The Failure of Golf Retail
The Failure of Golf Retail
The last year has seen a significant downward shift in the business of golf retail and manufacturing. Golfsmith, a long standing off-course golf retail store, was purchased from bankruptcy by Dick’s Sporting Goods and will be closing 59 stores nationwide. Nike Golf announced in August that it will no longer be manufacturing hard-goods, meaning that the more than $20 million per year contracts of Tiger Woods and Rory McIlroy will no longer require them to use the company’s equipment. Adidas has been looking for close to a year to sell Taylor Made, the largest golf equipment company in the world. Cleveland Golf will no longer be manufacturing clubs except wedges and putters; its parent company Srixon will instead exclusively produce irons and woods. Ben Hogan Golf Clubs, once an industry titan that closed when purchased by Callaway a decade ago, attempted to re-open with new owners, only to be forced to re-organize because of lack of profits. What are the causes behind these decisions and what is the future of this portion of the golf industry?
The Failure of the Golf Merchants
For years the off-course golf retail store has been on the decline. Small cities with little golf population were once able to support these stores, as the retail industry was strong and online shopping had not become prevalent. Stores such as Golf Day, Golftown, Edwin Watts, and small independent stores were able to thrive because they offered large variety and the shopping experience that large retail chains outside of golf had perfected. This was the start of the deterioration of green-grass pro shops, which I will talk more in-depth about later. With the growth of big-box sports retail stores, such as Dick’s Sporting Goods and Sports Authority, the demand for shopping at smaller stores was negated in favor of convenience. This phenomenon was not just limited to the golf industry, as many stores that specialized in one sport were forced to close or sold to the big-box stores. By purchasing these smaller stores, companies were able to become a larger force within the close-knit golf industry. An example of this, Dick’s Sporting Goods was never allowed to carry Ping or Titleist clubs until they purchased Golf Galaxy. In addition to doing business with new companies, these stores were able to buy product in such large volumes that they received significant discounts and could sell products at lower prices than their competitors. Black Friday deals such as two Cleveland Wedges for $100, when they normally retailed for $125 each, drove customers to the large stores and away from the smaller ones.
Simultaneously, the rise of online shopping grew significantly worldwide. The search for the best deal became more important than the search for the best customer service. The growth of information available online created the sense of every golfer becoming an expert or was able to hear the opinions of other players. Currently, even online retailers are facing competition from the club companies themselves. With ease, manufacturers have set up online shopping sites, which sell clubs for the same or better prices than retailers. Cutting out the middle man means larger profits for the manufacturers. (As a side note, the purchasing sites produced by manufacturers are currently terrible. They don’t offer as many details on their own clubs as other sites do, yet.) Gone is the knowledge offered by qualified professionals. All of these factors led to pro shops at golf courses, run by a PGA Professional, no longer being the dominant force within the golf industry. With larger chains now demanding that golf equipment companies form to their business model, manufacturers were required to produce new products more often, while maintaining lower prices. This model, while fine for items such as sneakers and clothing, does not equate to golf. Clubs do not wear out quickly with use, become out of fashion with a new season, nor are at a low enough price point to entice a new purchase frequently. Even for the more economically secured clientele, the thought of a new $400 driver each year is a tough sell, but more on the failures of golf equipment companies later.
In order to reduce their costs, retailers began to hire staffs that were not qualified to sell these new products. During this time period, there was a drastic increase in the amount of customers that were having golf clubs properly fit to their swing. While most staffers did have at least some knowledge of the products there were trying to sell, almost none were properly trained in how to fit the customer for the correct length, lie, loft, shaft flex, or grip size of a golf club. Dick’s Sporting Goods drastically decreased this knowledge base by laying off all of their PGA Professionals and Apprentices in 2015, resulting in over 500 professionals looking for work.
The failure of off-course golf retailers is simple: treating golf like it is other sporting goods does not work. It has led to an increase in products available in the marketplace, increase in production costs, less skilled employees trying to sell products they do not understand, and a premium being placed on price not quality.
Failure of Golf Equipment Manufacturers
Throughout golfs history, there have been an abundance of companies that produced golf clubs to the general public. The number of start-up companies that produced a hot new item, only to shutter their doors within a few years, have reached into the dozens over the last decade. Every manufacturer will list different reasons for their failure, but some on the most common are: lack of quality control, counterfeit clubs, no presence on professional tours, paying too much for tour players, and no presence at green grass facilities.
The first two problems, lack of quality control and production of counterfeit clubs can be attributed to all clubs being produced in large quantities overseas. Currently, there are only three factories worldwide that produce golf club heads for mass production. This means that it is not uncommon to see clubs from TaylorMade being created on a production line next to those from Callaway. Thus, also creating a market for “tour-only” clubs that were produced on a small-scale at the company’s headquarters in the United States. With the exception of Titleist, which launches new products in the fall, all other manufacturers create new clubs for a spring release, generating a time of peak production for these factories. When they are not producing clubs, these factories will produce counterfeit clubs that look like those sold for many hundreds of dollars more in the United States. These clubs are of terrible quality and not even close to the actual products they are supposed to represent. To the untrained eye or the beginning golfer who has not become accustomed to how a club should feel, the difference is negligible. These clubs flood online markets like eBay and bring new meaning to the phrase “if a deal seems too good to be true, it probably is”. Larger equipment companies like Acushnet (parent company of Titleist, Footjoy, and Pinnacle) have a staff devoted to finding these counterfeit products and making sure they are not passed off for the real thing; even going as far as to have a room at their headquarters filled with the fake clubs so they can study them. Counterfeit products are not uniquely a golf industry problem and like small companies in other sectors, the legal costs associated with fighting the problem can be astronomical. The counterfeit club industry is currently valued at more than $1 billion annually.
