What Did Under Armour Do to Make Nike See It as a Rival?

Under Armour has overtaken Adidas to become the second-largest sportswear brand in the United States

How does a brand born on the sports field and in the gym suddenly catch on across the American market? Nike and Adidas may both be asking.

We mean Under Armour. Best known for its quick-dry compression shirts, the brand is a little pricey, but its clothes show off the body and carry a bit of technology, and some people even pair them with formal wear. After 18 straight months of revenue growth above 20%, it finally passed Adidas in the second half of 2014 to become the second-largest sportswear brand in the US.

After posting another strong set of results for the fourth quarter of 2014, Under Armour landed a hard blow on Adidas. In an interview with Bloomberg TV, Kevin Plank, the company's 41-year-old founder and CEO, said he did not want to be mentioned in the same breath as the "dumbest competitor."

In the North American sportswear market, second place is far easier to fight for than first. Under Armour's revenue topped US$3 billion in 2014, still only a tenth of Nike's. On the stock market, though, Under Armour, which went public only in 2005, has seen its share price rise nearly twice as fast as Nike's.

Nor does Under Armour seem afraid to take on Nike directly. In the summer of 2014, when NBA star Kevin Durant came out of his Nike endorsement contract, Under Armour made him a serious offer: US$285 million over 10 years. Nike had to match it to win back the player seen as a future leader of the NBA.

Beyond clothes and shoes, Under Armour wants to become another Nike in sports social networking. Over the past two years it has bought three fitness and health apps, and at CES 2015 early this year it announced a partnership with HTC to move into wearable devices, a field that has grown even hotter over the same two years.

Look back over the brand's history, just 20 years long, and you find a company tightly focused on a niche. For its first 10 years it sold almost nothing but quick-dry compression sportswear; it did not even make shoes. Under Armour still holds 79% of the US compression sportswear market.

When Plank graduated from the University of Maryland in 1996, he set out to use what he had learned in business school to rework the cotton undershirts football players wore at the time, which were comfortable but terrible at handling sweat. The polyester he settled on breathed, dried quickly and supported the muscles as they worked, and it could be squeezed into a small bundle that was easy to carry.

Plank gave his first samples to players on several college football teams, and the shirts soon spread to top leagues such as the NFL. More and more athletes ordered from him privately, and Under Armour seized the moment to sign a sponsorship deal that looks like a steal today: US$5,000 to sponsor baseball star Barry Bonds for an entire season.

It is hard to imagine a sportswear brand taking off through football and baseball, sports that rely so heavily on protective gear. But many athletes felt that wearing UA's quick-dry shirts around town made them look cooler. Among high school athletes, an odd fashion even caught on: buy a long-sleeved UA shirt and cut off one sleeve to show off their muscles.

As the quick-dry shirt moved from football gear into gyms and other places with far more users, Under Armour's annual sales passed US$200 million in 2004, and in 2005 it listed smoothly on the New York Stock Exchange. Its share price doubled on the first day of trading. Its latest results show revenue of US$3.08 billion for fiscal 2014, up 32% year on year, with a gross margin holding at a high 49%.

Look at where its revenue comes from, though, and Under Armour still seems like a one-trick brand built on compression wear: more than 75% of its revenue comes from apparel. Nike, which set off the urban running boom of recent years, makes more from shoes, while Adidas, which did fairly well out of the 2014 World Cup, sells about as much apparel as footwear.

Under Armour has indeed been slow to get going in everything except compression wear. It formally entered athletic footwear only in 2006, and then with football cleats. Not until 2009, drawing on some of the NBA stars it sponsored, did it begin selling basketball shoes, a bigger category in the US. Starting from a low base, footwear has become the category whose sales have soared in recent years.

Yet Plank strongly objects to calling Under Armour a mere "sports apparel" brand. What matters more to him is turning high technology once seen only in professional sport into products ordinary people can enjoy. To that end, many athletes have joined Under Armour as employees after retiring, with direct decision-making power over both product development and marketing.

At the company's headquarters in Baltimore, the Innovation Lab is always the best-guarded office. When a reporter from The New Yorker visited, they found 3D printers, an environmental simulation chamber, high-speed cameras, and the most effective tool for testing how well fabric resists tearing: a washing machine.

The lab is proudest of a technology called "ColdGear Infrared." By adapting the reinforced ceramic shell technology used on fighter jets, Under Armour can now make outdoor products that are warm, breathable and waterproof all at once.

