The Music Will Stop for GameStop

Why is there a used video game industryThe arrival and growth of the used game stores such as GameStop (GME) in the 1990s to early 2000s.
After baseball cards, the next popular collectible was used, rare, and collectible video games. The new era of internet technology helped produced video games frequently and created a robust secondary marketplace for used video games. There were many new game releases all the time which meant that customers who finished a game would be willing to trade their games for a new or used game. The reason that I brought up baseball cards in relation to the used video game industry is that both of these industries are missing official marketplaces. This results in customers being unsure if what they’re buying or selling is price efficient.

(If you want to read more about Funoland history and how it became Gamestop go here: FuncoLand History: The Company Behind Used Video Games written by Ernie Smith)

As a teen, my favorite store was FuncoLand. FuncoLand was a used video game and technology store that was named second place in Forbes’s list of the fastest growing companies in 1998. FuncoLand was the best place to buy both new and used video games. Additionally, FuncoLand had a handful of consoles in their stores so you could play the demos. In the early 2000s, FunoLand merged with EB Games to become GameStop.

1. 2010 to Present– The GameStop business model will continue to decline because of decreasing consoles unit sales, weak pricing power, increasing digital downloads, and used games becoming less valuable. In the recent 10 years, many retailers fought for survival but eventually failed. Specialized private equity (PE) groups operated in the retail industry like surgeons, but still failed to revive retail stores. The days are getting darker for retail firms and PE firms have recognized that risking their capital is not worth saving the retail industry. Many retail giants such as Bonwit Tellers, Incredible Universe, and Kids “R” Us have disappeared, liquidated, or greatly reduced in size. Millennial customers love their 90s nostalgia moments, but they are not going to shop at GameStop because it is expensive, inconvenient, unethical, inauthentic. All niche communities are built on authenticity. Unfortunately, when GameStop changed its name and business model, GameStop’s authenticity was lost in the merger too.

Management is speculating that New Game consoles would recover sales in 2020. In the most recent 2019 quarter, GME’s CEO, George Sherman, was surprised by the steep sales decline. There is a surplus of GameStop stores and both new games and used games are so much cheaper everywhere else. Bullish investors believe GameStop can automatically recover sales through the new gaming console cycle. But over half of GameStop console market opportunities vanished between 2008 and 2020. In 2008, total consoles sales were 90 Million. Consoles were sold worldwide in 2008 unlike in 2020, but regardless, the totaled estimated consoles sold for 2020 were estimated to be 30M to 40M.

Overview

The Global Unit Sales of Current Generation Video Game Console in million units (2008 to 2017)Infogram.

  • Used games are less valuable each year and Download games are more popular each year. Used games remain a substantial income for GameStop, but its sales in that category have fallen every year since 2011. In 2019, Sony sold over half of its game sales came through downloads. Microsoft, Nintendo, and Google have invested heavily in online gaming.

Playstation 4 was released on Nov 15, 2013. GME stock from Nov 2013 to Nov 2017 is -67%

  • GameStop’s supply chain and marketing tactics are some of the worst in the retail industry: GameStop does not offer free shipping unless the total purchase is over $50. GameStop’s top competitors are upgrading their business with robotics, software, and logistics innovation.
  • Corporate culture is toxic, and the business execution is mediocre: The gaming culture is really aware of GameStop’s misleading business practices. What will make GameStop more successful than their competitors? I’m still searching for answers. If anyone told me they found Santa Clause on the North Pole, I would trust you before I ever believe in GameStop’s management plan.
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  • Weak pricing power: New and popular games from competitors are typically discounted 10% less than Gamestop prices. Also,competitors an additional 5% off for customers who make purchases with the retailers’ branded credit cards. Also, used games are cheaper on eBay, Facebook, and Craigslist.
    • GameStop cannot compete against cheaper alternatives: Major retailers are taking losses with their gaming discounts, with the promise that it builds brand loyalty and customers will buy other higher-margin products to make up for it. Competitors are beating GameStop through pricing, convenience, and superior Omni channels. GameStop knows it cannot compete on price, so it makes up creative membership deals that will mislead customers into buying overpriced used games.
    • Used cheap games are recession-proof, not expensive used games: Consumers will buy the cheapest alternatives in a recession, not overpay for discretionary goods. In an economic system where customers could use an extra buck, they would prefer to make $10 on eBay than to lose $10 at GameStop. GameStop’s trade-in value doesn’t make economic sense to most consumers.  GameStop will always offer a lower trade-in price, and then force the customers with their credit to buy merchandise that’s typically 10%+ as expensive as Walmart, eBay, or Amazon.
    • Low trade-in value: Customers can always get a better value from online retailers such as eBay, Facebook, or Craigslist. There are multiple ways to sell and buy games online that are more convenient and have considerably better prices.  The cost of shipping video games is really affordable, and you will still make more money selling games on eBay than you would at GameStop.
  • It’s not convenient to drive to a game store. It’s easy to find popular games from large retail spots when customers can drop by for other items. If customers are looking to buy video games, they aren’t usually rushing to store for them. The supply of used video games is plentiful and it’s fairly easy to find popular game titles from other, more convenient marketplaces.
  • Lack of Customer Service & Knowledge – GameStop has unrealistic sales goal and use the forceful sales tactic. GameStop’s innovation is making membership points misleading and confusing.

