Our principal business activities are the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The brand’s moisture-wicking synthetic fabrications are engineered in many designs and styles for wear in nearly every climate to provide a performance alternative to traditional products. Our products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as consumers with active lifestyles.
Our revenues are generated primarily from the wholesale distribution of our products to national, regional, independent and specialty retailers. We also generate revenue from product licensing and from the sale of our products through our direct to consumer sales channel, which includes sales through our factory house outlet and specialty stores, website and catalogs. Our products are offered in over twenty thousand retail stores worldwide. A large majority of our products are sold in North America; however we believe that our products appeal to athletes and consumers with active lifestyles around the globe. Internationally, we sell our products primarily in certain countries in Europe, a third party licensee sells our products in Japan, and distributors sell our products in other foreign countries. We plan to continue to grow our business over the long term through increased sales of our apparel, footwear and accessories, expansion of our wholesale distribution, growth in our direct to consumer sales channel and expansion in international markets. Virtually all of our products are manufactured by unaffiliated manufacturers operating in 17 countries outside of the United States.
We were incorporated as a Maryland corporation in 1996. As used in this report, the terms “we,” “our,” “us,” “Under Armour” and the “Company” refer to Under Armour, Inc. and its subsidiaries unless the context indicates otherwise. We have registered trademarks around the globe, including UNDER ARMOUR®, HEATGEAR®, COLDGEAR®, ALLSEASONGEAR® and the Under Armour UA Logo, and we have applied to register many other trademarks.
Our product offerings consist of apparel, footwear and accessories for men, women and youth. We market our products at multiple price levels and provide consumers with what we believe to be a superior alternative to traditional athletic products. In 2009, sales of apparel, footwear and accessories represented 76%, 16%, and 4% of net revenues, respectively. Licensing arrangements for the sale of our products represented the remaining 4% of net revenues.
Our apparel is offered in a variety of styles and fits intended to enhance comfort and mobility, regulate body temperature and improve performance regardless of weather conditions. Our apparel is engineered to replace traditional non-performance fabrics in the world of athletics and fitness with performance alternatives designed and merchandised along gearlines. Our three gearlines are marketed to tell a very simple story about our highly technical products and extend across the sporting goods, outdoor and active lifestyle markets. We market our apparel for consumers to choose HEATGEAR® when it is hot, COLDGEAR® when it is cold and ALLSEASONGEAR® between the extremes. Within each gearline our apparel comes in three fit types: compression (tight fitting), fitted (athletic cut) and loose (relaxed).
HEATGEAR® is designed to be worn in warm to hot temperatures under equipment or as a single layer. Our first compression T-shirt was the original HEATGEAR® product and remains one of our signature styles. While a sweat-soaked traditional non-performance T-shirt can weigh two to three pounds, HEATGEAR® is engineered with a microfiber blend designed to wick moisture from the body which helps the body stay cool, dry and light. We offer HEATGEAR® in a variety of tops and bottoms in a broad array of colors and styles for wear in the gym or outside in warm weather.
Because athletes sweat in cold weather as well as in the heat, COLDGEAR® is designed to wick moisture from the body while circulating body heat from hot spots to help maintain core body temperature. Our COLDGEAR® apparel provides both dryness and warmth in a single light layer that can be worn beneath a jersey, uniform, protective gear or ski-vest, and our COLDGEAR® outerwear products protect the athlete, as well as the coach and the fan from the outside in. Our COLDGEAR® product offerings generally sell at higher prices than our other gearlines.
ALLSEASONGEAR® is designed to be worn in changing temperatures and uses technical fabrics to keep the wearer cool and dry in warmer temperatures while preventing a chill in cooler temperatures.
We began offering footwear for men, women and youth in 2006, and each year we have expanded our footwear offerings. Our footwear offerings include football, baseball, lacrosse, softball and soccer cleats, slides, performance training footwear and running footwear. Our footwear is generally engineered with HEATGEAR® technologies and is light, breathable and built with performance attributes for athletes everywhere. Our footwear is designed with innovative technologies which provide stabilization, directional cushioning and moisture management engineered to maximize the athlete’s comfort and control. During 2009, we introduced our performance running footwear, as well as soccer cleats, which had a limited introduction at soccer specialty stores in the United States and Europe. We are developing new footwear categories, including basketball for introduction in the future.
Our baseball batting, football, golf and running gloves include HEATGEAR® and COLDGEAR® technologies and are designed with advanced fabrications to provide the same level of performance as our other products. Net revenues generated from the sale of baseball batting, football, golf and running gloves are included in our accessories category.