Getting clubs in the hands of touring professionals is another problem altogether. Tour players are usually under contract from a manufacturer for every club in their bag. Those who are not, are paid on a weekly basis just for putting a club in play. Often the only way to get a player of this caliber to even try a club is to have a tour staff that travels with the tour from week to week to perform any task the player should request. Paying for a staff, travel expenses, and a tour van is a large overhead cost. This does not take into account the actual cost of paying a player to use the club, which is usually over $1000 per week.
At the green grass level, getting courses to bring in a product has become increasingly difficult. Courses are under greater pressure to produce exceptional profits at a time when players have larger shopping options than before. (See stand-alone golf retailers.) This has led to a decline in PGA professionals owing their own shops and clubs taking responsibility for their shops. A few months ago I visited my home course during college and was shocked to see how little was in the golf shop. When I started working there in the fall of 2004, a new pro shop was being built, as the old one was too small to effectively sell merchandise to members and guests of the 36-hole facility. The amount of goods that were being carried recently would have easily fit into the old shop with plenty of room to spare. The owner of the golf shop was the same, but despite his heralded skills as a merchandiser (PGA award winner), he was not able to compete with online shopping. The only products he kept in stock were out-the-door items (balls, gloves, tees, etc.) or those which had the club or officially licensed logo. (The club is owned by Syracuse University.)
As an industry, it is now safe to say that golf shops are beyond the curve of trying to maintain healthy sales of clubs within their shops. The first reason why is not necessarily a bad thing, but did lead to pro shops no longer carrying large amounts of clubs. With advances in technology, club fitting has become more important than ever before. Clubs are not just fit for length, lie, and flex, but can be optimized to produce the correct amount of spin, launch angle, carry distance, etc. This is achieved through proper fittings of face angle, shaft weight and dynamics, and any number of other options. These fittings meant that there is no such thing as a “stock” club anymore. Retailers must find the perfect club setup and order it from the manufacturer for the customer as it would be impossible to carry clubs that fit everybody. This puts added pressure on the equipment company to have all components in stock so a club will not be delayed in shipping to the customer. An example of how a company can be affected by having to carry too many components is Ben Hogan Golf. When it was announced that Hogan was coming back to golf, many were excited for the return of clubs that were well made and not gimmicky. To set them apart from the competition, Hogan got rid of the traditional numbering system for golf clubs and created clubheads for each individual loft from 20 to 64 degrees. Placing a greater emphasis on fitting also required potential customers to go through a longer fitting session to get the proper set. While every PGA Professional would say this is the correct way to fit clubs, it also eliminated any chance of a quick sale to a customer.
The second reason stems from what was mention earlier about big-box retailers trying to sell golf clubs like shoes; product cycles are too short. In some cases (cough*TaylorMade*cough), the product cycle for a club is less than a year, with new products offering little, if any, improvement over the previous model. By creating new products more often, both the manufacturers and retail stores were forced to decrease their profit margins on each new club and in many cases lose money if the product was not successful. An example of this was the last driver released by TaylorMade under the “r7” product line. The driver was released to golf retailers on November 1, 2008 and was replaced by the much more advanced “r9” on March 3, 2009. By the end on April, the “r7” was available for purchase at Costco. After several years of such a practice, equipment manufacturers are starting to receive blowback from retailers, with many refusing to carry certain company’s products. Even those that have been successful with a company like TaylorMade will tell you that they are a pain to deal with and are often coerced into selling certain clubs. Such practices include sending out Visa gift cards to PGA professionals, allowing customers to upgrade to new clubs for free, and larger discounts for pre-booking equipment. For years, professionals at the club level have been retained to represent only one club manufacturer. Being on staff with a company essentially buys allegiance, but also comes at a large cost. From personal experience, being on staff with Nike Golf for four years, carrying $25,000 worth of equipment (clubs, balls, bags, apparel, etc.) in the golf shop netted me $3,000 worth of equipment each season, drastically cutting into profits for the company. Such practices have been scaled back significantly over the last few years. Despite efforts from both manufacturers and retailers to keep things the way they were, golf clubs sales are no longer going to be dependent on the PGA Professional or their presence at a golf course.
The Future of Golf Retail
While like any industry, there will always be trends that are tough to predict, it is a safe bet that golf companies will never again produce the same amount of clubs they did during the “Tiger Boom” of 1999-2009. PGA Professionals and their golf shops will never sell the same amount of clubs as they did before the internet revolutionized shopping. The cost of golf clubs will continue to grow in the coming years as the overhead costs of marketing, labor, and materials continues to increase. The future does look bright for you as a golfer. You can now get equipment that is perfectly fit to your game and realistically help you increase distance and accuracy. You have more choices of where to shop and can demand better customer service. You will be the beneficiaries of companies continuously trying to beat each other.
Change within the industry has already started to take hold with companies like PXG. Parsons Xtreme Golf is charging marginally higher amounts for golf clubs ($500 vs. $400 for a top-of-the-line putter), but is guaranteeing that they will not replace it unless they come up with something truly better. Company Founder Bob Parsons (who also founded godaddy.com) has created a long term goal of being profitable and doesn’t mind initially losing money to produce clubs that actually work. Such a practice has resonated with many in the industry and has led PXG to growing at an even faster pace than originally planned. Other established companies within the golf industry are following this example and will no longer force products out the door simply because they can.
In closing, while the last year has been bleak for golf retail, it is the necessary correction before the market improves again. Think of it as the mortgage crisis of 2008. Golf retail will stabilize and start to grow once again, hopefully not repeating the mistakes of the past.
-Ryne W. Varney, PGA, CGFI