When Under Armor founder and then-CEO Kevin Plank announced in 2019 that he would resign, Patrick Frisk was seen as the natural successor. Joining the brand in 2017, Frisk had experience as a chief operating officer and was already influencing Under Armour’s back-end operations.
“While we certainly don’t want to diminish Mr. Plank’s success and accomplishments in building the company to a global brand worth over $5 billion, we believe that in order to take the company to the proverbial ‘next level,’ they could use some New blood in the CEO’s chair,” a team of Wells Fargo analysts wrote at the time, calling Frisco a “more than capable successor” based on his improvements in inventory management and other operational elements of the business.
Then it was a surprise when Frisk came out just two years later runs a track and field giant.
“I think it’s pretty clear that they’ve been grooming him for this role,” Tom Nikic, senior apparel and footwear analyst at Wedbush, said of Frisco, adding that he became a highly visible member of the company when he joined in 2017. “I think the recent changes signal a change in philosophy about the way the company is run between Patrick and Kevin. And to put it simply, the level of growth that the company should achieve.”
In an email memo when Frisk first stepped down, Nikic pointed to manager separation agreement as proof that the care was not mutual. Under Armor agreed to pay Frisco double his annual salary, a lump sum of nearly $7 million, plus $238,000 in moving expenses and an additional $1.3 million in “consulting fees” through September 2023.
The company itself did not give any specific reason for Frisco’s departure, though Planck said in a statement at the time that Frisco had made “significant strides in driving operational excellence across the enterprise, and Patrick’s steady leadership has been critical to strengthening our foundation and positioning the company for our the next stage of growth.” The company declined to comment further on Frisco’s departure or what Under Armor is looking for in a new chief executive.
Frisk a list of organizational tasks has been completed at Under Armour, saying last November that the “work to transform” the brand was mostly done. He reduced Under Armour’s reliance on discounting, helped the retailer move out of wholesale and strengthen DTC channels, and lowered the stock. But while that work was needed, Frisco’s focus on more sustainable, slower growth may not have aligned with Plank’s vision for the brand.
“There are very few examples of an aggressive, growth-oriented leader being replaced by a performance expert,” said Greg Portell, managing partner of Kearney’s global consumer practice. “Perhaps only Apple comes to mind, where Jobs was there and Cook, who is definitely a tactician, did so well.”
A return to the get-big-quick mentality.
2021 was a landmark year for Under Armour. This was the year Lululemon’s revenue overtook Under Armour’s. Sports recreation brand brought in $6.3 billion to $5.7 billion Under Armour, representing 42% growth, with plans to double this amount by 2026. Under Armour’s sales growth, by contrast, was in the mid-20% range.
Fast forward a year, Under Armor in May projected revenue growth of 5% to 7%while Lululemon has expecting growth of 24% to 26%. For two companies of roughly the same size in the same category, that’s a notable difference. According to Nikic, when Plank was CEO, Under Armour’s growth rate was something to brag about.
“The company’s pitch was ‘get big faster,’ and they held earnings calls and touted a streak of more than 20% quarterly revenue growth,” Nikic said. “Creating growth has been extremely important to Kevin, and I think he’ll probably look around and see really strong growth from Lululemon … Puma, Nike and Adidas.”
On the other hand, Armor expects that “the level of growth is not what most other sportswear brands have seen, and that probably didn’t sit well with Kevin.” Under Armor declined to comment when asked by Retail Dive if Frisco’s departure was related to revenue growth.
Whoever takes on the next role, strong growth is “pretty much the minimum requirement,” Nikic said. But how does Under Armor get back to a more robust level of growth?
Analysts at Telsey Advisory Group noted in May that Under Armor has already made progress to accelerate growth and profitability in 2021, and the CEO change now “adds a layer of uncertainty” to the brand’s strategy. That said, the Telsey analysts added that Under Armour’s momentum is “solid” and the company is not seeing a slowdown in demand just yet.
There are a few specific areas where Under Armor can get growth: international, wholesale and DTC could help the company grow revenue, according to Nikic, especially since Under Armor lacks global penetration and has lost a lot of ground in U.S. wholesalers . in recent years.
All of this is important to Under Armour’s leadership.
“We plan to continue to grow our business in the long term by increasing sales of our apparel, footwear and accessories; expanding our wholesale distribution; growth of our direct-to-consumer sales channel; and expanding into international markets,” the company said in a statement most recent 10-K. “We believe our products appeal to athletes and active lifestyle consumers around the world; therefore, international expansion is a significant part of our long-term growth strategy.”
