Under Armour is preparing to cut about 2 percent of its workforce as part of a restructuring plan that is meant to align its resources to market developments, and particularly the brand's sluggishness in North America.
The move is strongly reminiscent of the cutbacks launched a few weeks ago by the Nike group, which is implementing a 2 percent reduction in staff for much the same purpose – to focus on resources that will enable it to become faster and more customer-oriented.
Under Armour told reporters that the cutbacks would affect 280 people, about half of them at the group's head office in Baltimore. The group has trimmed its sales guidance as the cuts will lead to estimated pre-tax restructuring and related changes of about $110 million to $130 million for the full year (Under Armour's quarterly performance and guidance are detailed in the next story).
Kevin Plank, chief executive at Under Armour, explained to analysts at length last week that the company had gone through several years of hyper-growth, and that it had to adjust to the market situation. He said Under Armour was pivoting from a product company to a consumer-led and category-managed brand, and from a predominantly American apparel brand to a global supplier of apparel and footwear. Plank said that the measures were meant to turn Under Armour into a stronger, faster and smarter company.
The company's shift to category management should enable it to focus on five priority areas, from men's training to women's products, running, basketball and lifestyle. The brand was built around sports performance and, unlike more established brands such as Adidas and Nike, it has yet to fully leverage the strength of its brand in the urban fashion market. But earlier this year it started to spread the brand more widely, adding distribution through retail partners such as Kohl's in the U.S. Under Armour has started working more intensely on segmentation, to cater for the wider consumer market with distinct products and cheaper prices.
Under Armour's share price has more than halved in the last year, as it became clear that the company would be hard-pressed to continue raising sales at more than 20 percent per quarter.
The restructuring measures come after Under Armour started reviewing its business in January. Plank suggested that the transformation of the retail market had encouraged the company to invest in the overhaul of its organization this year. Under Armour has already adjusted its team, with the arrival of Patrik Frisk as chief operating officer last month, as previously reported.
Plank said Under Armour has built up a powerful brand and an organization with the capacity to steadily deliver innovation in apparel and footwear. It has an impressive lineup of endorsees, from Stephen Curry to Jordan Spieth, Andy Murray and Misty Copeland, and is gearing up for the start of its partnership with Major League Basketball in 2019.
The changes are meant to take advantage of all these assets more smartly, to implement Under Armour's strategy more clearly and rapidly, and with a more efficient cost structure.
The company has started revising what it calls the UA System, improving processes related to anything from product design to samples, procurement and the use of digital technology. In July it already implemented the Fashion Management Solution, an enterprise resource planning (ERP) system from SAP.
Out of the pre-tax restructuring charges, up to $70 million will consist in cash-related charges, with $25 million in facility and lease terminations, $15 million in employee severance and benefit costs, and $30 million in contract termination and other restructuring charges. Up to $60 million will consist of non-cash charges, some $20 million related to inventory and about $40 million consisting of intangibles.
