PGA TOUR Superstore – Managed Growth in a Difficult Market

PGA TOUR Superstore hasn’t bought into all the doom and gloom used by some to describe the golf equipment industry. For them the glass isn’t half empty and in fact the Atlanta-based chain has been following a controlled plan of expansion to manage growth for the long term.

The opportunity for additional insight to this golf retailing success story came in an interview with Randy Peitsch, PGA TOUR Superstore’s Senior Vice President of Operations. Peitsch has been in the top spot guiding day-to-day operations for the past two years after a five-year stint as vice president in charge of hard goods prior to which he was in divisional management at Sports Authority.

We questioned Peitsch about how PGATSS can accomplish growth in an unfavorable golf retail environment.

“It begins with hiring really good people, training them and then backing them,” Peitsch responded. “We can then focus on the consumer experience. We are not in the transaction business. We are in the relationship business.”

Well said but it should be pointed out that for the past several years the golf equipment business has euphemistically been called a “difficult market” with several events adversely affecting both the makers and sellers of equipment.

Golf retailers of all sizes have closed including the 463-store Sports Authority plus Golfsmith shuttered most of their locations after being purchased by Dick’s Sporting Goods. Dick’s, the sports retailing behemoth with over 700 locations, has reduced store floor space allocated to golf though recent statements by top management indicate they may be encouraged with the prospects for increases in golf equipment and accessories, particularly their private brands such as Top-Flite.

Manufacturers too have struggled with the largest, Acushnet Holding Corp (NYSE: GOLF), making a tepidly received public stock offering in late 2016. The former Fila Korea subsidiary, maker of several of golf’s top brands including Titleist and FootJoy, reported flat sales in 2017 but an increase in net income of $47 million.

In May 2017 TaylorMade Golf, the third largest equipment maker, was sold by Adidas (OTCMKTS: ADDY) for a bargain-basement price to an investment company and in third quarter 2016 Nike closed its golf equipment division. Niche manufacturer Ben Hogan Golf filed for bankruptcy and during its recovery has opted for a consumer-direct strategy.

On the positive side the second largest equipment manufacturer Callaway Golf (NYSE: ELY) finished 2017 with 20% higher sales than the previous year mostly on the strength of its Great Big Bertha Epic line of metalwoods. Midsize manufacturers such as Tour Edge Golf, Bridgestone Golf and Cobra Golf also have said they did appreciably better last year and are looking forward to even more gains in 2018.

Many are saying we are seeing the first signs of some stability in golf retailing and certainly PGA TOUR Superstore is well positioned to take advantage. The company opened three new locations in 2017 for a total of 31 and number 32 opened in February with number 33 set for the Houston, Texas market.

Same store sales last year had a healthy increase of 15 percent plus overall sales increased 23 percent. Digging a little deeper there are even more signs of their expanding market presence:
-Black Friday 2017 same store sales up 20 percent and for the three-day Thanksgiving weekend up 15 percent
-Online sales for Cyber Monday increased an eye-popping 62 percent
-Customer club fittings topped 110,000 in 2017 and lessons hit almost 50,000
-Instore practice bays saw 100,000 participants during the year

Impressive, in fact very impressive, for a year when the number of U.S. golfers continued to decline. Golfer consumers are responding to PGATSS’s extensive inventory, competitive pricing and perhaps even more to the service they receive whether online or in-store.

A trip to PGATSS has been compared with a visit to Home Depot and it should be since the private-held PGATSS is part of the AMB Group one of the Blank family endeavors along with the Atlanta Falcons (NFL), Atlanta United (MLS) and Atlanta’s Mercedes-Benz Stadium. Family head Arthur Blank was one of the founders of Home Depot, retiring in 2001 as co-chairman.

Blank said of the success his stores have had in an uncertain retail environment, “At PGA TOUR Superstore we’re using the same philosophy that drove the Home Depot’s success and revolutionized the home improvement industry.  We offer a variety of products at value prices, incredible services and employ the best associates to provide a level of customer service that keeps visitors coming back because they love the experience.”

Most consumers acknowledge a visit to a PGATSS has a different feeling from the usual big box retailer. Employees invariably greet you and then thank you when you leave, an everyday example of customer relationship building. 

Peitsch pointed out, “We focus on the consumer experience. If we do everything the right way, we win out over the competitors.”

True certainly but beating the other guy also takes the proper pricing, inventory and profit margins.

According to Peitsch, “Margins have to be in the first sentence of any discussion and the partnerships with manufacturers are very important.” Then as if anticipating my next question, “The trend in our margins has continued upwards.”

Funds to pay for expansion must come from either borrowing or consistent profitability. Without the proper margins profits soon are nonexistent and discussing the entire business of PGATSS Peitsch made a critical observation, “Pay attention to the process and the results will come.”

