Under Armour President and CEO Patrik Frisk thinks overriding “rebalancing” strategies amid the COVID-19 pandemic will focus on everything from inventory levels and distribution focus to further rationalization of overall U.S. brick-and-mortar store space.
“I would say the next 24 to 36 months will be, I think, what you could perhaps call a forcing mechanism for many retailers, especially in the U.S., where there’s still a lot of stores and there’s still a lot of square footage. So there’s certainly going to be winners and losers in this environment,” Frisk told analysts Monday as Under Armour reported respective 28 percent declines in first-quarter footwear and North American sales and a nearly $3.8 million operating loss in the region. Nearly half of the revenue decline was related to store closures during the second half of March.
With the COVID-19 crisis and related retail closings expected to slow Under Armour’s multi-year strategy to lower the brand’s distribution reliance on the off-price channel, Frisk says the Baltimore company expects better clarity on the potential speed of the post-pandemic recovery across the country by month’s end.
“Right now, we don’t see any significant medium- or larger-size customers who are having any larger-than-average challenges, based on what everybody is dealing with COVID-19,” Frisk said.
With 80 percent of its global business in shutdown mode since April 1, Under Armour has wielded its cost-cutting knife to reduce its planned FY20 operating expenses by another $325 million and capital expenditures by $100 million. The company has also worked aggressively to adjust inbound Fall-Winter orders, given the expectation that second-quarter-end inventory levels will be higher due to inbound Spring-Summer orders that were in production or transit when the crisis hit.
“There is a lot of hardship in the vendor base right now as there is all this fluctuation and kind of distress, with people cancelling midway through and stuff like that,” he said. “ We’re being very thoughtful about how this plays into 2021.”
Under Armour, which has a new e-commerce platform site going live in July, is optimistic that there will be pent-up post-pandemic demand for health, fitness and team sports products, especially with a growing consumer movement about staying fit. And that’s something the company thinks it can capitalize on.