A big step

The Baltimore Sun

The teasers started weeks ago: 15-second commercials starring muscular athletes and an Under Armour shoe box with a mysterious red glow.

Viewers can't see what's inside the box. The Baltimore sports apparel company is keeping that a secret until Sunday's Super Bowl.

That's when Under Armour will air a 60-second commercial - costs this year are reported to be $2.7 million for 30 seconds - in the first quarter of the football game to unveil its new cross-training sneaker.

The commercial, to run on the most-watched sporting event of the year, is just one piece of what will be the biggest - and riskiest - product launch ever for Under Armour Inc.

The company, known as much for its marketing prowess as its sportswear, is spending heavily on a yearlong campaign to introduce the athletic shoe it has dubbed a performance trainer as a wedge into the mainstream athletic footwear market. It follows its initial foray into footwear, with cleated shoes - football, softball and baseball - that are worn only on the field.

"It's a defining moment for Under Armour," said Wayne A. Marino, the company's chief financial officer. "We're a growth company, and this is an opportunity to enter into a market that is very large and very scaleable. Once you launch into performance trainers, there could be other footwear that could follow in the future. It sets an entire new platform for Under Armour."

Calling it a defining moment could be an understatement in the eyes of some.

When Under Armour confirmed that the heavy advertising spending - including the pricey Super Bowl ad - would cut earnings in the first half of the year to 3 cents to 5 cents a share, its stock price plummeted nearly $15 in two days, erasing nearly 35 percent of the company's market value. The stock has since recovered some to close at $36.30 yesterday.

Some analysts believe it's a dicey strategy, especially in a slowing economy when apparel sales are suffering across the board.

"Success of the cross-training launch is critical to future growth, and advertising expenses will shift into the first half of 2008 to support the initiative," Goldman Sachs analyst Brad Cragin wrote in a recent report. "As a result, most of the profit for the year hangs on the second half. We believe this is a particularly risky proposition for a year in which we expect a consumer-driven recession and markets appear so unforgiving."

Others, however, say it's the right thing to do as Under Armour moves to expand its reach among consumers.

"I think a lot of people think it's more risky not to do anything," said Robbert Van Batenburg, head of research at Louis Capital Markets in New York, an independent global broker-dealer. "They need to market to raise name recognition and broaden the appeal of the brand."

The company is also expected to face more competition than it ever has on a new product. Nike Inc., the world's largest sports apparel company, plans to introduce a new line of cross-trainers a month before its smaller competitor.

That marks a departure for the sports apparel giant, which sat quietly by when the 11-year-old upstart succeeded in making its compression athletic wear a must-have and then grabbing a chunk of the cleats market.

So when Under Armour began shopping a cross-trainer prototype a year ago, Nike reacted, analysts said.

"It will be an extensive launch program for Nike," said John Shanley, a footwear and sports apparel analyst for Susquehanna Financial Group LLP. "It is clearly an effort to blunt some of the efforts of Under Armour when it enters the market."

Nike didn't return phone calls seeking comment about its new shoe.

Under Armour says there's room for both. Company officials believe the cross-trainer is a natural transition for athletes who are already wearing its products on the field.

The company is also using a strategy that has worked for it in the past, targeting categories where there is room for growth. Under Armour entered the football cleat market in 2006 because it thought there was room for innovation. Cleat styles hadn't changed in two decades. It captured 20 percent of the market in one season.

Nike popularized cross-trainers in the late 1980s with its "Bo Knows" campaigns featuring baseball and football player Bo Jackson - the first athlete to be named an All-Star in two major sports. But cross-trainers have since lost popularity and now account for only about 1 percent of athletic shoe sales.

Under Armour believes it can build on that by pitching its shoe as a performance trainer for hard-core athletes who train "not to maintain. But to get better every day."

"The game has changed," its Web site proclaims. "The future is ours."

"Their whole image is based on authenticity," said Roland T. Rust, chairman of the department of marketing at the University of Maryland Robert H. Smith School of Business. "The ads have reinforced that 'take-no-prisoners image' that they're trying to build."

"With a lot of these products there's not a tremendous amount of difference in the technical aspect," Rust added. "The image is what sells it."

The company does all its advertising in-house, not only because it's cheaper, but also because it can control the brand and image of the company.

"Money you can replace, brand damage you cannot," said Steve Battista, vice president of marketing.

Its slogans, such as "We Must Protect This House," have become locker room folklore. All of its launches of major products included an extensive marketing campaign designed to tantalize and build interest.

The marketing includes a countdown clock on the Web site, promotions on Xbox game consoles and promotions at sports tournaments. On its Web site users can rate themselves on particular athletic skills to find out which of three versions best suits them. The shoe box itself is high-tech with an injection-molded see-through top.

Under Armour is keeping details of the Super Bowl commercial under wraps but said it would star skater Kimmie Meissner, Ravens linebacker Ray Lewis, NASCAR champ Carl Edwards and former Dallas Cowboys player Eric "Big E" Ogbogu.

While at the U.S. Figure Skating Championships, Meissner would say only that the commercial was shot on location in the Bronx and that her part "was very physical." She worked with Chicago Cubs outfielder Alfonso Soriano.

"I'll have to throw a Super Bowl party now," Meissner said.

Battista said the shoe will be the "voice of the brand" for the next year, with every aspect of the company's marketing devoted to the shoe.

Under Armour said it is spending 12 percent to 13 percent of revenue on marketing this year, about the same as it does every year. Revenue in the first three quarters of 2007 was $431.7 million - slightly ahead of the total for all of 2006.

It believes Wall Street will see the light once the shoe hits stores.

"I think Wall Street investors are very smart and market is very efficient," Marino said. "Over the long term, when we deliver what we say we will deliver, the market will be efficient and adjust our value."


Sun reporter Candus Thomson contributed to this article.

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