PGA Show – Looking for Answers

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At this writing we are just over two months to the opening of the 2017 PGA Merchandise Show—in fact we are within 75 days. Open only to members of the golf industry it is the most important annual meeting in the business. Next year it runs from January 24th with a Demo Day held at the Orange County National Golf Center and ends on January 27th after three days of exhibits in Orlando’s Orange County Convention Center.

In particular those making and selling golf equipment will be looking for answers to the direction that part of the industry is taking.

Changes to the equipment OEMs and retailers have been coming at a rapid pace.

Dick’s Sporting Goods (NYSE:DKS) owner of Golf Galaxy has purchased bankrupt competitor Golfsmith and will leave just 30 of the Golfsmith locations open which clearly changes big-box retailing of equipment. At the same time aggressive competitors such as PGA Tour Superstore and Worldwide Golf Shops (owners of Roger Dunn Golf, Edwin Watts Golf, The Golf Mart, Golfers’ Warehouse, Van’s Golf and Unita Golf) are working hard to increase their share of the approximately $4.0 billion U.S. market.pga-merchandise-show-logo_2017

So one question is, how will the reduction in golf retail space with the closing of Golfsmith effect golf consumers, club OEM’s and the retailers themselves? Will the expansion in the number of locations by competitors compensate for Golfsmith’s loss and how will club pricing to golfers be affected?

Sales of clubs, balls, merchandise, greens fees, golf related travel and golf-front real estate values are all impacted by the number of golfers but with that number at best holding its own the business is not expanding.

Nike Golf’s exit from the club business has been projected to have minimal impact on the other OEMs but having said that Callaway Golf (NYSE:ELY) under CEO Chip Brewer has been very aggressive and is introducing attractive new products for the 2017 season. They reported a 6.9 percent increase in sales for the third quarter this year and project a substantial increase in earnings for the full year.

The other publically traded OEM Acushnet (NYSE:GOLF), makers of the best-selling Titleist golf balls, has just had its initial public offering of stock and said sales increased slightly (under 3 percent) in the quarter ending June 30 accompanied by increased profit. Acushnet also has a new line of drivers and fairway woods that are receiving good reviews.

The second largest OEM, after Acushnet, TaylorMade Golf is up for sale and has been for the past six months, evidentially with no takers. Owner adidas (OTC:ADDYY) said TMaG sales have been higher and for the first nine months of 2016 club and ball sales showed “double-digit increases” sales with higher profitability.

Other manufacturers such as Tour Edge Golf, Cobra Puma Golf and Srixon are also pressing to gain market share, albeit in a stagnant market, which means any increased sales will have to be at the expensive of another company rather than from market growth.

So the question is what will the future bring and the answer could be coming at the PGA Show. Not only will all of the new clubs and balls be available for evaluation but as significantly, industry insiders may be able to forecast which direction the market is moving. Millions of dollars ride on the decisions made.

The Times They Are A-Changin’—Bob Dylan

dyaln_640x400Though Bob Dylan sang the lyrics to The Times They Are A-Changin’ in 1964 to reflect the social unrest of the time he could have been singing about the golf equipment business today.

The trials and tribulations of golf equipment manufacturers and retailers have been well reported with Dicks Sporting Goods (NYSE:DKS) purchasing Golfsmith out of bankruptcy and Nike’s (NYSE:NKE) decision to withdraw from the club market receiving the most attention. At the same time two of the largest club makers are undergoing major changes.

Potentially the sale to the public of Acushnet, makers of the number one ball brand Titleist and the number one golf shoe FootJoy, will have an impact that could be more far reaching.

Owners Fila Korea Ltd. and an investment group led by Mirae Asset Private Funding purchased Acushnet from Fortune Brands in 2011 for $1.23 billion and will not relinquish their entire ownership in the initial public offering only selling roughly one-third of their shares. The prospectus also states the proceeds from the public stock sale will not be used by Acushnet to reduce debt or for product development but retained by Fila and the others.

Fila also has told Pulse News in Korea they have plans to purchase more shares, up to 50 percent, from other current shareholders to keep control of the company.