2. History of Poor Capital Allocation – Low ROIC, no investment in business and waste of share buybacks.

  • Aggressive share buyback won’t work: Since 2010, GameStop has had a Capital Allocation Strategy that wasted over $400 Million in Share Repurchase. This number doesn’t take into account the recent $120M shares buybacks from 2019. A company should simply buy back shares if it has ample funds to take care of the operations and the stock is selling at a large discount on a conservative calculated intrinsic value.  GameStop will run out of cash by the remainder of the year, and it will depend on revolving high-interest credit to pay for their operations.
  • Liquidity Fallacy: If customers don’t shop at GME, then cash flow doesn’t matter. Surly, Michael Burry understands liquidity and cash flow, he’s one of the few investors that bet on the Real Estate liquidity crisis. But Burry and many other investors failed to see the cultural currency in the gaming community. Clients are the most important currency on GME’s balance sheet, not USD. Much like how Eddie Lambert said Sear’s had enough liquidity to carry through a turnaround strategy, but customers were not shopping at Sears. Price-cutting can quickly stabilize a financial statement, cutting too much cost will deteriorate the customer’s shopping experience. There are over 10,000 companies in the world, but Burry chose GameStop as one of his TOP ideas. I was initially shocked at his decision to buy GameStop, but I wasn’t totally surprised. Many investors believe their skills and knowledge are transferable in an everchanging industry.
  • Fallen ROIC since 2014: GameStop’s ROIC has fallen every year since 2014. It had not made any significant investment in their business in the last four years.
Historical 10 year ROIC of GME

3. Proposing unproven Strategies – gaming events, retro games, and merchandise will not replace the loss of used games revenue.

  • Store gaming events are not proven strategies: Management has not provided information that shows gaming store events could create profitability. Most GameStop stores are simply too small for hosting gaming events. GameStop had a press release about their gaming events in Spring 2019, and it has been quiet ever since.  GameStop probably has already failed its first gaming event attempt. The best gaming hosts in the industry are only mildly successful.
  • Increasing retro and rare game sales will not stabilize revenue: Rare games sell on eBay at a much lower price than GameStop trade-in value. Collectible games will slow down the turnover inventory and they will take up shelf space from other, newer products.

Shifting sales to nongaming merchandise will turn GameStop into another commodity store: GameStop owns the ThinkGeek store that sells nongaming merchandise and its sales are going down too. GameStop eliminated the position of Chief Operating Officer (COO) and in recent months has begun to switch some of its business models toward collectibles and trading merchandise. In other words, GameStop is basically converting its store into another failing business: its sister brand ThinkGeek. GameStop’s best non-selling items are Bubbleheads that are made by Funko.  Gimmicky products like Bobbleheads are the beanie baby 2.0… Bobbleheads have high-net income margins, but it doesn’t add any value to GameStop. GameStop may get some foot traffic from Bobbleheads, socks, T-shirts, and other random merchandise, but total sales are simply not good enough to offset their declining game sales. In the early 90s, trading card stores attempted to switch from baseball cards to other popular merchandise, but eventually, the hobby store industry disappeared.

Gamestop is hoping for Collectibles to turnaround the company

Valuation Verdict:
GME at its best would be worth $5/Share, assuming a small decline of -2% revenue CAGR and an average 3% EBITDA Margin.  Bullish investors estimate GameStop valuation between $6 to $10, but it doesn’t require complex math to explain GameStop’s valuation. Analysts are overcompensating on complex valuation because they believe used video games can be a sustainable business model. The next 12 months will be critical for GameStop to improve its revenue or else the stock price will take a nose dive. 

