Footwear’s big brands stride ahead
Tuesday, November 8, 2011
Golf executives rarely agree on anything, but on one issue, there’s little dissent: Consolidation is coming. For Jim Connor, it’s already arrived.
The president of FootJoy, like many of his industry peers, has bought into the idea that golf is consolidating around a handful of companies that will build dominant market-share positions across all product categories. That concept helped drive a wave of acquisitions and partnerships in recent years as manufacturers readied themselves for the long haul.
But in the footwear sector, consolidation already has occurred.
Two companies, FootJoy and Nike Golf, control more than 75 percent of retail sales, up from 64 percent only three years ago, according to Kissimmee, Fla.-based research company Golf Datatech. Fast-growing and well-funded Adidas Golf, a relative newcomer, is third at 6 percent. Furthermore, Nike officials note that the most recent wholesale numbers for these three companies are even higher, suggesting they are continuing to strengthen their positions in the category.
Said Connor: “This could be the future of golf right here. In footwear, we’ve already reached the 80 to 85 percent threshold among three brands.”
Launching a golf company is not necessarily difficult, but building a competitive brand, much less a dominant one, has become almost cost prohibitive for new entrants or small companies.
“It’s a difficult business, and if you’re not willing to dedicate human and financial resources against the category, it’s very difficult to compete,” said Paul Clark, Adidas Golf’s general manager.
Certainly, that’s the case in footwear, a category long ruled by FootJoy, which is now being chased by the world’s two largest athletic brands. Etonic, which was No. 2 in the mid-1990s, has seen its market share more than halved during the past three years. The brand has undergone personnel and strategy shifts since its acquisition in 1996 by Spalding, which now has new investors but recently had been hindered by a huge debt load.
Others, like Reebok and Mizuno, have the size to compete, but choose instead to focus on larger opportunities in apparel and hard goods, industry observers say. Value-driven Dexter, which has maintained a share of just under 5 percent, lacks the resources to make serious inroads. And Florsheim, which showed promise after its initial line introduction in 1997, opted to license its golf business in 2000. The reason? Sales accounted for less than 5 percent of corporate revenues – though the golf division was servicing almost as many accounts as the company’s giant street-shoe business.
Connor believes there always will be a place, albeit a small one, for niche brands like Bite, best known for its golf sandals. But he has seen various Seventh Avenue labels – the “flavor of the year,” as he refers to them – crash and burn thinking they could make a quick buck and a strong brand statement in this difficult market.
“It just astounds me how reasonably intelligent people can walk into this business, and all of a sudden they realize they’re in Vietnam,” Connor said.
Put aside the fact that upstarts have to compete against an entrenched leader like FootJoy, which has 65 dedicated U.S. salespeople and a market share that often resides north of 55 percent.
Footwear is a relatively low-margin business that requires an unusually high level of service. Consider this: FootJoy maintains enough inventory to ship retailers any of 5,000 styles and sizes throughout the year, and its average shipment is only two pairs. That means any competitor hoping to mount a challenge to FootJoy also has to maintain a large inventory.
Given that reality, the likelihood of a company making a run against the top three brands seems almost negligible.
“Because golf footwear is a highly specialized item, it almost begs for consolidation,” said Jim Dion, a Chicago-based consultant to retailers and manufacturers. “It becomes very difficult for a lot of manufacturers to be very good at such a small business.”
That won’t keep some from trying. Mike McAuliffe, director of Etonic for the past year, believes his brand will generate stronger sales in southern markets by moving new-product launches up to May, meaning shipments will begin around October. The company’s previous fall launches, said McAuliffe, meant “we were out of step with the rest of the market.” The product line also has been segmented into five numbered series – the low-priced 100s through the high-end 500s – to help consumers easily discern the features and benefits offered in each series.
He said retail accounts have responded positively to those moves, and his goal is to grow on-course sales 50 percent over the next two years. But Etonic has been in decline since the departure of respected industry veterans like Pat O’Grady, who retired after the brand was acquired, and Karen Pitts, who’s now at Dexter.
“Etonic suffered from the sale of the company, and the brand was left to flounder for awhile,” said Alan Whalen, president of Fiddler’s Green Golf Center in Eugene, Ore.
Regaining market share will be difficult for Etonic and others. When compared with competitors, FootJoy, Nike and Adidas have, by far, the greatest financial resources, the largest product-development and sales staffs, the biggest marketing budgets and the most tour players.
Adidas has invested heavily in the business. It recently increased its U.S. sales force to 33 and plans to add more in January. And its distinctive “three stripes” jump off the television screen when worn by such marquee players as Ernie Els and Sergio Garcia. Adidas has an aggressive goal of 20 percent market share by the end of 2004, and Connor, for one, views it as a formidable competitor.
“They’ve remained true to their brand roots,” Connor said. “They’re not pretending to be something they’re not. They’re an athletic brand, and they’re saying that golf is a sport.”
Adidas and Nike have been reluctant to chase business under the $50 price point because of slim margins and concerns that low-end merchandise will reflect poorly on their brands.
But both companies have hammered away at the sweet spot, defined as $79-$89 for women and $89-$99 for men, according to Mike Forsey, Nike Golf’s director of footwear and equipment.
The Beaverton, Ore.-based company, with total annual revenues approaching $10 billion, has made golf a priority since signing Tiger Woods in 1996. It also has become surprisingly nimble to address the paradigm established by FootJoy. In the mid-’90s, Nike tried to shift golf retailers to “futures” orders – that is, placing orders six months before the product arrives. This is how Nike sells more than 90 percent of its non-golf products. But retailers balked at making large up-front commitments.
“It stunted our growth,” Forsey said. “We heard (from retailers) that FootJoy is doing business this way, Etonic is doing business this way. If you guys want our business, you have to do it this way.”
Now Nike sells only 50 percent of its golf shoes on futures. It also has heavily promoted its use of waterproof Gore-Tex, a well-known component that used to be an Etonic staple. The result: Nike’s share has increased from 12.8 percent three years ago to 20.2 percent in July, and its shoes are now sold in more than 10,000 golf shops around the country. To continue growing, said Forsey, “We need to take share from FootJoy” by persuading retailers to carry more Nikes and fewer FootJoys.
Whether Nike and Adidas gain ground on FootJoy in the future remains to be seen. Having established market share above 50 percent, Connor believes FootJoy has a “critical mass that is very difficult to dislodge.”
Especially for upstarts or existing brands outside the top three.
“I don’t think you can part way do shoes or dabble in shoes,” Whalen said. “The shoe business is a major beast.”
Martin Kaufmann is an Edison, N.J.-based free-lance writer who covers the golf industry.