As a publically traded company Acushnet (NYSE:GOLF) will be making decisions differently than when privately owned. The pressure from investors will place them in the same position as every other public company. Quarterly results will be closely scrutinized and management decisions will be made in light of that attention.

In other publicly-held corporations long-term strategy may be compromised for the sake of short term profits. One of the most obvious areas of change could be the balance of profits retained by the company to fuel growth and the amount distributed to stockholders. It wouldn’t be the first time short term decision making overrode long term product development.

TaylorMade Golf owned by adidas is for sale and after six months no deal has been signed leading some to ask why. Adams Golf and Ashworth brands will likely be included in any deal. Adidas CEO Herbert Hainer said in May, when the possibility of a sale was being investigated, they wanted to concentrate on other divisions of the company with better prospects for growth. A reason essentially the same as that given by Nike in August when they decided to leave the club business.

It may or may not be significant but TMaG has not announced any new models for the 2017 season even though during late summer and fall all the other makers are introducing their latest. TMaG has the leading driver on the PGA Tour and has the largest selling iron model, the M2, on the market so it would be expected new clubs would be introduced at this time or at least an announcement there would not be new club models for 2017.

One interesting possibility is, if the Acushnet IPO is popular with investors, TaylorMade could be seen as a more attractive acquisition.

The Dick’s/Golfsmith deal for a reported $70 million remains to be finalized and as yet unresolved is how many of the Golfsmith stores will remain open and if Dick’s other specialty retailer Golf Galaxy will assume Golfsmith locations. Dick’s bought another competitor, Sports Authority, also in bankruptcy earlier this year.

Stay tuned. The Acushnet IPO is Friday the 28th, more news about TaylorMade’s fate will surely be coming and Dick’s decisions about Golfsmith will to a large degree set the pattern for big box retailers.

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David Hueber – “In the Rough”
By ED TRAVIS

David Hueber has been around the golf industry for four decades, a lot of the time holding very responsible positions including a stint as president and CEO of the Ben Hogan Company. This gives him a unique vantage point to view and review the industry from course operations to real estate development to the actual manufacture of golf clubs and his book tells some very interesting tales.

“In the Rough: The Business Game of Golf” relates Hueber’s journey in golf beginning as a caddie at the club where his father was the professional and where he learned to play well enough to get a scholarship to Florida State University. He describes his time on the FSU team as, “I played without distinction,” but it was enough to convince him though career as a touring pro may have been out of his reach he wanted to be in the golf industry in some way.

An entry level job with the National Golf Foundation gave him the chance to see the inside of course development, meet Karsten Solheim the founder of Ping and hear the stories of other golf equipment pioneers including Gary Adams of TaylorMade, Tom Crowe of Cobra and Ely Callaway of Callaway Golf.

These incidents are all interesting but when Hueber took a job working for Deane Beman at that time Commissioner of the PGA Tour his experiences become a lens to the changes in the golf industry. Best known as the head of Ben Hogan Company when it was owned by Japanese entrepreneur Minoru Isutani’s Cosmo World, Hueber also ran Pebble Beach as president of Ben Hogan Properties, another of Isutani’s companies.

Isutani preferred to stay behind the scenes but hit the news in an unfortunate way when it was revealed he sold Pebble Beach for $350 million less than he paid.

From this reviewer’s perspective there are two extremely interesting parts to “In the Rough” that will attract the attention of most everyone who loves the game. First is Hueber’s description of the comedy of errors and tragic misjudgment from which none of the participants came away unscathed, the “Square Grooves Controversy” between Karsten Solheim and the PGA Tour and the USGA. The offshoot of which almost 30 years later in his view is an ineffectual USGA reacting to changes in technology and struggling to control the performance of today’s golf balls and clubs. An unforeseen result of which are the 7,000 plus yards long real estate development dominated golf courses that are essentially unplayable by the average golfer.

