Last week, Nike confirmed speculation that it intends to buy specialist UK sportswear brand Umbro in a deal worth £285m. It is news that will cheer the Umbro camp.
The official kit supplier to the England football team, Umbro has had a miserable 2007. It has already been forced to adjust its profits forecast for this year from £30m to £22m, a revised figure based on the assumption that England would qualify for Euro 2008. However, following the team's 2-1 defeat to Russia earlier this month, its chances of qualifying are looking slim, and failure to do so is likely to result in a further slump in shirt sales.
Umbro has long prided itself on its focus on football, running campaigns with straplines such as 'We spend 0% of our time thinking about other sports. Which leaves 100% of our time to think about football, and how to make better football pro-training kit.' Its England shirt deal is the jewel in its crown and some sports marketing experts believe it is this that Nike prizes so highly. Without it Nike would have almost certainly not been tempted to make a takeover bid.
Umbro's troubles have ensured that Nike has been able to strike a deal at the bottom of the market and it should be a shrewd investment, cementing both Nike's association with sport and putting it in a stronger position to compete against its rivals. While Nike's global 'Joga bonita' campaign won praise for its creative execution during the 2006 FIFA World Cup, rival Adidas promoted its position as an official partner to great effect, doubling its sales in comparison with the 2002 tournament.
The takeover should receive a positive reception from the Football Association, whose current deal with Umbro expires in 2014. Sources close to the FA say that Umbro has previously invested so much in securing its FA kit deal that it has been unable to promote the long-term sponsorship as much as it would have liked; backed by Nike's considerable financial clout, however, the brand should finally be in a position to boost its association more effectively.
The deal should also see Nike gain greater dominance in the UK's domestic league. The brand currently supplies the kit for three Premiership clubs, including Manchester United and Arsenal; while Umbro's domestic football deals are not as prestigious, its reach is far broader. It currently sponsors Blackburn, Everton, West Ham, Birmingham, Wigan and Sunderland - more than a fifth of the Premier League clubs. Adidas, meanwhile, has shirt deals with four Premiership clubs, with Bolton Wanderers sponsored by its Reebok brand. The rest of the Premiership is split between Puma, Le Coq Sportif, Errea, Hummel and the latest entrant into the market, Canterbury.
While Nike has yet to disclose its plans for Umbro, Mark Dixon, director at marketing consultancy Fuse Sport, wonders whether it will adopt a similar strategy to Adidas. When it acquired smaller rival Reebok two years ago, its kit deal with Liverpool FC was shifted to parent brand Adidas.
'We may see Umbro's six Premiership clubs turning out in Nike kit from next season, or we might see Wayne Rooney used more effectively by the new partner brands, wearing the Nike red of United and the Umbro white of England,' says Dixon. 'These sorts of choices will give us, the watching fans, an idea of where they are going strategically,' he says.
Nike has said it will retain the Umbro brand, as it did when it acquired Converse in 2003 and as Adidas did with Reebok. While the takeover of Reebok was not purely intended to challenge Nike in the football sector, since the brand had strong ties with other sports, it did allow the brand to flex its new financial muscle. In the run-up to the 2006 FIFA World Cup, it poached French football icon Thierry Henry from Nike and later that summer added former European Player of the Year Andriy Shevchenko to its roster of global brand ambassadors.
Umbro currently has relatively few high-profile brand ambassadors, working only with England captain John Terry, his international team-mate Michael Owen and Barcelona midfielder Deco. It is likely that it will now seek to add to that roster and that Nike will shift some of its talent to the Umbro brand.
Umbro's problems have been well documented; industry observers have cited its lack of fashionable leisurewear, the specialist focus of its brand, a narrow distribution model and a lack of activation of its sponsorships as key reasons for its difficulties. But under Nike's ownership it will now be able to address its perceived weaknesses.
Its association with the England team and its fans has made Umbro a highly attractive property for Nike. However, to make the most of its association with the FA, Nike will need to invest in promoting Umbro's deal - and, more immediately, hope that England can still qualify for Euro 2008.
- Last week, the Umbro board of directors unanimously recommended that shareholders accept Nike's offer of 193.06p a share, which valued the firm at £285m.
- Umbro's share price had been 4% down following England's Euro 2008 qualifier defeat to Russia earlier this month. However, it recovered by about 30% on the news that the firm had received an approach from a then-unnamed party.
- Umbro sells its products directly and through licensees in more than 90 countries and had an annual turnover of £149.5m last year.
- Sales of replica shirts account for approximately 90% of its turnover in the UK.
- Nike has grown its football revenues from US$40m in the early 90s to about $1.5bn today, according to the company.
- In September 2005, Adidas agreed to buy UK rival Reebok in a deal worth £2.1bn.