When Under Armour founder and then-CEO Kevin Plank announced in 2019 that he would be stepping down, Patrik Frisk was viewed as a natural successor. Having joined the brand in 2017, Frisk had experience as chief operating officer and already was making an impact on Under Armour’s back-end operations.
“While we certainly don’t want to downplay Mr. Plank’s success and achievements in guiding the company to a $5+ billion global brand, we do believe that in order to take the company to the proverbial ‘next level’, they could use some new blood in the CEO seat,” a team of Wells Fargo analysts wrote at the time, calling Frisk a “more-than-capable successor” based on his improvements to inventory management and other operational elements of the business.
It was a surprise, then, when Frisk exited after just two years helming the athletics giant.
“I think it's very clear that they groomed him for the role,” Tom Nikic, senior analyst of apparel and footwear at Wedbush, said of Frisk, adding that he became a very visible member of the company when he joined in 2017. “I think what the recent change signals is a change in philosophy as to the way the company should be run between Patrik and Kevin. And, put more simply, the level of growth that the company should be achieving.”
In an emailed note when Frisk first stepped down, Nikic pointed to the executive’s separation agreement as evidence that the departure wasn’t mutual. Under Armour agreed to pay Frisk double his annual salary, amounting to a lump sum of almost $7 million, along with $238,000 for relocation costs, and an additional $1.3 million in “consulting fees” through September 2023.
The company itself gave no specific reason for Frisk’s departure, though Plank said in a statement at the time that Frisk made “significant strides in advancing enterprise-wide operational excellence, and Patrik's steadfast leadership has been crucial to strengthening our foundation and positioning the company for our next growth phase.” The company declined to comment further on Frisk’s departure and what Under Armour is looking for in a new chief executive.
Frisk completed a list of organizational tasks at Under Armour, saying in November last year that the brand’s “transformational work” was largely done. He decreased Under Armour’s reliance on off-price, helped the retailer exit wholesale doors and bolster its DTC channels, and lowered promotions. But while that work was needed, Frisk’s focus on more sustainable, slower growth may not have matched with Plank’s vision for the brand.
“There are very few examples of an aggressive growth-minded leader being replaced by an executional expert,” Greg Portell, lead partner in the global consumer practice at Kearney, said. “Apple might be the only one that comes to mind where Jobs was out there and Cook, who by all means is a tactician, has done so well.”
A return to ‘get big fast’ mentality
2021 was a notable year for Under Armour. It was the year Lululemon’s revenue overtook Under Armour’s. The athleisure brand brought in $6.3 billion to Under Armour’s $5.7 billion, amounting to 42% growth, with plans to double that amount by 2026. Under Armour’s sales growth, by contrast, was in the mid-20% range.
For the year ahead, Under Armour in May projected revenue growth of 5% to 7%, while Lululemon is anticipating growth between 24% and 26%. For two companies of roughly the same size in the same category, that’s a marked difference. And when Plank was CEO, the rate of growth at Under Armour was a bragging point, according to Nikic.
“The slogan of the company was ‘get big fast’ and they would go on earnings calls and tout the streak of 20%-plus revenue growth quarters that they had,” Nikic said. “Generating growth was extremely important to Kevin and I think he probably looks around and he sees really strong growth from Lululemon… Puma and Nike and Adidas.”
Under Armour’s expectations, on the other hand, are “not the level of growth that most other athletic wear brands were seeing, and that probably did not sit well with Kevin.” Under Armour declined to comment when asked by Retail Dive if Frisk’s departure was tied to revenue growth.
Whoever takes on the role next, strong growth is “pretty much a minimum requirement,” Nikic said. But how does Under Armour return to a more robust level of growth?
Analysts with Telsey Advisory Group in May noted that Under Armour had already made progress in accelerating growth and profitability in 2021, and the CEO transition now “adds a layer of uncertainty” to the brand’s strategy. That being said, Telsey analysts added that Under Armour’s momentum is “solid” and the company has not yet seen a slowdown in demand.
There are a few specific areas where Under Armour could draw growth from: international, wholesale and DTC could all help the company boost its revenue, according to Nikic, especially since Under Armour is under-penetrated globally and lost a lot of space in U.S. wholesalers in recent years.
These are all top-of-mind for Under Armour leadership.
“We plan to continue to grow our business over the long-term through increased sales of our apparel, footwear and accessories; expansion of our wholesale distribution; growth in our direct-to-consumer sales channel; and expansion in international markets,” the company said in its most recent 10-K. “We believe that our products appeal to athletes and consumers with active lifestyles globally; thus international expansion is a meaningful part of our long-term growth strategy.”