Then there are the many enlightening anecdotes and stories of Hueber’s relationship with Ben Hogan, perhaps the most enigmatic and dominant players of all times, who still came into the office everyday even after selling out to AMF in 1960. Heuber even tackles an explanation of Hogan’s so-called swing “secret” which allowed “The Wee Ice Mon,” as the Scots called him, control like no other player over the distance and trajectory of his shots. This at a time of persimmon headed drivers and of rubber band-wound liquid center golf balls so lacking in quality control a player was fortunate to find three or four in a dozen that were round and would fly properly.

Hueber’s personal history is interesting but what makes “In the Rough: The Business Game of Golf” worth reading is the insight he provides to the events and some the biggest names in the game.

In the Rough: The Business Game of Golf
David Hueber
TCU Press
246 pp.
Paper with flaps. $32.50
eBook. $15.95

 

Tiger’s In – Nike’s Out

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He hasn’t put his game on display for over a year and his last PGA Tour win was in August of 2013 but the soon to be 41-year old has created lots of attention by saying he will play in a charity event October 10-11 followed by the Safeway Open October 13-16.

And the company whose clubs he has played since 2002 is getting out, out of the club, bag and ball business to concentrate on shoes and apparel.

Tiger Woods and Nike, inseparable in the minds of many, have had an amazing run together. Woods currently has 79 Tour wins with 14 majors (not all using Nike equipment) ranking second all-time in both categories. Nike though, was never able to come up with a category-defining club in spite of having on the payroll Tom Stites, one of the most respected club designers in the business. What they did however, with Woods under the most lucrative contract in golf, was become the number one golf apparel brand.

It’s no wonder, with the equipment business having at best a minimal-growth future, the decision to leave that arena was made.

Woods and other staff members, most notably Rory McIlroy and Michelle Wie, will continue to wear Nike Swoosh apparel so they will still have a huge presence in the minds of consumers. Golfers just won’t be able to purchase Nike clubs.

The effect the Nike withdrawal from selling equipment is uncertain but a good estimate is it probably won’t be very large. The golf division never had more than $800 million (last year $706 million) in sales but since the breakdown between hard goods and soft goods was not reported, actual club sales are unknown. They never approached a 10% market share in hard goods.

Some in the media are saying Nike’s problems are because Woods hasn’t been playing and that’s incorrect. Nike didn’t have market leadership or even contend for leadership when Woods was at his best, winning multiple times in a season. His presence on Tour alone never could generate the amount of business Nike wanted to dominant the golf hard goods sector but did help push soft goods to the number one spot.

Golf for Nike was a tiny part of their overall business, less than two percent, and several factors virtually preordained their decision. The small market share plus an industry where product lifecycles are measured often in months with relatively large development costs meant staying just didn’t make sense. It was obvious golf equipment had to go.

With Nike paying more attention to golf performance and lifestyle soft goods, the biggest impact could be seen by competing shoe and apparel brands Acushnet’s FootJoy, adidas and Under Armour. Adidas is also leaving equipment and selling its golf brands TaylorMade Golf and Adams. The other major player Acushnet, owner of Titleist, is in the process of going public which typically can create uncertainly in corporate decision making.

This could mean Callaway picks up the major portion of Nike club sales however large it was and undeniably Callaway has been on an upwards trend since Chip Brewer took over as CEO. Privately-owned Ping and others potentially could see a bump in sales as well.

With all that in mind, which clubs will Woods switch to now that he plans to compete and again chase Nicklaus’ record of 18 majors?

Well, it’s not clear he will switch at all and for sure not right away though Woods has said companies are sending lots of clubs to try out. He hasn’t played a Tour event since August 2015 and it’s unlikely he will make a club change soon. Additionally any equipment company paying the amount of money Woods can demand will want their logo prominently display on his cap and shirt so there’s an immediate conflict with his Nike apparel contract. Nike is worth several millions each year to Woods and the contract doesn’t renew until the end of 2018 so he’s not going to put it in jeopardy.

One thing is for sure, fan interest will continue as will the speculation about Woods as he tries to get back to being top of the Tour.