GameStop has less than one year to prove to investors that they can stabilize and improve sales. GameStop currently holds $290 million in cash and $419.4 million in debt. GameStop has had many years to turn around the company, but they have just burned through cash to buy back a company that offers customer zero value. Buybacks are great if the company is greatly undervalued and if it receives enough funds to support both business operations and buybacks. In GameStop’s case, it only has adequate money to pay down debt or buy back shares.

GME will drop to $3 again and become a penny stock in the next two years. Private Equity dry powder is at an all-time decade high, and there is still no offer for GameStop. Based on the last 4 quarters, GME is projected to lose a minimal of $160M to $200M in 2020.

Conclusion:

The existence of GameStop came from the void of the used game market. The industry has evolved and that used game void is available through multiple channels that offer cheaper prices and better value.

A new generation of game consoles is arriving later this year, buying GameStop sometime to hold out. The question remains, how much longer can GameStop’s business model remain relevant in a fast-growing digital distribution era? Get ready to say Rest In Peace, as GameStop will join its non-innovative retail family members in bankruptcy shortly.

Can’t stop, won’t stop, Gamestop selling drops ’cause it, it gets down baby, it gets down baby

The GameStop, gameflop, and StockDrop

The 1970s-1990s – Hobby stores arbitrage and demise

Long before the days of the internet, auction platforms and hobby stores, it was a very simple arbitrage market for collectible shoes, artwork, games, and cards. The market wasn’t efficient at pricing hobbyist collectibles. 

Finding rare cards was difficult, it was only available through newspaper ads, neighbors, acquaintances, and hobby stores. Rarity was empowered by the proximity of where, and how you can buy a product. Baseball cards’ popularity grew in the 1970s – 1990s and spurred the growth for new hobby stores to sell the trendy commodities. It costs very little to produce baseball cards, and it was easy to sell paper cards for a significant profit.

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By the early 1970s, the first professional card dealers emerged

During the dial-up internet era in the late 90s, consumers were not familiar with the internet and suspicious of buying products online. Consumers still trusted a local hobby store over the internet. Hobby stores took advantage of customers’ distrust of the internet products and sell the same merchandise for a much higher price.

There were many times, I paid a premium price at the store over the listed “official card price index” report from hobbyist magazines. It wasn’t easy to buy from the internet, there was no way to confirm or guarantee that the money you paid online was going to honored. It was common for hobby stores to list the same merchandise at higher prices than the market’s selling price.

Over time consumers started trusting online marketplaces like eBay and slowly collectible items became price efficient. Sports card revenues hit their peak in 1991 at $1.2 billion, and the cards were flooding the market. Since then, it has dropped to under $200 million and Hobbyist lost interested in baseball cards. The saturation of hobby stores hit a peak after owners realized there were more baseball cards than they could sell. Hobby stores started looking like junk storage rooms and most baseball cards lost its value. 

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Baseball Cards Liquidation sale

Savvy-experienced store owners who recognize the early demise of their baseball cards quickly sold their entire inventory and stores. The market gave plenty of signals that Baseball and collectible cards were not worth much. The hobby store owners that were smart made it out with a decent profit and shift their attention to the next collectible thing. The new owners who took over the hobby stores were the last ones holding the bankruptcy bag.

The Millennial ‘Frugalpreneur’ Lifestyle

It’s 2020, it’s time for Millennials to live the ‘Frugalpreneur’ lifestyle, keeping the largest expenses as low as possible. You hear high-profile stories about how entrepreneurs have kept their expenses as low as possible to finance their business. If millennials and Gen Z can apply the same financial mindset as these thrifty entrepreneurs, finance will be a lot easier to manage. Saving money is simple, but why are some millennials so broke? It’s always about making smart financial choices; money is a finite resource and so is your time. Know how to spend money wisely and avoid purchases that do not add value to your life.

There are many overpriced “brand activities” in a society that put pressure on millennials and impose expensive social obligations on them. Social branding activities such as weddings, cars, luxury goods, independent living, travel and many others are responsible for Millennials’ financial stress. Who would you like to impress? In fact, most of these branding tactics are just ways for companies to make money, they usually do not add value to your life. If you can afford the social brand image, do it wisely, but don’t go into debt.

