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Under Armour looks to Brand House stores to propel growth

Under Armour Brand House stores represent the future of retail for the sports apparel maker.

The store Under Armour opened this month on Chicago's "Magnificent Mile" is the brand's newest, largest and flashiest, showcasing not only its core training apparel, but fishing and hunting gear, innovations in running and basketball sneakers, and a fitness tracker "wearables bar."

And it could represent the future of retail for the Baltimore-based sports apparel and footwear maker, which appears poised for a wide rollout of U.S. stores in addition to the dozens planned this year for international markets.

One analyst speculated that Under Armour could roll out regionally customized stores in "A" malls across the country, based on Brand House successes. Such a move would enable the company to take advantage of recently vacated mall space, other experts said. And just last week, Foot Locker's CEO hinted at a pending partnership with Under Armour, possibly a launch of shop-within-a-shop concepts in the retailer's mall stores.

"For all the talk about e-commerce and the shift it's played in the retail world … it's not to say physical locations are going to go the way of the dodo bird," said Jason Moser, an analyst with Million Dollar Portfolio at Motley Fool in Virginia.

"The brand is really [Under Armour's] greatest asset," Moser added. "When you look at the retail presence they continue to build, this is all about investing in that brand."

The Chicago Brand House is only the sixth of its kind in the United States, including those in Harbor East and New York's SoHo district.

Elements of the Brand House concept are expected to make their way into additional branded stores this year, said Susie McCabe, Under Armour's vice president of global retail.

"Controlled retail is an amazing opportunity for us to tell our own story and really own the connection and interaction with the customers and the athletes," McCabe said last week.

Under Armour will open at least three more Brand House stores this year in undisclosed U.S. locations, McCabe said. Such stores will be used to complement existing distribution channels in various markets, including department and sporting goods stores, specialty stores and online. A Brand House store is opening later this month at the Mall of America in Bloomington, Minn.

And, she indicated, more mall stores may be on the horizon.

"We believe in a balanced portfolio," McCabe said. "We're not going to be saying we will only do one type of store. Malls play an important role in retail in different areas throughout the globe. Yes, you will see us opening in malls, but also opening on street locations. It's about the balance and what's happening in each marketplace and where people shop and where the athletes are."

The company intends its global retail footprint to not only generate sales but build brand awareness and increase market share, regardless of whether the sales happen in stores, online or through wholesale partners.

"Within four walls, we really get to showcase the full world of Under Armour product," she said. "It's an opportunity to showcase all the product categories under one roof."

Under Armour's branded, or "controlled" stores are a just a tiny fraction of the $3 billion-a-year brand's overall retail package. The wholesale business with partners such as Dick's Sporting Goods, Sports Authority and Foot Locker makes up 67 percent of sales. The direct-to-consumer segment, meanwhile, accounts for most of the rest.

But the branded stores will become increasingly important, both in the U.S. and internationally, analysts said.

This year alone, the company is on track to open up to 100 stores outside the U.S., McCabe said. Some will be company-owned, but most will be owned by partners. The sites will include street locations and malls, she said. Under Armour is not disclosing which countries, but it has been expanding in Asia, South America and Europe.

Such locations will ultimately help the company reach its goal of increasing international sales from less than 10 percent to half the business — a mix on par with rival Nike, Moser said.

"Under Armour sees that opportunity, and it makes perfect sense to invest in that footprint," Moser said.

Under Armour's fast-growing direct channel has nearly tripled since 2007, from 11 percent of total sales to more than 30 percent of sales last year.

Eventually, Moser believes, the direct-to-consumer channel — including full-price and outlet stores plus online — will outpace sales through wholesale partners, which explains why partners such as Foot Locker would be clamoring to boost Under Armour's profile, he said.

"We have some things in discussion with Under Armour regarding vendor space," as part of Foot Locker's planned store transformations, the retailer's CEO, Richard Johnson, told The Street last week. The report suggested that Foot Locker may create Under Armour shops within its stores similar to those it has for Adidas and Puma.

In Under Armour's Brand House on North Michigan Avenue in Chicago, most of the first floor is dedicated to men's and women's training apparel. The second floor shows off emerging categories — youth apparel and footwear, a dedicated fishing and hunting shop, uniforms for teams at Notre Dame and Northwestern universities, the signature Stephan Curry basketball shoe and a "wearables bar" with activity trackers and sports watches that integrate with UA Record, Under Armour's online health and fitness network. There's also a testing zone for running and jumping.

It's "about the experience for the customer, and giving them a reason to come to a location beyond the transaction," said McCabe, thus the addition of the wearables bar as an extension of the company's recent big move into connected fitness. "People who work out a lot need work out gear. … We want to be connected to them to say, 'If this is what you do from an activity perspective, we've got running shoes… [or] an outfit to wear to barre class.' It puts the focus on the athlete and the experience."

The store shows a refined retail strategy, said Michael Binetti, an analyst with UBS Securities, in a report after touring the store earlier this month.

"In our view, UA's Chicago store is a surprisingly strong statement of how UA's brand reach has broadened in the past few years versus its training/compression heritage," Binetti said. "We expect a more comprehensive mall store strategy soon."

Under Armour mall stores, Binetti said, could average 8,000 square feet and customize the brand's broad assortment on a regional basis.

Three of Under Armour U.S. Brand House stores are now in malls, including Annapolis Mall, Westfield Montgomery Mall in Bethesda and Tysons Corner Center in Virginia.

It makes sense for Under Armour to seek space in high-performing malls, which number only about 50 or fewer in the U.S. and in the Baltimore area would include The Mall in Columbia and Towson Town Center, said Mark Millman, CEO of Millman Search Group, an Owings Mills-based retail consulting and recruitment firm.

"These showcase stores are really mini-flagship stores," Millman said. "They're opening branded stores, showcasing the company and product line. … And they have the wherewithal and ability to go into A-only centers around the country … where they would certainly do very well."

Under Armour's "demographic is across the board, not just the pre-teen market, but it crosses generation lines," added Millman, citing another reason it would do well in malls.

The company would likely seek locations that would not take business from its Factory Stores outlets, he said.

Despite the rapid-fire growth and ubiquitous nature of online buying, McCabe said, shopping is thriving at physical stores, where 88 percent of all purchases happen.

"We're getting much more purposeful traffic to stores," the Under Armour executive said. "Consumers are well-researched. We have a very educated consumer who is coming in with a purpose."

When the Mall of America store opens, it will have a familiar neighbor — Nike, according to the mall's website. The website says Nike has reopened in a new, expanded locations under its newest concept, the fourth of its kind in the U.S., which features "innovative consumer experiences, market tailored product offerings, community resources and the introduction of team customization services."

It's a familiar spot for Under Armour, which goes head-to-head with its much larger rival in stores and vying for endorsement deals.

Asked about the store space next to the competition, McCabe said, "We have not gone in and said that's what we want, but it's great for us."

lorraine.mirabella@baltsun.com

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