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Under Armour Says Demand Planning Tech Saved Virus-Hit Supply Plans

Just days after the coronavirus pandemic struck the world of retail⁠—and the world at large⁠—Under Armour converted its innovation lab into a facility that has produced nearly 5 million facemasks and 200,000 gowns for Johns Hopkins Medicine, University of Maryland Medical System and other healthcare organizations.

Since then, the Baltimore-based sports apparel and footwear brand has pivoted in response to “significant swings in supply” stemming from Asian factory closures, Under Armour CEO and president Patrik Frisk told analysts during the company’s first-quarter conference call.

Under Armour implemented a new demand planning function last year that has facilitated smarter ordering and go-to-market strategizing during the pandemic, enabling the company to “create product supply solutions” in line with demand.

“As an example of this work, as the virus gained momentum in China, we recognized the potential impact on global markets and product supply and immediately pivoted our teams to redesign our product supply plans,” Frisk said. “As a result, we quickly adjusted future planned buys to reduce potential impacts on our business.”

At the end of Q1, the company’s inventory was up 7 percent to $940 million and Under Armour expects more significant changes to demand in the future, prompting it to curtail planned inventory receipts for the coming quarters.

Under Armour will continue to release new product, Frisk said, especially for its female consumer base. New releases in women’s wear have noticeably improved the category but would still require a “rebalance” compared to how the company entered the year.

Compared to the rest of the industry, a 7 percent inventory increase “is at the lower end of what the market has seen so far,” Frisk said. “And of course we’ll have inventories building in Q2 as 80 percent of our stores around the world are still closed, but ultimately because we came in with a well-managed inventory position, we think that we’re going to be able to rebalance the rest of the year and continue to provide freshness into the marketplace too. We need to incentivize the customer to come in and buy new stuff, for sure.”

Most of Under Armour’s stores remained closed worldwide since shutdowns began in mid-March outside of China and South Korea, which drive two-thirds of its APAC revenue. Wholesale retail partners have been heavily affected, too.

With more than 80 percent of its brick-and-mortar-based business on lockdown, quarterly revenue plunged 23 percent to $930 million.

“As we closed out the first quarter, we ended up with even lower than originally anticipated off-price sales and significant unforeseen impacts of COVID-19 on our businesses outside of China, which together contributed to about 12 additional points in the first-quarter decline,” Under Armour chief financial officer David Bergman said.

By category, apparel revenue fell 23 percent, while footwear revenue declined by 28 percent and accessories decreased 17 percent.

Although Under Armour has tried to avoid off-price channels in a bid to burnish brand value, the move has meant costly lost sales and could cause the athletic giant to revisit these avenues in the near term.

“We’re not expecting to grow that channel due to COVID-19, but it will take us a little bit longer this year than we originally wanted to potentially step off as fast as we wanted, but we’re still on the right track,” Bergman said.

Frisk expects the next few weeks will inform what a recovery will look like in the U.S. Revenue could be down as much as 60 percent in the second quarter, Bergman added, and how brands and retailers respond to that challenge will play a large part in their rebound.

“Although we do anticipate that our business will gradually reopen in the coming weeks and months, we believe there will be a number of challenges ahead for us and the greater global retail space, including a slow and progressive return to normalization, a highly promotional environment, and significant uncertainty in brick and mortar traffic-and-conversion as consumers return to stores,” Bergman said.

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