In 2021, international revenue accounted for about a third of Under Armour’s revenue, with North America accounting for the rest. While North America grew steadily last year, rising 29.4%, compared to growth of more than 40% in the EMEA retail region. Under Armour’s Asia-Pacific region also grew faster than North America, up 32.3%.
Under Armor also noted that 11% of revenue (or more than $625 million) only came from one customer in North America.
In short, Under Armor has room for growth, especially now that some of the company’s operational issues have been resolved.
“The company had to spend a couple of years ‘playing defense’ and fixing all the household stuff that the consumer doesn’t really see, right? The consumer doesn’t see the timelines or some of the operational processes that the company has been working on,” Nikic said, adding that Frisco’s work in those departments should remain in place. “Hopefully all of those things will now support higher growth rates and Under Armor won’t fall into the same traps that they fell into five or six years ago.”
Does faster growth mean moving beyond the productivity niche?
Under Armor may be poised for faster growth, but the company may need to answer some existential questions about its product and brand purpose before it can achieve it.
Under Armor builds on performance, striving to create products that help athletes perform better in their chosen exercises. In a way, this is a good thing, especially considering the number of consumers emphasizing health and wellness as a major part of their lifestyle. According to a June report from the NPD Group, 44% of US consumers are more focused on health and wellness than before the pandemic, which has led to growth in outdoor goods, sports equipment, athletic shoes and sports recreation.
This last, a key trend throughout the apparel industry, has been largely bypassed by Under Armour. Instead of striving for the versatility that other athletic brands emphasize quarter after quarter, Under Armor executives have doubled down on the performance of the brand’s apparel.
“It’s hard to ignore the fastest growing segment in your space,” Portell said. “So if you’re going to do a broad sports and casual wear company, you have to take into account the trend that’s going to be in front of you.”
This is a trend supported by Lululemon, which emphasizes not only the spectacular features of its clothes, but also them versatility for a number of activities, even if it’s just a walk down the street. New brands like Outdoor Voices and Vuori are kept a similar positioninghoping to meet the demand for athleisure clothing that looks good enough to work out or just hang out in.
But according to Nikic, Under Armor has already tested those waters and failed. According to Nikic, the launch of a more casual clothing line a couple of years ago “floundered” and the company regrouped around performance.
“They’ll never beat Lululemon, Puma or Adidas in athleisure, but they can be winners in performance,” Nikic said. He added that “5-6 years ago, Under Armor faced an underappreciated headwind when the trend in the sports sector shifted very, very strongly towards recreation. And look: that’s just not something the company does well.”
As a performance-based product regains popularity, Nikic believes that pressure eases. However, Under Armor still needs to work on the product. In May, analysts at Telsey said that Under Armour’s next CEO “must have a passion for product innovation and furthering the brand” in addition to the operational skills needed to run a business.
“[Lululemon] could easily end up in a place like Under Armour, where the market is moving and they can’t move with it.”
Lead partner in Kearney’s global consumer practice
Whether or not Under Armor wants to try to recapture some of the accolades that athleisure has given others in the industry, Portell cautioned that the company isn’t going to be left with no landlocked in its performance positioning.
“When you’re a young upstart company, you can succeed on the fringes, in the new parts of the trend. When you become a trend, or once you become a player, niches become less satisfying,” Portell said. “If you look at a company like Lululemon, they’ve been able to stay relevant as this athleisure category has grown. Now that it’s a dominant part of the business, where are they going to find the next phase of growth? They could easily end up in a place like Under Armour, where the market is moving and they can’t move with it.”
In fact, as Nikic emphasized, Lululemon had its own turnaround not too long ago. “And the turnaround at Lululemon started a lot like the turnaround at Under Armour,” Nikic said, highlighting the many back-end changes Lululemon has made to improve the brand’s operations. However, unlike Under Armour, Lululemon benefited from its direct-to-consumer model, the versatility of its clothing and its female-centric brand positioning, while other athletic brands did not cater to women.
“It was somewhat easier for them to execute the turnaround because their core customer was demanding a brand that would serve them well,” Nikic said. “And Under Armor is making a pivot with a range that’s heavily focused on men… and men’s is just a more crowded space in the athletic apparel industry.”
https://www.retaildive.com/news/ceo-patrik-frisk-steps-down-under-armour-future/626171/ Patrick Frisco was tasked with expanding Under Armour. He lasted 2 years.