Under Armour Overview
Under Armour is an American multinational corporation that offers sportswear, footwear and apparel products to a large range of global consumers. The company was incorporated in 1996 and at present has a market capitalization of more than USD 7 billion. Furthermore, Under Armour has more than 15000 retail stores spread across different parts of the world.
Probing further, the PESTLE Analysis of Under Armour will look into the impact of external business determinants that can potentially affect the company. PESTLE analysis is a great strategic assessment tool that ascertains how changes in the external business environment can force changes in a specific industry and define future scope. So, to understand how the concurrent macro-environment will impact Under Armour, let us delve deep into this article.
Table of Contents
- Under Armour Overview
- PESTLE analysis of Under Armour
An elaborate and unique PESTLE analysis of Under Armour
Political factors affecting Under Armour
The US is considered to be highly stable politically. The state of New York is planning to introduce a law wherein the companies that have revenues of more than $100 million are required to disclose their material production volumes and also reveal to the government the suppliers that the companies believe cause greater risk to the environment or the society in terms of not providing employees with fair wages, releasing more than mandated greenhouse gas emissions and so on. This is being done to increase transparency and hold companies accountable for unethical and unsustainable operations (Green, 2022). The federal government of the US has recently announced a reduction in corporate tax from 35% to 21% to boost investments.
The retail companies outsource most of their production to Chinese companies and the US-China trade war has impacted footwear and apparel companies to a great extent as the federal government of US has increased import tariffs from 10% to 25% and this decision would increase the expenditure of the companies, hence leading to increase in prices of the goods. The companies operating internationally can benefit from the tax treaty that the US has with 85 countries under which the income earned in a few nations by the US companies is taxed at a lower rate while earnings from many countries are tax-free (IRS, 2022).
Alongside the US, China and India are also the major markets for retail companies. The Chinese government has formulated new policies for e-commerce wherein the e-commerce operators would be responsible for the delays and they are banned from displaying fake reviews. China has tax treaties with 111 countries wherein the taxes paid in source countries can be claimed as a credit while filing for a return in China (PwC. 2022). The government of India has allowed 100% FDI in single-brand retail, provided the retailer sources 30% of the raw materials from the local vendors. The 100% FDI is positive news for the companies as they can have full control over their business (Yadav, 2020).
Economic factors affecting Under Armour
The growth rate of the US for the year ending 2021 was 5.7% and it is predicted to decline to 4% in 2022 and 2.6% in 2023 (IMF, 2021). Further, the unemployment rate is 6.3% and is expected to lower to 5.7% in 2022 (UN, 2021). The decline in the unemployment rate can be a positive sign for the retail companies as more people would have fixed sources of income and they would spend more on sportswear. Further, the inflation in the US is at a 40-year high at 7.5% and high inflation would lead to an increase in the prices of the products that can have a negative impact on the sales of the companies.
Moreover, the growth rate of China at the end of 2021 was 8.1% (Patranobis, 2022). The economy is expected to slow to 5.1% in 2022 and 2023. The per capita income in China was $12,551 at the end of 2021 (Global Times, 2022). It is expected to more than double to $25,307 by 2025. The high increase in income would lead to an increase in the sales of the retailers by manifolds.
Furthermore, India is also growing at a substantial pace and it registered a growth of 8.3% in 2021. The growth rate is expected to further accelerate to 8.7% in 2022 and it would witness a downfall in 2023 by reaching 6.6%. The unemployment rate in India was 6.5% in 2021 while the inflation by the end of 2021 was 5.59%. The inflation is expected to be 5% by the end of 2022. The lowering of the inflation rate would lower the prices of goods which would enhance the sales of the products.
The athleisure industry in the US is worth $113.4 billion and in 2021 it increased by 7.9%. The market is expected to grow at a CAGR of 6.6% to $267.61 billion by 2028. The following illustration shows how Under Armour compares with its competitors Adidas and Nike in terms of market cap and other indicators.
Social factors affecting Under Armour
US citizens embrace modern lifestyles and are becoming increasingly health-conscious which offers a greater opportunity for sportswear brands to acquire more customers. Moreover, among shoppers, the trend of e-commerce shopping for footwear, sportswear and apparel is thriving and companies need to constantly optimize their e-commerce and other digital channels. Besides, in the US, consumer spending on athletic wear is on the rise, and 28% of people prefer purchasing athletic wear while buying apparel. This trend has increased by 4% over the last 2 years and is a positive sign for the companies (Berthene, 2020).
