Under Armour’s (UA) revenue increased in both the wholesale and the direct-to-consumer, or DTC, channels in 2014. Wholesale channel sales include sales made through other retailers—for example, Finish Line (FINL) and Foot Locker (FL). Sales through this channel were driven by:
- higher floor space at key sporting goods stores
- wider product assortment including women and children
DTC revenue includes sales through owned stores and e-commerce sales. DTC revenue grew 32% in 2014 to ~$925 million. DTC sales constituted 30% of the total revenue in 2013 and 2014. Sales increases were driven by:
- a 17% increase in square footage at factory house stores
- an increase in the number of factory house stores—from 117 in 2013 to 125 in 2014
- an expanded store footprint in international markets—refer to Part 7
- an increase in e-commerce sales and the launch of new e-commerce websites in several countries worldwide
A key strategy for the company is expanding the available square footage at existing stores—rather than embarking on an ambitious plan of store rollouts. This is slightly in abeyance with other retailers. They’re looking to right size store footprints to increase efficiency. NIKE (NKE) and Lululemon Athletica (LULU) are both looking at higher store rollouts—at home and abroad.
“We don’t believe that we need necessarily new doors today as much as we just need to be excellent in the doors where we’re doing business. And for us that begins with sporting goods it also means extending some of our key partners at places like Finish Line and Foot Locker,” said Kevin Plank, Under Armour’s CEO. He spoke at the 4Q14 earnings call.
Under Armour can leverage its existing wholesale accounts to gain access to consumers, instead of spending on store rollouts. The company is already borrowing to finance its recent acquisitions—refer to Part 4 and Part 5. While debt levels are low, the judicial use of capex and debt is critical in a growing company.
Besides, Under Armour is already planning to expand its product mix to include more products for women and youth. It’s also expanding aggressively in footwear. With a broader range of products, it will likely need the additional space at existing stores anyway.