Well whaddaya know? It’s happening again. A Chinese company is blatantly ripping off an American company’s products. Sorry, Under Armour Inc (UA, UA.C), but it was bound to happen eventually. And there’s no guarantee it wont hurt UA stock.
A Chinese sporting apparel company called “Uncle Martian” is making waves on the Chinese internet, where the new brand has been heavily ridiculed for shamelessly imitating Under Armour’s well-known logo, which looks vaguely like two horseshoes intermingling.
What’s worse for UA stock owners, the translation of “Uncle Martian” in Chinese even sounds vaguely like the translation of “Under Armour,” making the offense seem all the more egregious.
Whether or not you choose to term this offense “economic warfare,” that’s exactly what it is. And every UA stock owner should hope Uncle Martian gets sued all the way back to the red planet, because we have no idea how much damage this could potentially do.
Opportunity Cost: The Biggest Threat to UA Stock
First, let’s get this out of the way: Uncle Martian claims it is entirely unrelated to Under Armour, and also says UA has yet to levy any formal complaint against the company.
But you know as well as I do that rhetoric is sometimes just rhetoric. And rhetoric, as we all know, is sometimes just BS. That’s what I believe we have here.
Currently, UA stock isn’t hugely driven by sales in China. The company doesn’t break out exact sales in the country, but what’s clear as day is that North America is Under Armour’s bread and butter. In 2015, 87.2% of all revenue was generated in North America; 11.5% was generated internationally, and 1.3% came from “connected fitness”.
Here’s the problem, though: International sales are spreading like wildfire. In 2013, international sales were just 5.9% of overall revenue, which then grew to 8.7% in 2014 and 11.5% in 2015. They doubled, as a percentage of revenue, in just two years. In raw dollar amounts, they more than tripled in two years, soaring from $137.2 million in 2013 to $454.2 million in 2015.
It’s likely that China accounts for a large percentage of these international revenues, and if Uncle Martian actually catches on (crazier things have happened) as a knockoff brand, some potentially material revenue and market share could go to the bizarre new brand, hindering Under Armour’s international growth and suppressing the growth outlook for UA stock.
Under Armour’s biggest rival, Nike Inc (NKE), has also notoriously had issues in China with outright copycats, and a case regarding exactly that is going to China’s Supreme Court. More malicious violations against firms like United States Steel Corporation (X) and Alcoa Inc (AA) have also happened, with Chinese government hackers allegedly stealing trade secrets surrounding the production of metals in an attempt to reduce China’s reliance on U.S. suppliers.
These acts of economic terrorism against the U.S. shouldn’t be tolerated by corporate America, shareholders or the U.S. government, and I anxiously await the day that Uncle Martian is annihilated. If its shenanigans are allowed to continue, it could reap untold havoc on the Under Armour brand, and set a dangerous precedent going forward.
I still think UA stock is a great investment after back-to-back blowout quarters and the meteoric growth of its Curry One shoe line, but I’d encourage shareholders to monitor this situation closely, and perhaps even contact Under Armour directly with their concerns.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