We also have agreements with our licensees to develop Under Armour accessories. Our product, marketing and sales teams are actively involved in all steps of the design process in order to maintain brand standards and consistency. Our licensees currently offer bags, socks, headwear, custom-molded mouth guards and eyewear designed to be used and worn before, during and after competition, and feature performance advantages and functionality similar to our other product offerings. License revenues generated from the sale of these accessories are included in our net revenues. We are currently developing our own headwear and bags, and beginning in 2011, these products will be sold by us rather than by one of our licensees.
Marketing and Promotion
We currently focus on marketing and selling our products to consumers for use in athletics, fitness and outdoor activities. We maintain control over our brand image with an in-house marketing and promotions department that designs and produces most of our advertising campaigns. We seek to drive consumer demand for our products by building brand equity and awareness as a leading performance athletic brand.
Our marketing and promotion efforts begin with a strategy of selling our products to high-performing athletes and teams on the collegiate and professional levels. We execute this strategy through professional and collegiate sponsorships, individual athlete agreements and by selling our products directly to team equipment managers and to individual athletes. As a result, our products are seen on the field, giving our products exposure to various consumer audiences through the internet, television, magazines and live at sporting events. This exposure to consumers helps us establish on-field authenticity as consumers can see our products being worn by high-performing athletes. We are the official outfitter of the athletic teams at Auburn University, Texas Tech University, the University of Maryland and the University of South Florida, and beginning in July 2010, Boston College. We are the official outfitter of numerous other teams, including the football teams at the University of Hawaii, the University of South Carolina and the University of Utah. We supply uniforms, sideline apparel and fan gear for these teams. In addition, we sell our products domestically to professional football teams and Division I men’s and women’s collegiate athletic teams. We also signed an agreement in 2006 to be an official supplier of footwear to the National Football League (“NFL”), a step we took to complete the circle of authenticity from the Friday night lights of high school to Saturday afternoon college game day to the marquee Sunday match-ups of the NFL. This agreement enables NFL players to wear Under Armour footwear on the field and enables Under Armour to reach fans at the highest level of competitive football.
Internationally, we are selling our products to European soccer and rugby teams. We are the official supplier of performance apparel to the Hannover 96 football club and the Welsh Rugby Union, among others. In addition, we are an official supplier of performance apparel to Hockey Canada and have advertising rights throughout the Air Canada Center during the Toronto Maple Leafs’ home games. We have also been designated as the Official Performance Product Sponsor of the Toronto Maple Leafs.
We also have sponsorship agreements with individual athletes. Our strategy is to find the next generation of stars, like Milwaukee Bucks rookie Brandon Jennings, U.S. professional skier and Olympic gold medal winner Lindsey Vonn, first round NFL draft prospect Dez Bryant, U.S. Olympic Snowboarder Lindsey Jacobellis, professional lacrosse player Paul Rabil, Baltimore Orioles catcher Matthew Wieters and UFC Welterweight Champion Georges St-Pierre. In addition, our roster of athletes includes established stars such as professional football players Brandon Jacobs, Devin Hester, Vernon Davis and Patrick Willis, triathlon champion Chris “Macca” McCormack, professional baseball players Ryan Zimmerman and Jose Reyes, soccer star Heather Mitts, U.S. Olympic and professional volleyball player Nicole Branagh, U.S. Olympic swimmer Michael Phelps, and professional golfer Hunter Mahan.
We seek to sponsor events to drive awareness and brand authenticity from a grassroots level. For example, we entered into an agreement with IMG Academies for the development of a unique, comprehensive athletic training platform that we believe will establish a global measurement standard for sports performance, health and fitness. In 2010, we will host over 50 combines, camps and clinics for many sports at regional sites across the country for male and female athletes.
We reach young football athletes at all levels by sponsoring American Youth Football, a football organization that promotes the development of youth; the Under Armour All-America Football Game, which is an annual competition between the top seniors in high school football; and the Under Armour Senior Bowl, which is an annual competition between the top seniors in college football. In addition, we are the presenting sponsor for the 2010 NFL Scouting Combine.
During 2009, we partnered with Ripken Baseball to outfit Ripken Baseball participants and to be the title sponsor for all 25 Ripken youth baseball tournaments, reaching 35,000 young athletes. In addition, we partner with the Baseball Factory to outfit the nation’s top high school baseball athletes from head-to-toe and serve as the title sponsor for nationally recognized baseball tournaments and teams.