The Mistake Jason Didn’t Make

day_tmagJason Day is the world’s number one ranked golfer though Dustin Johnson with his superlative play this summer is gaining on him and a lot depends on the outcome at East Lake Country Club in two weeks at the Tour Championship.

However, that not the point of this column.

The point is to congratulate Day for not making the same mistake numerous other stars have made (including Payne Stewart after he won his first major) of switching equipment companies. Often what happens is though the star is being paid lots of money to play the new clubs, they don’t perform like the old clubs.

Many struggle for months if not an entire season trying to recapture the winning magic they had found in the old sticks.

Of course, as soon as winning a few tournaments or a major pushes a player higher in the golf consumer’s consciousness equipment makers line up offering significant monetary inducements to drop the clubs that made them famous and take on new ones.

Day hasn’t done that, in fact he had already re-upped with his club company TaylorMade Golf several months ago in advance of the contract renewal date at the end of the year.

What he didn’t continue was his contract with TMaG’s parent company adidas to wear their shoes and apparel.

Therefore the announcement he had signed with Nike to endorse shoes and apparel for a reported $10 million annually was not a huge surprise. Day not only will continue with TMaG for his clubs he can’t play Nike clubs since they dropped out of that part of the business last month.

So congratulations to Jason Day for not making a potentially disastrous choice.

SUPERMETAL & Kevlar – The Exotics XJ1 Driver

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Tour Edge Golf rolled out the Exotics brand in 2008 with the express purpose of utilizing technologies and materials that might not make economic sense for large club manufacturers since the need for higher pricing would limit sales. This idea has pushed the 30 year old company to an enviable positon of producing clubs of outstanding performance often pioneering manufacturing processes such as combo-brazing, a chemical bonding of the face to the club body rather than welding.

The new Exotics XJ1 driver brings together materials and construction techniques that Tour Edge says are designed to help the average golfer. Quoting President David Glod, “Most technologies of the past decade have benefitted players with higher swing speeds eliminating the majority of golfers. We have been developing the XJ1 driver for over four years, working on each characteristic of the club, moving critical amounts to weight around for the best results and waiting for the technology to catch up to our goal of bringing this extremely lightweight driver to the market which will benefit golfers with real swing speeds.”

The basic idea then, is a very lightweight driver that gives the average player the opportunity to create more clubhead speed along with the launch characteristics to produce more yardage.

Tour Edge first breaks new ground in the XJ1 by making the club body from a titanium alloy they have tagged as SUPERMETAL. This 9-1-1 titanium is significantly lighter than titanium used previously but with very high strength, two properties allowing the metal to be thinner and effect a 10 percent weight savings.

Glod made the point, “…no one has the SUPERMETAL, which allows us to shift a huge amount of the weight to the sole. The SUPERMETAL is also more elastic at normal swing speeds, which translates into greater spring from the whole body while keeping the CT [Characteristic Time, a measure of flexibility] normal.”

And the new ideas don’t stop there. The XJ1 crown is made of a Kevlar-carbon combination that weighs only 12-grams, saving more weight and lowering the center of gravity. Also since this material is stiffer it aids in producing more ball speed. Significantly, according to Glod, the center of gravity is below a line running perpendicular to the clubface producing a higher launch with lower spin.

In response to the question, is the advantage of Kevlar-carbon because it is lighter than the carbon fiber, Glod responded, “No, the Kevlar-Carbon in the XJ1 allows better stiffness producing a better sound.”

The face plate of thin flexible titanium is robotically laser bonded to the body giving two nice benefits, additional weight saving and a higher trampoline effect or C.O.R for more forgiveness. The sole has three tungsten weights and because of the weight saved in the body and crown, heel and toe bars for more stability and better resistance to twisting have been added. A draw ball flight tendency is enhanced by a replaceable tungsten screw near the heel of the sole with additional weights available.

With a 45-gram Fujikura Air Speeder R-flex shaft the total weight of the XJ1 is only 275-grams placing it in the ultra-light category so average golfers can swing it faster which means more distance. Even going to a stiff flex the weigh only increases by 10-grams.

