Under Armour has initiated a comprehensive, multi-year distribution and logistics transformation plan aimed at streamlining its supply chain operations, the company announced during its August 8 earnings call. The strategic move comes as the athletic apparel maker faces a 10% sales decline in the quarter ending June 30.
President and CEO Kevin Plank outlined the initiative's core objectives: building cross-channel capabilities, improving cost efficiency, maximizing responsiveness, ensuring adequate inventory levels, and enhancing service quality across both direct-to-consumer (DTC) and wholesale operations.
"We're focused on getting smarter and more efficient by modernizing our supply chain to achieve two primary goals: improving end-to-end planning and cross-channel capabilities," Plank told analysts.
Addressing Immediate Challenges
CFO Dave Bergman noted that higher-than-expected ocean freight costs presented "new headwinds" for the company. This development comes after Under Armour had previously benefited from normalized shipping costs earlier in the year, which initially helped improve gross margins.
The company is implementing several key measures to optimize its supply chain:
- SKU rationalization and reduced discounting: Streamlining product offerings to decrease inventory pressure and improve profitability while maintaining brand value.
- Enhanced end-to-end planning: Implementing advanced forecasting tools to better predict demand and optimize production schedules.
- Increased supply chain visibility: Leveraging digital technologies for real-time monitoring and management of supply chain operations.
These efforts complement Under Armour's existing initiatives to reduce excess inventory and minimize promotional discounts, which Plank said in May would contribute to cost savings.
Industry-Wide Supply Chain Transformation
Under Armour's strategy reflects broader retail sector trends, where companies are increasingly investing in supply chain improvements to enhance competitiveness:
- Macy's: The department store's three-phase turnaround plan includes supply chain modernization expected to deliver $100 million in cost savings this fiscal year.
- Dollar General: The discount retailer is implementing operational adjustments to optimize inventory management and simplify supply chain processes.
Strategic Considerations
Under Armour's supply chain overhaul addresses several critical challenges while positioning the company for future opportunities:
Challenges:
- Complex global supply network vulnerable to geopolitical and environmental disruptions
- Volatile demand patterns in the athletic apparel market
- Persistent cost pressures in a competitive retail environment
Opportunities:
- Digital transformation through IoT, big data, and AI technologies
- Meeting evolving consumer expectations for speed and personalization
- Advancing sustainability initiatives throughout the supply chain
The company may pursue additional optimization measures including deeper supplier collaboration, logistics network improvements, advanced inventory management techniques, and sustainable sourcing practices.
This strategic supply chain transformation represents Under Armour's commitment to building long-term competitive advantage through operational excellence, beyond addressing immediate financial pressures.