We have been a sponsor of the ESPY Awards Show for the past several years and have used the national platform to launch our fall commercial campaigns. Additionally, we are the title sponsor of The Under Armour (Baltimore) Marathon and we have a strong brand presence at several other major running events across the country. We are also the title sponsor of The Under Armour All-America Lacrosse Classic, as well as the All-America games in softball and volleyball for elite high school athletes. We believe these relationships create significant on-field product and brand exposure that contributes to our on-field authenticity.
Media and Promotion
We feature our products in a variety of national publications such as Cosmopolitan, ESPN the Magazine, Glamour, Runner’s World, Shape, Seventeen and Women’s Health, and we also advertise regularly in several outdoor and sport-specific publications.
Our media campaigns run in a variety of lengths and formats and have included our signature “Protect this House” and “Click-Clack” campaigns featuring several NFL players. Our “Protect this House” campaign continues to be used in several NFL and collegiate stadiums during games as a crowd prompt. During 2007, we executed a major campaign called “BoomBoom-TAP,” which targeted the “team girl” demographic in an effort to establish Under Armour as the authentic athletic brand for female athletes who play team sports. Additionally, we have developed co-branded commercials with key retail partners to promote the brand. In May 2008, we launched our performance training footwear and introduced our brand and other products to additional consumers with “The New Prototype” campaign. This campaign also included a 60-second commercial during Super Bowl XLII in February 2008. During 2009, we launched our performance running footwear with a multi-platform “Athletes Run” campaign that highlights our point of view that all runners are athletes and all athletes run. Our ability to secure product placement in movies, television shows and video games has allowed us to reinforce our authenticity as well as establish our brand with broader audiences who may not otherwise be exposed to our advertising and brand efforts. In 2010, we are returning to a version of our signature campaign with “Protect this House.® I will.”
Retail Marketing and Product Presentation
The primary component of our retail marketing strategy is to increase and brand the floor space dedicated to our products within our major retail accounts. The design and funding of Under Armour concept shops within our major retail accounts has been a key initiative for securing prime floor space, educating the consumer and creating an exciting environment for the consumer to experience our brand. Under Armour concept shops enhance our brand’s presentation within our major retail accounts with a shop-in-shop approach, using dedicated floor space exclusively for our products, including flooring, lighting, walls, displays and images. Since 2006, we have reshaped 600,000 square feet of space dedicated to concept shops at over 750 locations of our major retail accounts.
Across our many retailers, factory house outlet and specialty stores we also use in-store fixtures and displays that highlight our logo and have a performance-oriented, athletic look. We believe our in-store fixtures and displays are exciting and unique. One example of our brand-building fixtures is our “Big E” mannequin, a life-size mold of Eric Ogbogu, a 6’4”, 275 pound former NFL defensive end and featured athlete in many of our brand campaigns. To target female consumers, we use a complementary mannequin, the UA WOMAN, modeled after the star of our early women’s brand campaign, Heather Mitts. These displays provide an easily identifiable place for consumers to look for our products and are intended to reinforce the message that our brand is distinct from our competitors.
We work with our retailers to establish optimal placement for our products and to have the brand represented in the many departments of our large national or regional retail chains. The fixtures and displays enable us to achieve placement of our products throughout stores by providing retailers with outposts to use in various store sections.
Our products are offered in over twenty thousand retail stores worldwide, of which nearly sixteen thousand retail stores are in North America. We also sell our products directly to consumers through our own factory house outlet and specialty stores, website and catalogs.
In 2009, 78% of our net revenues were generated from wholesale distribution. Our principal customers located in the United States include national and regional retail chains such as, in alphabetical order, Academy Sports and Outdoors, Dick’s Sporting Goods, Hibbett Sporting Goods, Modell’s Sporting Goods, and The Sports Authority; hunting and fishing, mountain sports and outdoor retailers such as Bass Pro Shops and Cabela’s; and The Army and Air Force Exchange Service. Our principal customers located in Canada include national retail chains such as Sportchek International and Sportman International. In 2009, our two largest customers were, in alphabetical order, Dick’s Sporting Goods and The Sports Authority. These two customers accounted for a total of approximately 30% of our net revenues in 2009.