In 2021, international made up about a third of Under Armour’s revenue, with North America making up the rest. While North America grew steadily last year, climbing 29.4%, that was compared to growth of more than 40% in the retailer’s Europe, Middle East and Africa region. Under Armour’s Asia-Pacific region likewise grew at a faster rate than North America, climbing by 32.3%.
Under Armour also noted that 11% of its revenue (or over $625 million) came from just one customer in North America.
Long story short, there’s room for growth at Under Armour, especially now that some of the company’s operational challenges have been fixed.
“The company had to spend a couple of years ‘playing defense’ and fixing all the back-of-the-house stuff that the consumer doesn't actually see, right? The consumer doesn't see the lead times, or some of the operational processes that the company has worked on,” Nikic said, adding that Frisk’s work in those departments should stay in place. “The hope would be that all of these things will now support a stronger growth rate without Under Armour falling into some of the same traps that they fell in five or six years ago.”
Does faster growth mean moving beyond the performance niche?
Under Armour may be ready operationally to pursue faster growth, but the company may need to answer some existential questions about its product and its brand purpose before it can get there.
Under Armour grounds itself in performance, aiming to create products that help athletes perform better in their chosen exercise. That bodes well in some ways, especially given the number of consumers who are emphasizing health and wellness as a core part of their lifestyle. According to a June report from the NPD Group, 44% of U.S. consumers are more focused on health and wellness than before the pandemic, leading to growth in outdoor products, sports equipment, performance-based footwear and — athleisure.
That last one, a key trend across the entire apparel industry, has been largely side-stepped by Under Armour. Instead of pursuing the versatility that other athletic brands have pushed to highlight, quarter after quarter, Under Armour executives have doubled down on the performance of the brand’s apparel.
“It's hard to ignore the fastest growing segment in your space,” Portell said. “So whether it's athleisure, or whatever comes next, if you're going to be a broad-based athletic and casual apparel company, you kind of have to acknowledge the trend that's in front of you.”
It’s a trend that has buoyed Lululemon, which emphasizes not just the performance attributes of its apparel, but also their versatility for a number of activities, even if those activities are just walking down the street. Newer brands like Outdoor Voices and Vuori have clung to similar positioning, hoping to fill demand for activewear that looks good enough to work out in or simply hang out in.
But Under Armour has tested those waters before, according to Nikic, and it didn’t turn out well. The launch of a more casual apparel line “fell flat” a couple of years ago, Nikic said, and the company regrouped around performance.
“They're never going to beat Lululemon or Puma or Adidas in the athleisure space, but they can be a winner in performance,” Nikic said. He added that, “It was an under-appreciated headwind that Under Armour faced five or six years ago when the trend in the athletic sector pivoted really, really hard toward athleisure. And look: that's just not what the company does well.”
With performance-based product regaining popularity, Nikic sees some of that pressure alleviating. Under Armour still has work to do on the product side, though. Analysts with Telsey said in May that Under Armour’s next CEO “needs to have a passion for product innovation and further building the brand” in addition to the operational chops needed to run a business.
“[Lululemon] could easily find themselves in a similar spot to Under Armour where the market moves, and they can't move with it.”
Lead partner in the global consumer practice at Kearney
Whether or not Under Armour wants to try again to reap some of the rewards athleisure has bestowed upon others in the industry, Portell warned against the company becoming “landlocked” in its performance positioning.
“When you are a young, upstart company, you can find success on the fringe, emerging parts of a trend. Once you are the trend, or once you're an established player, the niches are less fulfilling,” Portell said. “When you look at a company like Lululemon, they've been able to become relevant as that athleisure category has grown. Now that it is the dominant part of the business, where are they going to find the next stage of growth? They could easily find themselves in a similar spot to Under Armour where the market moves, and they can't move with it.”
In fact, as Nikic highlighted, Lululemon had its own turnaround not that long ago. “And the turnaround at Lululemon started very much like the turnaround at Under Armour,” Nikic said, highlighting many back-end changes Lululemon made to improve the brand’s operations. Unlike Under Armour, however, Lululemon benefited from its direct-to-consumer model, the versatility of its clothing and its positioning as a female-focused brand when women were not being effectively catered to by other athletics brands.
“It was somewhat easier for them to execute on the turnaround because their core customer was clamoring for a brand that would serve them properly,” Nikic said. “And Under Armour is executing a turnaround with a predominantly male-focused assortment … and men's is just a more crowded space in the athleticwear industry.”