The Exotics XJ1 will be in stores Nov. 1 with a choice of 9, 10.5 or 12 degrees loft for $700.

New From New Balance

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New Balance is known primarily for their high quality running shoes but they also make top notch golf shoes that have been tested and worn by this writer since their introduction. The company is based in Boston and among their worldwide manufacturing facilities are five plants in the U.S. that make more than 4 million pairs of shoes each year. This allows them to use the “Made in the U.S.A.”  label when over 70% of a shoe is domestically produced.

Golf shoes from New Balance were first seen at the PGA Merchandise Show in 2014 with six styles for men and women and since then the new player in the market has been able to effectively compete with the more established brands.

The latest from New Balance are the NBG2004 due to be at retail Sept. 15. These are good looking athletic-style golf shoes that don’t weight a lot (11.6 oz.) and have seven low profile cleats using the Champ Slim-Lok Zarma Tour system. The upper is waterproof microfiber and the NBG2004 makes use of New Balance’s REVLite midsole for comfort.

Designed with a wider forefoot that lets the wearer’s toes spread out for better balance, the instep is slightly lower to promote feeling of being “connected” with the ground to help with a more powerful swing. The PW-1 last also has a narrower heel for stability and a shallower toe area to lock in the front part of the foot. The upper is waterproof microfiber leather with plenty of support and a form-fitted tongue.

The REVLite midsole was first created as lightweight cushioning for runners and works similarly for golfers. There’s also a two year waterproof warranty.

The NBG2004 will be offered in three color combinations: White/Red, Grey/Blue and Black/Green. Suggested retail price is $119.95.

Olympic Golf – A Big Success…But

Park&Rose_Gold_640x480Olympic golf was a smash hit but will that success help to accomplish the goal of those who believe the inclusion in the XXXI Olympiad summer games could result in significant numbers of people taking up the game? Will the Olympics reverse golf’s decline in participation?

There is no question how much being on the Olympic stage meant to each of the 120 who played. It was an experience of a lifetime and each felt some of the magic of being on the world stage.

Got it. Understand it.

However, the cynic in me doesn’t get how the hoped for mystique surrounding golf returning to the Olympics will somehow solve the steady leakage of players from the game. All that was missing from the Golf Channel’s coverage was the shot of a kilted bagpiper marching over a dune into the mist at sunset playing “Scotland the Brave.”

One of the primary reasons, indeed the biggest reason, the push was made to again have Olympic golf was the worldwide exposure would somehow help “grow the game.” Well, golf is already a worldwide sport with a history of championship play older than the Olympics so if you’re looking to showcase the game an Olympic field of just 60 players is ridiculous.

If its exposure we’re after let’s have the best in the world playing, a Team USA and a Team Great Britain and a Team China competing together not as individuals. Excepting the final round, individual play turned both events into just one more 72-hole march. Hasn’t anyone heard of a two player scramble or alternate shot? Both could be done with the total score counting for four rounds maybe with one round of individual play.

Regardless even if those changes are made we are left with the sobering question. Will any of those who watched Olympic golf, perhaps seeing the game for the first time, take up the game?

It might happen but in any appreciable numbers is inconceivable. One interesting outcome worth watching though is the effect Shanshan Feng winning the Bronze will have in her home country of China where the population is more than four times the U.S.

Developing countries with their large number of non-golfers are said to have a great potential for new players but generally they struggle to feed and house their people. They certainly don’t have the money to create programs for newbies to say nothing of building golf courses. This would seem to make an insurmountable problem for all the “grow the game” folks.

By now we should have figured out people play golf for a variety of motivations stemming from their own character, social needs and culture plus of course that’s assuming they have the time and can afford it.

Golf in the Olympics changes none of those things.

Millions of us golf nuts were thrilled to see the competition and hope in four years it will be even better but thinking that Olympic golf is going to somehow cure the industry’s participation ills is unrealistic. It’s not going to happen.