In 2009, approximately 75% of our wholesale distribution was derived from large format national and regional retail chains. Additional wholesale distribution in 2009 was derived from independent and specialty retailers, institutional athletic departments, leagues and teams. The independent and specialty retailers are serviced by a combination of in-house sales personnel and third-party commissioned manufacturer’s representatives and continue to represent an important part of our product distribution strategy and help build on the authenticity of our products. Our independent sales include sales to military specialists, fitness specialists, outdoor retailers and other specialty channels. With the launch of our performance training footwear in 2008 and performance running footwear in 2009, we have expanded our distribution at the mall through national footwear retailers including Finish Line and Foot Locker.
Direct to Consumer Sales
In 2009, 18% of our net revenues were generated through direct to consumer sales. Direct to consumer sales include discounted sales through our own factory house outlet stores and sales through our specialty stores, global website and catalog. The majority of our 35 factory house outlet stores are located at outlet centers on the East Coast of the United States. Through our specialty stores, consumers experience our brand first-hand and have full access to our performance products. We opened our first specialty store in Annapolis, Maryland in November 2007 and opened three additional full-price specialty stores near Chicago, Illinois, Boston, Massachusetts, and Washington, D.C. during 2008.
In addition to generating revenues through wholesale distribution and direct to consumer sales, we generate revenues from licensing arrangements to manufacture and distribute Under Armour branded products. In order to maintain consistent quality and performance, we pre-approve all products manufactured and sold by our licensees, and our quality assurance team strives to ensure that the products meet the same quality and compliance standards as the products that we sell directly. We have formed relationships with several licensees for bags, socks, team uniforms, headwear, eyewear and custom-molded mouth guards, as well as the distribution of our products to college bookstores and golf pro shops. In addition, we have a relationship with a Japanese licensee that has the exclusive rights to distribute our products in Japan. In 2009, license revenues accounted for 4% of our net revenues. We are currently developing our own headwear and bags, and beginning in 2011, these products will be sold by us rather than by one of our licensees.
Our international revenues include net revenues generated in Western Europe, primarily in Austria, France, Germany, Ireland and the United Kingdom. In addition, international revenues include net revenues generated through third-party distributors primarily in Australia, Italy, Greece, New Zealand, Panama, Scandinavia and Spain, along with license revenues from our licensee in Japan. We believe that the trend toward performance products is global, and we intend over time to introduce our products and simple merchandising story to athletes throughout the world. In international markets, we are introducing our performance apparel, footwear and accessories in a manner consistent with our past brand-building strategy, including selling our products directly to teams and individual athletes in these markets, thereby providing us with product exposure to broad audiences of potential consumers.
Since 2002, we have had a license agreement with Dome Corporation, which produces, markets and sells our branded products in Japan. We work closely with this licensee to develop variations of our products for the different sizes, sports interests and preferences of the Japanese consumer. Our branded products are now sold in Japan to professional sports teams, including Omiya Ardija, a professional soccer club in Saitama, Japan, as well as baseball and other soccer teams, and to over two thousand independent specialty stores and large sporting goods retailers, such as Alpen, Himaraya, The Sports Authority and Xebio.
In 2006, we opened our European headquarters in Amsterdam, The Netherlands from which our European sales, marketing and logistics functions are conducted. We sell our branded products to First Division Football clubs and multiple cricket clubs in the United Kingdom, soccer teams in Italy, Spain, Holland, Ireland and Germany, as well as First Division Rugby clubs in the United Kingdom, France, Italy and Ireland. Refer to Note 16 to the Consolidated Financial Statements for consolidated net revenues for each of the last three years attributed to the United States and to other foreign countries.
Historically, we have recognized a significant portion of our income from operations in the last two quarters of the year, driven by increased sales volume of our products during the fall selling season, reflecting our historical strength in fall sports, and the seasonality of our higher priced COLDGEAR® line. During 2009 and 2008, a larger portion of our income from operations was in the last two quarters of the year partially due to the shift in the timing of marketing investments to the first two quarters of the year as compared to prior years. The majority of our net revenues were generated during the last two quarters in each of 2009, 2008 and 2007. The level of our working capital generally reflects the seasonality and growth in our business. We generally expect inventory, accounts payable and certain accrued expenses to be higher in the second and third quarters in preparation for the fall selling season.
Product Design and Development
Our products are manufactured with technical fabrications produced by third parties and developed in collaboration with our product development team. This approach enables us to select and create superior, technically advanced fabrics, produced to our specifications, while focusing our product development efforts on design, fit, climate and product end use.
