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Super Retail Group plans Armour-ed offensive

US sportswear giant Under Armour (NYSE: UA) has named Australia as one of its key growth markets in its new quest for international expansion. Under Armour was founded by Kevin Plank in his basement in 1996 and has grown rapidly by offering high quality and technologically advanced sportswear. The Australian offensive is part of the company’s plan to double its global sales to a total of $US4 billion by 2016.

It doesn’t look like it will be battling solo however. There are reports that Under Armour is close to completing a deal with Rebel Sport, a subsidiary of Super Retail Group (ASX: SUL), that would give Rebel Sport exclusive distribution rights within Australia. As part of the deal, Rebel would help Under Armour to establish a foothold and make significant investments to promote the brand. Rebel would then assist Under Armour in establishing its own standalone stores – a milestone the company has said it wants to achieve within the next two years.

Rebel Sport’s performance has been transformed since it was acquired by Super Retail Group for $610 million in late 2011. Management has refocused the brand on volume and value by lowering prices to stimulate foot traffic. The strategy has paid off with the company announcing in May that year to date sales volumes had grown 7.8% versus the same period last year. Rebel currently stocks a limited range of Under Armour products.

At present only 6% of the Under Armour’s sales are outside of the United States.  However it plans to double that share by 2016, and clearly sees itself as an emerging global brand.  When speaking about its international prospects, Karl-Heinz Maurath, Under Armour’s President of International, emphatically stated “There are huge, huge opportunities for Under Armour out there”.  The company will also be opening stores in nine other countries.

Under Armour will be joining a wave of international clothing brands expanding in to Australia, such as Zara, H&M, and Abercrombie & Fitch. The entry of a sophisticated global brand like Under Armour will be a particular threat for specialist sportswear retailers such as The Athlete’s Foot, a subsidiary of RCG (ASX: RCG). Under Armour’s latest innovation is the ‘SpeedForm’ shoe, which took inspiration from Apollo space suits, and was manufactured primarily from a single piece of material that doesn’t require stitching. The Athlete’s Foot specialises in exactly the type of hi-tech footwear that Under Armour has sought to disrupt.

With no deal signed yet, the full details are still to be revealed. Super Retail Group will be hoping that increased association with the hi-tech innovator will boost consumer perception of the Rebel Sport brand. The deal will also suit Rebel’s strategy of increasing foot traffic by drawing in customers that are seeking out Under Armour’s specialist range. Success will depend on whether these customers can then be tempted to purchase other products from Rebel’s lineup.

Foolish takeaway

Under Armour has quickly emerged as a sportswear powerhouse and is now poised to take its rightful place as a global brand. Super Retail Group may appear to be encouraging the competition by assisting Under Armour’s international expansion, but management has likely concluded that when a major international brand is entering your home turf, it’s better to be with it than against it.

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Motley Fool contributor Matt Joass does not own shares in any of the companies mentioned in this article.

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