 

One Less Slice to the Pie

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The golf equipment industry is evaluating the potential effects of Nike Golf announcing Aug. 3 it would getting out of the club, ball and bag business to concentrate on its golf apparel lines including ones under the Tiger Woods, Rory McIlroy and Michelle Wie brand names. Club manufacturers have spent the last several years trying to find ways to increase sales and now the slice of the pie that belonged to Nike is up for grabs.

The question is what the remaining club companies will do to take over Nike’s share of the market and if the strategy involves reduction in the prices of clubs to attract sales the golf consumer could benefit.

Nike is the smallest of the big four by a significant margin with sales of $706 million this past fiscal year trailing Callaway Golf ($844 million sales in 2015), TaylorMade-adidas Golf ($989 million) and Acushnet ($1.5 billion).

However the scrum for the sales that had been going to Nike will take place in a muddy field.

There is uncertainty surrounding the two largest companies. Acushnet, the parent of Titleist and FootJoy, has registered with the Security and Exchange Commission to make an offering of stock to the public. Adidas has put its TaylorMade Golf division with the Adams Golf and Ashworth brands up for sale though details of any potential deal are unknown.

Smaller companies are also making moves that add to the list of possible outcomes such as Srixon’s Cleveland brand changing focus to wedges and putters while Srixon and their upscale XXIO lines market woods and irons. Tour Edge Golf has increased efforts to further penetrate the market for irons with well received new models.

Undecided for now is the fate of Tour players who endorse the Swoosh clubs and the list starts with Tiger Woods, Rory McIlroy and Michelle Wie but also includes veteran Paul Casey and rising stars Tony Finau and Bruce Koepka. Woods has said he is actively looking for a new relationship with a club company with the mostly likely candidate could be Acushnet-Titleist since longtime rival Phil Mickelson is the chief spokesman for Callaway and the question marks surrounding the sale of TaylorMade.

Jordan Spieth endorses Titleist clubs and golf balls but is contracted with Under Armour for apparel.

Additionally, money paid to endorse a given club line has been put under close scrutiny by every manufacturer as profits have shrunk. The huge sums Nike has paid in the past for marquee stars are most likely not part of the equation. It has been reported Woods earns $50 million annually from Upper Deck, Rolex and Nike endorsements even though he has not played a single event in the past year. Woods’ Nike deal includes both equipment and apparel.

Three years ago McIlroy signed a 10-year deal for between $200 and $250 million according to published stories including apparel as well as equipment.

TGA Expands Into Clubs

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Joshua Jacobs is on a mission and the mission is to introduce children to golf. For a dozen years he and his company TGA Premier Junior Golf have been doing just that with a franchise business model tailor made for PGA Professionals and others interested in growing the game. The success of TGA has led to the introduction of their own line of clubs just right for youngsters beginning the game.

“Since 2003 TGA has become a leading expert on introductory and recreational junior golf instruction,” said TGA CEO, Jacobs. “By experiencing firsthand how juniors learn, swing and react to equipment, we have developed junior clubs that kids will find esthetically pleasing and well performing, which will further expand our expertise and credibility among our golf consumers.”

They didn’t create the clubs on their own but called on the background and knowledge of industry veteran Ross Kvinge of Plus One Sports who has experience with several top-of-the-line manufacturers. He is also the owner of a TGA franchise giving him additional insight into what children need and can best use.

The clubs themselves are designed expressly to make them easy to hit the ball giving juniors the satisfaction of seeing results they can feel good about. The driver for example has a very large clubhead and clubface to easily make contact and yet lightweight for young swings. Irons have weight moved from the hosel, where it doesn’t help performance, to the topline of the face to make a larger sweet spot.

From putter to driver TGA’s equipment uses technology that allows beginning and experienced junior golfers to excel.

Boxed sets have a choice of seven color coded sizes based the child’s height with right and left handed options for both boys and girls. Parents will like the price as well. Sets of three to six clubs with a stand bag and headcovers range from $89.99 to $149.99.

Also in the good news department, TGA will be offering a trade up program for families to keep their children fitted properly.

Additional information may be found playTGA.com.