We seek to regularly upgrade and improve our products with the latest in innovative technology while broadening our product offerings. Our goal, to deliver superior performance in all our products, provides our developers and licensees with a clear, overarching direction for the brand and helps them identify new opportunities to create performance products that meet the changing needs of athletes. We design products with “visible technology,” utilizing color, texture and fabrication to enhance our customers’ perception and understanding of product use and benefits.
Our product development team has significant prior industry experience at leading fabric and other raw material suppliers and branded athletic apparel and footwear companies throughout the world. This team works closely with our sports marketing and sales teams as well as professional and collegiate athletes to identify product trends and determine market needs. For example, these teams worked closely to identify the opportunity and market for our RECHARGE™ Suit, which is designed to stabilize muscle tissue and control post workout swelling to aid the body in repairing itself sooner to get back in the game faster.
Sourcing, Manufacturing and Quality Assurance
Many of the specialty fabrics and other raw materials used in our products are technically advanced products developed by third parties and may be available, in the short term, from a limited number of sources. The fabric and other raw materials used to manufacture our products are sourced by our manufacturers from a limited number of suppliers pre-approved by us. In 2009, based on estimates derived from our understanding of the sourcing practices of our third-party manufacturers, approximately 40% to 45% of the fabric used in our products came from four suppliers. These fabric suppliers have locations in Mexico, Taiwan and the United States. We continue to seek new suppliers and believe, although there can be no assurance, that this concentration will decrease over time. The fabrics used by our suppliers and manufacturers are primarily synthetic fabrics and involve raw materials, including petroleum based products, that may be subject to price fluctuations and shortages.
Substantially all of our products are manufactured by unaffiliated manufacturers and, in 2009, eight manufacturers produced approximately 55% of our products. In 2009, our products were manufactured by 22 primary manufacturers, operating in 17 countries. During 2009, approximately 60% of our products were manufactured in Asia, 18% in Central and South America and 17% in Mexico. All manufacturers are evaluated for quality systems, social compliance and financial strength by our quality assurance team prior to being selected and on an ongoing basis. Where appropriate, we strive to qualify multiple manufacturers for particular product types and fabrications. We also seek out vendors that can perform multiple manufacturing stages, such as procuring raw materials and providing finished products, which helps us to control the cost of goods sold. We enter into a variety of agreements with our manufacturers, including non-disclosure and confidentiality agreements, and we require that all of our manufacturers adhere to a code of conduct regarding quality of manufacturing and working conditions and other social concerns. We do not, however, have any long-term agreements requiring us to utilize any manufacturer, and no manufacturer is required to produce our products in the long-term. We have an office in Hong Kong to support our manufacturing, quality assurance and sourcing efforts for apparel and offices in Guangzhou, China to support our manufacturing, quality assurance and sourcing efforts for footwear.
We also manufacture a limited number of apparel products on-premises in our quick turn, Special Make-Up Shop located at one of our distribution facilities in Glen Burnie, Maryland. Through this 17,000 square-foot shop, we are able to build and ship apparel products on tight deadlines for high-profile athletes, leagues and teams. While the apparel products manufactured in the quick turn, Special Make-Up Shop represent an immaterial portion of our total net revenues, we believe the facility helps us to provide superior service to select customers.
Distribution and Inventory Management
We package and distribute the majority of our products through two distribution facilities in Glen Burnie, Maryland, approximately 15 miles from our Baltimore, Maryland headquarters. One facility is a high-bay facility built in 2000, in which we currently lease and occupy approximately 359,000 square feet. The lease term expires in September 2011, with two options to extend the lease term for up to four years in total. The other facility is a high-bay facility built in 2003, in which we lease and occupy approximately 308,000 square feet. The lease term expires in April 2013, with one option to extend the lease term for an additional five years. Beginning in 2008, we began to distribute our products in North America through a third-party logistics provider with a location in San Pedro, California and beginning in 2009 through the same third-party logistics provider in Medley, Florida. The agreement with this provider continues until December 2012. We also distribute our products in Europe through a third-party logistics provider based out of Tilburg, The Netherlands. This agreement continues until June 2010. We are currently considering our renewal options at this location. We believe our distribution facilities and space available at our third-party logistics providers will be adequate to meet our short term needs. We expect to expand to additional facilities in the future.