Questioned about expansion plans Peitsch then said, “The cost of retail space drives the selection of new locations.” So, in addition to golfer demographics, brick and mortar economics dictate whether a site is viable or if even an entire market is suitable.

Peitsch commented that though they may be “under penetrated in the market we are the fastest growing and expect to open a store every other month, so we will have 50 by 2020.” That would be a 50 percent increase in just three years and average store size at the end of 2017 was 40,000 square feet making them the largest off-course retailer in golf in terms of average space.

It’s plain there is no “secret” to PGATSS success or maybe their secret is the relentless application of good business principles matched to an understanding of their customers.

Refreshing to say the least.

PGA TOUR Superstore – Bucking the Trend

In addition to a soft demand particularly for hard goods, golf retailing has had to endure some difficult times typified by the bankruptcy of Golfsmith, Sports Authority and Ben Hogan Golf plus Nike Golf’s decision to close its club and ball business.

PGA TOUR Superstores however, are bucking the trend. The Atlanta-based retailer is profitable and showing strong sales growth with an active program for adding new locations to the current 28. Three more stores are scheduled to open this year.

The company is privately-held by AMB Group, one of the family businesses of Arthur Blank that own the Atlanta Falcons football team, Atlanta United of Major League Soccer Team and the soon to be completed Mercedes-Benz Stadium in downtown Atlanta. Blank was cofounder of Home Depot, retiring in 2001 as co-chairman.

In an interview at the PGA Merchandise Show Dick Sullivan president and CEO of PGA TOUR Superstores talked about their success and plans for the future. Sullivan joined the company in 2008 after successful stints at both Home Depot and the Atlanta Falcons.

Brand identity is a must, especially in the competitive business of selling retail golf equipment, so we began by asking about the use of perhaps the best know name in golf, PGA TOUR. Sullivan responded, “We have a 50 year license with the PGA TOUR for the name and are very happy with the association with the Tour and in fact handle the e-commerce for them off their website. We want people to feel the link between us and the Tour as being real and important.”

Sullivan continued by saying he wants his stores to be high in wow-factor so when a golf consumer walks in the first time their reaction is “WOW!” because of the large amount of floor space, the interactive and brightly lit open layouts and well-stocked shelves.

With stores averaging over 45,000 square feet a big part of the growth has been realized by maximizing revenue whether in sales of clubs, apparel or services. We questioned how the revenue per square foot compared with other retailers and though he was reluctant to share specifics Sullivan did say that, “Revenue per square foot is up to double of other golf retailers.”

Experiential is the word the company uses to describe a visit and Sullivan said sales mix in a given store depends on the local market but, “Last year (2016) we gave 45-50,000 lessons so we have a strong presence in helping golfers get better.” Also interesting and somewhat unexpected is some locations sell more ladies’ apparel than men’s.

In 2016 PGA TOUR Superstores had over seven million customers and that will presumably grow in 2017 not only from same store growth but from increasing the number of locations. Sullivan expects to have 50 stores in five years so the rate of openings will be steady but not spectacular.

Realistically the growth into new markets and opening of new locations in existing markets is driven often by the cost of real estate. “It has to make sense for us and some areas [commercial real estate] are pretty expensive and it’s hard to make the numbers work,” Sullivan told me.

The almost mystical reputation of Home Depot’s customer service is a benchmark for Sullivan and the employees of PGA TOUR Superstores and this starts with knowing golfers and what they want and need. The connection is made through store employees.

According to Sullivan, “The employees on the floor who are closest to the customers are at the top of the PGA TOUR Superstore pyramid and the CEO is at the bottom. Employees tell us what we need to do.” They are the ones dealing with the golfers so they understand what the customer wants and needs.

He followed that comment quickly with, “If you do the right thing the numbers will follow,” which certainly is a refreshing change from the bean-counter orientation of some other operations.

Anecdotally, on a recent visit to the Orlando store to purchase some golf gloves the display rack had none in my size. When I asked a store associate if they had any he ran…ran mind you, to the back and returned almost immediately with what I needed.

I don’t recall ever experiencing that level of enthusiastic service much less physical exertion ever in any golf store, big box retailer or green grass shop.

On average PGA TOUR Superstores have 14 hitting bays with the latest swing analysis software and graphics along with custom fitting of clubs, club repair, re-gripping. “We run Saturday clinics for juniors to build the interest of youngsters in the game hopefully making them lifelong participants but also to engage the parents in a meaningful way with their children, the game of golf and our stores.”

So how is it working? As noted previously PGA TOUR Superstores is bucking the trend with continued growth and profitability and for example, “Some snowbound locations have to use beepers like in restaurants to notify when a practice bay is available which have swing analysis software. Each location has PGA Professionals on staff.”

When asked for a description of their ideal target customer Sullivan responded, “The avid golfer is of course first for us. We want them to find everything they want and for them to come back.”

From my experience it would seem a lot of golfers will be doing just that.

Images courtesy PGA TOUR Superstore