Thursday, July 26, 2018
Why Underarmor Is Struggling
No one wants to pay more for a logo. Well, at least not rational people.
We poked our heads into an outback supply house here in Fairbanks, Alaska after trying to find some decent Thai food. There are good Thai restaurants here in Fairbanks - something that apparently the locals love. However the one we went to was in Dys-feung-shui mode with too few staff and too many customers. This is the problem in an economy where the unemployment is very low and wages are very high and the cost of materials is skyrocketing. I am describing Alaska, but this is also starting to apply to the rest of Trump's United States.
Alaska is a nice place to visit, but if you go to the local grocery store you'll pay two to three times as much money for basic grocery items. Thus, you have to demand more in wages, and as a result, everything ends up being far more expensive than in the lower 48. Like I said, it's a nice place to visit but I'm not sure I'd want to live here, particularly in the winter.
Anyway, we wander into this outback supply house and they have lots of Patagonia-type clothing and accessories as well as fishing gear and guns and ammo and whatnot. Over on the closeout rack (where I usually go first) are a number of shirts and jackets and fleecewear. I am in need of a new fleece jacket as my old Syracuse University hoodie has nearly worn out after more than a decade.
As I paw through the rack, I noticed a trend. Anything with the brand name on it costs more than things with no-name brands or unknown brands. And of the brand names, UnderArmour is the highest, topping even Patagonia, which is known for its high prices. A simple UnderArmour fleece is selling for $140 on sale, marked down from a $180. Meanwhile I find something from an unknown brand that fits me very well and is marked down from $48 to $14. You can guess which one I bought.
In the news today is an article that UnderArmour is "struggling" to compete with Nike and is going to invest huge amounts of money in marketing to convince people to spend huge amounts of money on their product versus others. I'm not sure this is going to work. We saw the same problem with Abercrombie and Finch - another "name" brand store which sold products which were virtually indistinguishable from other people's products other than for the brand name sewn to the front or back for everyone to see.
The quality of these products is basically indistinguishable from others but the price is increased by a factor of three to five or more. And yes there is a group of people - which we call idiots - who are willing to pay huge amounts of money to be seen with the correct logo on their sweatshirt or hat or pants. Usually these are high school kids who will work after school jobs to pay for this nonsense, just so they won't be mocked in class for having no-name underwear.
But the rest of us grow up and realize that money in the bank is better than money on your back. And also we realize that these trends change dramatically within a matter of a year or two. When Mark bought an Ambercrombie hat at a garage sale for ten cents, I realized the demise of that chain was imminent. Once people were willing to get rid of this stuff for cheap it was clear that the cache of having the "correct" brand was lost.
Do you remember Aeropostale? Most people don't. But not a few years ago it was a "must have" item for the teen set. If you didn't have an Aeropostale shirt or sweatshirt you were considered a lamer in high school. And again, most of us graduate from high school (although many people stay in it for the rest of their lives at least mentally) and realized it trying to impress people you don't even know is really a silly waste of time.
And this is the uphill battle for UnderArmour. They have to convince people that their product has value, not just a brand name that is trendy. Companies that sell products that are solidly built and have a quality reputation have less trouble with this. I do own a Patagonia shirt that I bought in Laramie, Wyoming a few years ago. It was on sale, but even then was expensive. But it is very well made and has lasted a long time. I didn't buy it because of the name on the front but because of the quality of the product.
The news article I read posited that Under Armour is going up against Nike. If so I wish them luck. Because in addition to just having a fancy logo and a name, Nike does make quality products, or for the most part, does. They have the R&D budget to make products that not only look good but scientifically provide better cushioning and support. The Johnny-come-lately in the shoe industry don't have this type of R&D budget or expertise, but hopes they can sell a generic sneaker made Korea for 15 times its manufacturing cost, based only on the logo alone.
Two caveats here. Many years ago I used to do patent work for Nike and they were a good client and they do make a good product. However, I haven't bought a pair of Nike sneakers in over a decade at least, if not two. And the reason is this: the sneakers they make today come in bizarre colors and styles that I just don't feel comfortable wearing as an aging adult. And that's why I've been wearing the same pair of Merrell's for years - not the same exact pair, but the same make and model which I bought at least five times on Amazon, for cheap.
As the economy craters, this is the challenge UnderArmor and other companies selling products based on name or logo alone will face. People eventually seek out value over style, in the long run. The companies selling only brand name or cache, end up failing - eventually.