The difference between Under Armour and mass-market sportswear brands is the difference between "Athlete" and "Sportymen" (people who play sports). Making every customer an athlete is the competitive edge Plank always stresses.

You can see this in Under Armour's own stores. Half the sales staff are professional athletes. The decor is rough and cold, with concrete-slab textures and cool-toned lighting, and that hard look runs through every corner. US stores even stock bottled water for customers in the fitting rooms, as a stadium locker room would.

In print and digital ads, Under Armour likes to capture moments of "pain" to project a brand that is tough, wild, gritty and driven. Besides its striking photos and commercials, in recent years it has placed its logo on the muscle-bound heroes of many action films, such as Vin Diesel in The Fast and the Furious and Dwayne Johnson in G.I. Joe, men who fit the brand perfectly.

But ordinary customers do not think of Under Armour only when they work out. Because its clothes come mostly in dark colors and its logo is fairly discreet, Under Armour has, without meaning to, become something people mix across formal, casual and sportswear, a new kind of "American national uniform."

This wave also includes women, a group Under Armour once overlooked. When the company first launched a women's line, its thinking was strikingly crude: make the men's sizes smaller and turn them pink. That clearly did not work.

Let us step away for a moment to look at Nike, which made women its strategic focus in 2014. In September that year, Nike folded its existing women's lines into Nike Women and, for the first time, announced it would move into "lifestyle." Nike also hopes that when its total revenue reaches US$36 billion in 2017, women's products will contribute 20% of it.

Young, fond of shopping, and treating sport as a new way to socialize and live: that is the typical customer Nike Women has in mind. In reality, most women care little about athletes or competitions. What moves them is the influence of friends, or a longing for "a certain way of life." So while Nike still designs products around athletes' needs, it quickly made its new posters more everyday: a woman on her way to the gym, a woman running down a San Francisco street, a woman stretching at the gym...

Under Armour, too, has come to see that the women's market can be shaped far more. In 2013, UA launched "What's Beautiful," a digital marketing campaign aimed only at women. It is an online fitness competition: women join by setting fitness goals and sharing videos, photos and diaries of their workouts, and Under Armour sends professional trainers to coach them.

In 2014, UA also signed supermodel Gisele Bundchen as a spokesperson for a staggering sum of more than US$590 million, and made a commercial for her, "I Will What I Want," aimed squarely at women. Another of the company's spokespeople, downhill skier Lindsey Vonn, joined in. Women's products now bring in 30% of the company's revenue.

Bundchen is one of Under Armour's few spokespeople who is not a professional athlete. Since 2003, Under Armour has been signing top athletes as spokespeople in every sport its products can reach beyond football and baseball. Its latest big name is 73-year-old boxing legend Muhammad Ali, who, like Bruce Lee and Mike Tyson, will get a full product line bearing his name. And around Stephen Curry, picked for the 2015 NBA All-Star Game, Under Armour has rolled out a string of flashy promotions ahead of time.

So what does Under Armour, already this hot, still lack?

Compared with Nike, which used Apple's channels to push its social app Nike+ and the (since abandoned) FuelBand at scale, Under Armour has moved far too slowly in social networking and wearables, the two hottest ideas in tech right now.

In 2013, Under Armour paid US$150 million for the online health service MapMyFitness. MapMyFitness makes an app for all the major mobile platforms that records users' fitness data, and it now has more than 20 million registered users.

Before that, Under Armour had launched Armour39, a workout-tracking app used with a chest strap that records a user's heart rate, calories burned and other fitness data. It was Under Armour's first step into wearables.

More notable is the partnership with UA that HTC announced at CES 2015. This time they are not aiming at ordinary consumers but returning to the market they know best, athletes: the software and hardware will all center on UA Record, a brand-new athletic community, to help athletes reach their potential.

Among the competitors Nike has named are not only specialist brands like Under Armour but also niche brands like Lululemon, which focuses on yoga. Lululemon, however, has hit some trouble. In spring 2013 it suffered a costly recall over a batch of defective yoga pants, and founder Chip Wilson's gaffe in a media interview helped drive the company's share price down 40% in 2014 and sharply cut sales across its stores.

According to a 2014 report in The Wall Street Journal, US sales of yoga apparel jumped 45% that year, while the number of people doing yoga grew just 4.5%. The lines between leisure, sport and daily life are blurring.

With Gisele Bundchen on its side, Under Armour is getting smarter and smarter.

Graphics: Wang Shiyun