The average salary of millennials ranges from $60,000 to $100,000 per year. HENRY (High Earners Not Rich, Still) Millennials make $100,000 or more. Saving and investing in your early career might not look like much, but just wait until you reach your 30s. Millennials and Gen Zs, listen to me if you want a better financial life: your priorities must change. Money cannot solve personal life problems, but financial flexibility can relieve some of life’s difficulties. Utilize your money for purchases that will add the greatest value to your life at the best price. Living an intelligent financial lifestyle doesn’t look sexy because society is driven by marketing your life into perpetual spending habits with overrated experiences, temporary homes, and worthless cars.

Living independent – Very Overrated 

The simplest way to save money is to live with your parents or have a roommate! Rent is generally the highest recurring obligation: start cutting down on rent first because everything else is chump change.

Society should be impressed with Millennials living with their family or having roommates. It shows a sign of maturity and logical reasoning. Even if you make a lot of money, why bother living alone when living at home could be free or substantially less expensive? Unless there is a problem at home, living with your family should be the first obvious solution to save money.

The Millennials that cannot afford living alone are often pressure by society to rent their own place. People put themselves into so much debt to impress others that they are doing well by living alone or buying a new car, but none of these spending habits add value to Millennials’’ lives besides the illusion of their financial status. 

A few years ago, Kevin, one of my colleagues at KPMG asked me how I could afford to eat out for lunch every day.

Kevin’s background: Kevin lived with roommates for two years, and then rented his own one-bedroom apartment in Arlington, VA for $2,300 a month. 

Kevin: “Tom you are wasting a lot of money eating out.” 

Tom: “How much are you saving from not eating out?”

Kevin: “$200 a month” and he showed a big smile. 

Tom: “Wow that’s great, but I like eating out. I am sacrificing my personal space to live with roommates.” 

Kevin: “Oh you’re saving a lot of money living with roommates, I can’t do that though. I want my own space.”

Tom: “Yep, I am saving a lot of money,” I flashed a big smile back to Kevin and went out to lunch.

How much was I saving from living with roommates? 

$0 Dollars – I never had to pay any rent.

During college and my first two years on the job, I paid $600 a month to live with my family. I saved much of my money to purchase a house. After saving up for a deposit, I purchased a townhouse near a university campus. My mortgage was $2000/month and HOA was $100/monthly. I wasted no time in posting available rooms. I lived on my own less than a month before I had a college roommate who moved into my house. As early as the second month, all the rooms were rented. There were moments when I rented my room on Airbnb, which was the master bedroom, and I slept on the sofa. Sleeping on the sofa was a little extreme, but it helps speed up my savings.

Some people have very bad experiences living with other roommates and it is understandable. Living with a roommate isn’t convenient. It takes time to interview roommates that have good etiquette.

I am not saying that millennials have to live with their families, but whom do they want to impress? You can always live independently with your family by paying the rent and helping to care for the home. If living with family is not a viable option, then look for a good roommate.

If you want to live independently: rent an affordable basement and share a kitchen. Whatever you do, minimize your rental expenses as much as possible. Saving money on coffee, eating out, and being frugal with other smaller, discretionary spending does not comparable to saving money on rental expenses. 

Traveling often – Overrated

Traveling is great, but why are Millennials traveling so often? There should be a budget set for traveling. I am freaking out for my generation that are taken out loans and paying interest to travel more often. Does traveling often add value to anyone’s life? It could, but at what cost?

Eating out – Underrated

I can’t eat simple prepared meals like sandwiches, pizza, etc. I prefer meals that have a richer taste, which simply means a longer cooking time. I have to spend a lot of time grocery shopping, preparing, and cleaning just to make one meal. To me, it’s not worth the time to cook unless I’m cooking for a household of at least three people. The economic cost and time required to prepare a meal are wasteful. It would be just as affordable, and sometimes cheaper to eat out than making the food at home.

10% minimal saving & 10% Retirement – Very Underrated

  1. Pay off your discretionary debt that is above 5% interest. This means all credit cards should be paid off monthly. There are zero reasons to have a carry-over monthly credit card balance.
  2. After you pay off your credit card, then start saving 10% each month, but don’t let your cash sit in a savings account. Put your savings into a higher paying account like buying a stock market index, do not pick stocks (over 95% of investors will underperform the index) until you are educated about investment fundamentals like reading a financial statement, and financial risks.

