had been saying for three years.

But Plank had certainly never said the brand needs to shrink, whereas Frisk now acknowledges: “I think everybody will be shrinking somewhat, right, coming out of COVID. And for us—as we have done all of the work, we feel, to really understand where we will compete, who we’re for, and who we are as a brand going forward—we are just making decisions of what that means to us in terms of distribution.”

Under Armour must now unravel the spending of the Plank era and “shrink to grow”: put out less product at higher prices in order to focus on profit rather than revenue.

“Growth at all costs was the Under Armour mantra, and now all of a sudden there’s this idea of: Let’s get healthier,” says BMO Capital Markets analyst Simeon Siegel said on Yahoo Finance Live in May. “Charge a little bit more money and sell a little bit fewer goods, and there’s a really interesting story.”

On Under Armour’s Q3 earnings call on Oct. 30, Frisk further confirmed the strategy: “One of the things that we're very proud of this year is that we’ll be able to grow our margins in a year where we're taking a lot of revenue out of the top line,” he said. “And to be able to do that, you’ve got to be able to command the price for your product. And we’re clearly able to do that with less discounting, more premium pricing, more premium positioning. In some of the areas that you’re seeing that, especially, I would say, is in our footwear.”

Frisk also alluded to the recent cost-cutting measures: “2020 has proven to be a challenging and transformational year for Under Armour. In an uneven global economic environment, we've continued to make tough decisions across our business to ensure that our base is stable, and we have the agility to return to profitability in the near term.”

As Frisk continues to try to right the ship at Under Armour, more “tough decisions” could be on the way.

Article by Daniel Roberts as posted on Yahoo Finance

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