The level of income among the Chinese people is rising tremendously and the disposable income of the people increased by around 9% in 2021 to 29,975 yuan. Further, the trend of participating in sports activities is rising in China and in 2020, around 440 million actively participated in sports which was an increase of over 10% compared to the previous year.
The change in income trends and lifestyles can create a significant opportunity for sportswear companies. More than 61% of people in India have started participating more in wellness activities after the emergence of COVID (Basuroy, 2021). This trend can pose a significant opportunity for the companies dealing in athletic products.
Technological factors affecting Under Armour
The US government spends the highest on Research and Development in the world. It spent $157 billion in 2021 and the expenditure for 2022 is estimated to be $171 billion. Furthermore, the R&D activity is popular in China as well and the government of China spent 2 trillion yuan in 2021 (National Bureau of Statistics, 2022).
Various technologies have shaped the shopping experience of customers in retail supermarkets which include Just Walk Out technology wherein the customers pick up the products and directly exit the store without the need for physical payment and the customer’s facial recognition is scanned and the payment is deducted automatically from the customer's account. Another technology named instacart wherein the carts are fitted with sensors and the payment is deducted from the account immediately after the customer put the items in the shopping cart is gaining popularity.
Furthermore, self-checkouts are being established at various outlets that help in easy payments and less use of the workforce. Many retail companies operate on e-commerce platforms as well and the revolution in terms of delivery by drone has lessened the time taken for delivery and because of automation, the delivery process has become more accurate. In addition, the companies have started using Big Data Analytics to predict the demand of the products in the market. Implementation of this technology leads to a reduction in wastage and ensures the optimum level of inventory in the stores.
Legal factors affecting Under Armour
Various laws regulate the functioning of the sportswear and apparel retail industry in the US. The state government of California has recently passed Garment Worker Protection Act wherein it is mandatory for the employers to pay the workers on an hourly basis rather than for the pieces they manufacture which was the rule until now. The federal government of the US recently passed Uyghur Forced Labor Prevention Act wherein the companies would need to prove that the cotton used in manufacturing apparel is not made from the cotton extracted out of forced labor of Uyghur Muslims (Glover, 2022).
Further, In the US, there are strict antitrust laws that restrict companies from engaging in mergers with an intention to reduce competition in the market. The functioning of the industry is also regulated by The Sherman Act which prohibits companies from fixing prices by forming cartels or engaging in the market division and rig bids (Federal Trade Commission, 2022). The US government encourages innovation in various fields by granting an exclusive right to the technology through patents for the period of 20 years from the filing.
The regulations that govern retailers in China include Consumer Protection Act, Data Protection Act, and others. Under the new consumer protection act, the customers can return the goods for up to 7 days and the consumers are also not liable to provide the reason for the return of goods. The newly amended data protection act prohibits the companies from carrying the customer data overseas without the prior approval of the regulator.
Environmental factors affecting Under Armour
The apparel and sportswear retail industry contributes a lot to pollution through the use of plastic in its products as well as by using plastic carry bags. Around 160,000 plastic bags are used by retailers across the US every second. To overcome this issue, the state of New Mexico and Oregon has banned the use of single-use plastic bag less than 2.25mm thick. The companies would have to invest in alternate options for providing carry bags (Fleming, 2020). Further, the retail industry in China consumes around 91 million metric tonnes of plastic annually.
The government is actively concerned about the problem and has announced it will achieve carbon neutrality by 2060. This would increase the expenditure of the companies as they would have to research new innovative techniques to manufacture the items. The intensity of the problem is the same in India where the government has announced the banning of single-use plastic from 1st July 2022 (Goel, 2021).
To conclude, it can be said that the emerging markets can be a great opportunity for the athletic wear industry as more and more people are becoming fitness conscious. The technologies being implemented currently for the payments, delivery, or predicting demand can lead to more efficiency in the operations.
Also, the retail companies need to invest in developing ways of conducting business in a more environmentally friendly manner as the governments all around the world are tightening the norms, and the US, India have already announced banning single-use plastic which would impact the retail industry as they use plastic carry bags in their stores. Also, to learn about the internal strengths and weaknesses of the company, you can go through our diligent SWOT analysis of Under Armour.
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