Everyone should always invest in their retirement to get the employer’s match. The average employer’s match is 3%, which means it would require the employee to put in 6% to get the additional 3% from their employer. If you are 1099, or an entrepreneur, you should still have at least 10% of your income invested in your retirement.  

Buy a used, Affordable Car – Very Underrated

Again, you impress no one unless you have a secure financial life. Having enough money to buy a house should be top of mind. The only people who will be impressed by your beautiful cars are hidden fees that will treat you like a financial resource for their entertainment.  

Expensive Wedding and Wedding Rings – Overrated 

The average wedding in the United States costs more than $20K and it usually requires immediate payment. It’s crazy to hear how some people have to take out a loan to have a wedding… If you need a loan to have a wedding, forget it! Your close family and friends will still love and celebrate your union the same way! 

In many Asian cultures, cash is a standard wedding gift. My wedding was expensive, but our family and friends’ generous gifts helped recover a portion of the wedding costs. Although our wedding could have been a lot cheaper, my wife and I wanted our wedding to be a memorable experience in order to give gratitude to our family and friends for supporting us through our lives. We budgeted and postponed our honeymoon so that we wouldn’t incur any financial strife.

If you have the financial means for an expensive wedding and can afford a home quickly, then go ahead. But, if a wedding or wedding ring will delay your ability to purchase a home, then do not attempt to have an expensive wedding. Buying a house should be your top priority.

Birthday Gifts and Christmas Gifts – overrated 

We shouldn’t be shopping for random gifts. If you have to buy a gift for a special event, make sure it comes in handy. Most of the time, we buy bad gifts or try to make frivolous gifts that end up in the garden sale or in the donation stack. Instead, pay for an event, lunch or something that helps you maintain a good relationship with the person you are giving the gift to.

Fast Fashion and Cheap Fashion – overrated

Fast fashion clothes are usually just low quality. Buy quality items that cost a little more, and have less junk in the closet. Buy higher quality items like dress shoes suits and purses. Some items like Louis Vuitton are entry luxury items that come with lower end material that you would find in $300 items. If you can afford luxury, then buy a brand like Hermes because the resell value is better than most Louis Vuitton. I’m not a Michael Kors (MK) fan: their $300 bags are not high quality when compared to other $300 bags. There’s a reason why MK has been losing their brand equity…

Used Electronics – Underrated

I rarely ever buy any new electronics. I will always buy cheap, used electronics on eBay. If you know how to get the max capability from an electronic product there is no need to waste your money on the newest electronics. Go for cheaper used 2nd or 3rd generational products that can get the job done just as well as the newer models.

Under Armour, Under Pressure

Under Amour’s stock (UA) crashed over 15% after their earnings report on October 2016: down to $30 per share… Then, on January 2017, it reported a second straight quarter of sales, considerably lower than anticipated. UA has been steadily declining to $19-20 per share (4/9/2017). Under Armour is facing challenging sales growth and public relations challenges.

Team UA
Under Armour Sponsored Athletes
Stephen Curry, Cam Newton, Jordan Spieth, Misty Copelan, Clayton Kernshaw, Carey Price, Tom Brady, and Lindsey Vonn.

UA sponsors some of the biggest names in the sports industry, including Stephen “Steph” Curry, Tom Brady, Micheal Phelps, Bryce Harper, Jordan Spieth, Cam Newton, Clayton Kershaw, Lindsey Vonn, Misty Copeland, and many more. Major League Baseball also struck a deal with Under Armour to supply the league uniforms beginning in 2020. UA has one of the best brand ambassadors with MVP recognition from Football, Baseball, Basketball, Swimming, and Golf. The sponsored athletes are making UA brand relevant just as Michael Jordan made Nike relevant in the 90s.

A month ago, Under Armour CEO, Kevin Plank expressed his lauding political views regarding President Donald J Trump. Athletes that UA sponsors such as Stephen Curry, Under Armour’s top sponsored athlete, did not share the same political affiliations regarding Trump. These political tensions have led to a strain in UA’s relationship with its athletes. Due to the current turbulent political climate consumers have actively boycotted companies that support Trump. When can we expect Under Armour’s problems to curtail so the company can adjust its public image, to become a better brand?

What happened to Under Armour?

Under Armour was worth more than $20 billion in 2015 and surpassed Adidas to become the #2 sportswear brand in the U.S. But Under Armour rapidly ran into problems that were caused by poor strategic choices.
In the past few years, they have created some critical mistakes such as investing over $710 Million on fitness apps, and over $100M on R&D for gimmicky tech products like weight scales that provided no value.


