FORTUNE Tech Transformations

Under Armour reboots

The sports apparel maker is sprinting into footwear - and trying to take on Nike - with the help of software and science.

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By Stephanie N. Mehta, assistant managing editor

CEO Kevin Plank wields Under Armour's running shoe, more than two years in the making.
Plank (center), with footwear executives and president David McReight (second from left), encourages his employees to innovate.
A sample of computer-assisted designs that hang on the walls.

(Fortune Magazine) -- The Baltimore headquarters of sports apparel maker Under Armour don't look much like the offices of a technology company. The walls are covered with posters of professional athletes such as the New York Giants' Brandon Jacobs and the Baltimore Ravens' Ray Lewis, wearing tough, menacing expressions. There's a treadmill in the hallway. In one workspace, in front of the cubicles, a football-throwing machine spits out short passes on a ribbon of AstroTurf.

Don't be fooled by the jock paraphernalia - or all the jocks working at the company: Under Armour is very much a high-tech place. It uses sophisticated design software, new manufacturing techniques, the latest in material engineering, and robust information technology systems to produce virtually everything it makes, from its original moisture-wicking T-shirts to kneepads to cleats.

"We try to be on the bleeding edge," says CEO Kevin Plank, a former University of Maryland football player who founded the company in 1996. "We're willing to look at wild, out-there ideas if they can make our products perform better."

These days Plank is trying to apply some of those ideas to a line of running shoes, which the company is introducing in late January. For Under Armour, which has huge appeal among boys and young men who play team sports (or wish they did), the leap into running footwear has the potential to transform the company from a niche player to a mainstream brand by broadening its appeal to women, older consumers, and more casual athletes.

"You can't be a world-class athletic brand without the ability to outfit the athlete head to toe," Plank says. Indeed, two of the leading sports names - Nike and Adidas - got their starts in footwear.

Executives at Under Armour, which had more than $700 million in revenue last year, knew that making a run at $19-billion-a-year Nike (NKE, Fortune 500) wouldn't be easy, so they set out to build state-of-the-art gear. A look at the process shows just how much innovation and technology companies have to pour into product development today - even for something as seemingly simple as a pair of athletic shoes.

Thinking in 3-D

Ask Under Armour management to talk about the technology in the new running shoes, and they'll tick off a list of advances in the composition of the foam in the sole or mention the moisture-resistant fabric used in the shoe's upper. But Under Armour wouldn't have been able to enter the running-shoe business if not for a game-changing upgrade in its enterprise software package implemented in 2006, not long after the company went public.

At the time the fast-growing company (its five-year compound annual growth rate through 2007 was 65%) was mostly selling apparel and getting by using off-the-shelf software programs to run the business. But running shoes, explains chief information officer Jody Giles, are logistically a bit more complicated than apparel: Shoes come in many more sizes than just small, medium, and large. A new system from SAP (SAP) provided Under Armour a platform to manage a more diverse inventory and gave the small company some big-company tools, like the ability to ship shoes from the factory directly to distributors. Special data-management software also helps the team figure out how to design shoes that meet profit goals and deadlines.

Other computer-related technologies were instrumental in building a better running sneaker. That treadmill in the hallway? It is actually hooked up to a digital camera and software that records information about the way feet, legs, and other body parts behave in motion. That biometric data helped Under Armour validate that its shoes were doing what they were built to do - stabilize the foot, say, or counter over-pronation.

The company also employs three-dimensional software to design shoes, which Under Armour is using to reduce production times. The latest 3-D technology creates images so vivid and realistic, says Jared Goldman, a creative director in the footwear design group, that management can start to make decisions on aesthetics and other factors without spending the time and money to create a physical sample. Ultimately, Goldman thinks, 3-D will speed up shoemaking even more as Under Armour brings in more young designers who've been trained in 3-D design. "They solve problems differently, thinking and designing in 3-D," he says.

"It is an art"

Of course, all of Under Armour's competitors in the running-shoe business have the same kinds of technologies, and they're putting them to good use. "There has never been a time when the products coming from Nike, Asics, Brooks, Saucony have been better," says Mike Gotfredson, CEO of Road Runner Sports, a national retailer based in San Diego. "I have taken a look at the Under Armour product. It is nice, but I don't think it matches up."

Gotfredson isn't convinced that serious runners will switch from their favorite shoes in favor of an upstart, but nonetheless he'll carry the Under Armour kicks, which will sell for $85 to $120, because of the strength of the brand. "If anyone can pull this off, they can," he admits.

Under Armour needs to capture only a portion of the running-shoe market - market research firm NPD Group estimates that Americans spent almost $5 billion on running shoes last year - to improve its financial performance. Wedbush Morgan analyst Jeff Mintz expects Under Armour sales to grow 20% in 2009, to about $900 million, driven by seven points of growth in footwear sales, almost all of it coming from running sneakers. (Under Armour also sells cleats and cross-trainers, but those are a relatively small part of its overall business. A soccer boot is coming in May.)

And even skeptics like Road Runner's Gotfredson acknowledge that Under Armour's foray into running shoes is just that: a first step. Subsequent versions of the running shoes can incorporate feedback from users and nonusers alike. But Gotfredson cautions that Under Armour shouldn't rely exclusively on technology to help it build its next generation of running shoes. "It's more than just a science to build a great shoe," Gotfredson says. "It is an art."  To top of page

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