Inventory management is important to the financial condition and operating results of our business. We manage our inventory levels based on any existing orders, anticipated sales and the rapid-delivery requirements of our customers. Our inventory strategy is focused on continuing to meet consumer demand while improving our inventory efficiency over the long term by putting systems and procedures in place to improve our inventory management. We expect to achieve this by being in stock in core product offerings, which includes products that we plan to have available for sale over the next twelve months and beyond at full price. In addition, we expect to achieve our inventory strategy by ordering our seasonal products based on current bookings, shipping seasonal product at the start of the shipping window in order to maximize the productivity of floor space at our retailers and earmarking any seasonal excess for sales through our factory house outlet stores and liquidation sales to third parties.
Our practice, and the general practice in the apparel and footwear industries, is to offer retail customers the right to return defective or improperly shipped merchandise. Because of long lead-times for design and production of our products, from time to time we commence production of new products before receiving orders for those products. This affects our inventory levels for new products.
We believe we own the internally developed material trademarks used in connection with the marketing, distribution and sale of all our products, both domestically and internationally, where our products are currently sold or manufactured. Our major trademarks include the UA Logo and UNDER ARMOUR®, both of which are registered in the United States, Canada, the European Union, Japan and several other foreign countries in which we sell or plan to sell our products. We also own trademark registrations for HEATGEAR®, COLDGEAR®, ALLSEASONGEAR®, ARMOUR®, PROTECT THIS HOUSE®, THE ADVANTAGE IS UNDENIABLE ®, DUPLICITY®, MPZ®, BOXERJOCK®, our POWER IN PINK logo and other of our trademarks. In addition, we have applied to register numerous other trademarks including: RECHARGE™, ARMOURBITE™, and ATHLETES RUN™. We also own internally developed domain names for our primary trademarks and hold copyright registrations for several commercials, as well as for certain artwork. We intend to continue to strategically register, both domestically and internationally, trademarks and copyrights we utilize today and those we develop in the future. We will continue to aggressively police our trademarks and pursue those who infringe, both domestically and internationally.
We believe that the distinctive trademarks that we use in connection with our products are important in building our brand image and distinguishing our products from those of others. These trademarks are among our most valuable assets. In addition to our distinctive trademarks, we also place significant value on our trade dress, which is the overall image and appearance of our products, and we believe that our trade dress helps to distinguish our products in the marketplace.
The intellectual property rights in the technology, fabrics and processes used to manufacture our products generally are owned or controlled by our suppliers. As a result, our ability to obtain patent protection for our products is limited and we currently do not own any issued fabric or process patents. We focus our efforts on obtaining patent protection for what we believe to be strategic, new product applications in the marketplace. We have filed and will continue to file patent applications in connection with certain of our products that we believe offer a unique utility or function. In 2009, we were issued a utility patent for our COLDGEAR® Hood and a second utility patent for our DUPLICITY® Sports Bra, as well as several design patents for certain apparel and accessory products. We will continue to file patent applications where we deem appropriate to protect our inventions and designs, and we expect the number of applications to grow as our business grows and as we continue to innovate in a range of product categories.
The market for performance athletic apparel and footwear is highly competitive and includes many new competitors as well as increased competition from established companies expanding their production and marketing of performance products. The fabrics and technology used in manufacturing our products are generally not unique to us, and we do not currently own any fabric or process patents. Many of our competitors are large apparel, footwear and sporting goods companies with strong worldwide brand recognition and significantly greater resources than us, such as Nike and Adidas. We also compete with other manufacturers, including those specializing in outdoor apparel, and private label offerings of certain retailers, including some of our customers.
In addition, we must compete with others for purchasing decisions as well as limited floor space at retailers. We believe we have been successful in this area because of the good relationships we have developed and as a result of the strong sales of our products. However, if retailers earn greater margins from our competitors’ products, they may favor the display and sale of those products.
We believe that we have been able to compete successfully because of our brand image and recognition, the performance and quality of our products and our selective distribution policies. We also believe that our focused gearline merchandising story differentiates us from our competition. In the future we expect to compete for consumer preferences and expect that we may face greater competition on pricing. This may favor larger competitors with lower costs per unit of product produced that can spread the effect of price discounts across a larger array of products and across a larger customer base than ours. The purchasing decisions of consumers for our products often reflect highly subjective preferences that can be influenced by many factors, including advertising, media, product sponsorships, product improvements and changing styles.
As of December 31, 2009, we had approximately three thousand employees including approximately fifteen hundred in our factory house outlet and specialty stores and five hundred at our distribution facilities. Most of our employees are located in the United States and none of our employees are currently covered by a collective bargaining agreement. We have had no labor-related work stoppages, and we believe our relations with our employees are good.