1. $150 million for MapMyFitness in 2013
2. $85 million for Endomondo in 2015
3. $475 million for MyFitnessPal in 2015

Is Under Armour a digital health, tech or an apparel company?

Recently, one of their largest announcements was selling more clothes at Khols, which UA stated will temporarily increase revenue. But it will KILL the BRAND. Do you see any Lululemon Athletica apparel at Khols? UA made a half-ass attempt on athleisure and said they are departing to focus on PERFORMANCE apparel, it sounds as gimmicky as their tech strategy.

Business Profile
Under Armour expanded their business and signed multiple famous athletes like Tom Brady, Steph Curry, Bryce Harper, and Jordan Spieth. Most of these athletes are MVPs or well-known athletes in their respective sport. Recently, UA has not done well in the stock market, but it still has all the winning traits to become a great stock and to win in the long-run.

UA’s brand identity uses a combination of strategies:
“1) On-field authenticity with professional athletes and teams that use its brand and marketing
2) Brand-building activities that position Under Armour as an authentic lifestyle brand with the broader consumer market of active lifestyle consumers, where we think it is beginning to make inroads


Supporting UA’s penetration into the sports apparel market is their investments, in direct to-consumer business (e-commerce, catalogs, less than two dozen retail stores, and 143 factory outlet stores in North America by the end of 2015), expansion of domestic and international wholesale distribution, and adjacent products. UA offers a wide range of products, including cleats, performance training shoes, running shoes, and basketball shoes. The company’s many accessories include baseball, football, golf, and running gloves incorporating HeatGear and ColdGear technologies, as well as socks, mouth guards, and eyewear developed by licensees.


UA has 4 product categories: Apparel, Footwear, Accessories, and Licensing. All of these product categories have grown 10%+ since 2016.


Can UA Continue its 2016 Growth or will it Decline?
As Uncle Ben would say to Peter Parker’s business ‘With great growth, comes great responsibility to shareholders.’ When UA signed Steph Curry to Under Armour, it helped propel UA basketball apparel sales to compete directly against Nike signature shoe brands like LeBron and Kobe. Investors quickly became over enthusiastic about the sales growth and valuation high as 80x P/E between 2014 & 2015.


From 2012-2016, UA CAGR growth was +27%, but the company has reported a trend of declining earnings per share over the past two years. On the other hand, there was a 60% revenue growth in countries like the UK, China, and Germany. In recent UA earnings reports, management has lowered its 2017 revenue forecast to expect 10%-12% growth. UA still has great brands, profitable products, and revenues over 10% a year, but the stock went down ~50% in valuation. Investors are left to once again marvel and question of the power of the Under Armour brand, made famous by catchy commercials, and famous sponsored athletes.

Valuation $24 Per Share
Revenue expected to grow 10-12% to reach nearly $5.4 billion
Gross margin expected to be considerably lower, compared to 46.4% in 2016. With benefits in product costs being offset by changes in foreign currency and shifts in the overall sales mix, the footwear and international businesses will continue to outpace the growth of the higher margin apparel and North American businesses;

  • Operating income expected to reach approximately $320 million
  • Effective tax rate of 30 percent
  • EBITDA – 10-12 percent
  • Growth: Assuming UA can maintain the same growth rate of 10-15% for the next 5 years, then the fair price is a 15%-20% upside.
    • Shoes sales drive by basketball shoes
    • International expansion
    • Direct Revenue from E-commerce
    • Increase sales from Woman’s apparel
    • Supply chain improvements

Under Armour Investment Risks-
1. Macro – a slowdown on discretionary spending

2. Distribution problems – Large chains such as Dick’s Sporting Goods and Footlocker are still expanding their Under Armour assortment. The business partnership must continue to grow and the logistic operations need to stay lean to keep operating cost low.

3. Direct to consumer problems – While the direct-to-consumer business appears to be enhancing returns, it carries higher risks through markdowns and operating leverage, and requires ongoing investment in stores, websites, marketing, and customer service.

4. Brand dilution – UA is selling apparel at Khols, and discounting products far too often. Clearance of excess product through outlet stores is hurting their brand.

5. Confusing Strategy and Overpaying for Apps and hardware – using a majority of UA’s cash and resources to launching a digital health service and gimmicky tech products. Under Armour culture and talent is not known for health or tech.