2002: Business - Driver prices produce bargains, headaches

A walk through the aisles of golf stores today reveals premium drivers in affordable abundance.

A year ago, some of the game’s top brands sold their big sticks for $399 each. But now the same products – or similar high-performance drivers – can be purchased at a 25 percent discount, often for $299, sometimes even less.

Among the drivers available at bargain prices: TaylorMade 300 Series, Cleveland Launcher, King Cobra SS and Adams GT 363. And a few others – Callaway Hawkeye VFT, Wilson’s Deep Red and Orlimar’s hipTi – aren’t much more expensive at $329.

But what is a boon for consumers, some retailers and manufacturers say, isn’t necessarily a bonanza for them. Though lower prices might trigger more retail activity, industry leaders say the markdowns are the insidious result of several factors, all linked to a hypercompetitive market. And they fear such conditions could trigger a price freefall, cheapen some premium brands, ruin second-tier companies and mean lower margins for many.

In some cases, industry leaders virtually are engaged in hand-to-hand combat in the retail trenches, with one price slash countered by another, each trying to snatch marketshare.

In other cases, driver upstarts such as Cleveland and “comeback” companies such as Cobra have found success undercutting superpremium brands at the “magical” $299 pricepoint. Some manufacturers also are slashing prices to set up introductions of new clubs – something that is occurring much too frequently, some industry observers lament.

Product cycles, of course, are mandatory for the vibrancy of any industry, but their unnecessary acceleration can lead to upheaval, observers say.

Concerns about a hastening tempo surfaced again recently, in part because Callaway alerted Wall Street analysts that its performance could be hindered by the price slashing of TaylorMade; the latter lowered its 360cc and 320cc driver models to $299 and is discontinuing the 300cc model at a “closeout” price of $199. Such clubs are being cleared out for TaylorMade’s newest driver, the 500 Series, which is scheduled for a July debut, according to Callaway CEO Ron Drapeau.

“We’re happy at the prices we’re at, but we’ll be watching what they do. . . . Who knows what might come of it (TaylorMade’s price cut)?” he said.

That prompted yet another rendition of “he said/she said” between the longtime archrivals and Carlsbad, Calif., neighbors.

TaylorMade executives say Callaway lowered prices first – dropping its Hawkeye VFT in November as a prelude to the C4 composite-head driver launch earlier this year. They also hinted the unconventional C4 – which is receiving mixed reviews at retail – could be shortlived, prompting a price reduction and another driver debut sooner rather than later.

Drapeau scoffed at the notion, saying C4 prices were staying put. He said the VFT was lowered because “of the economy going in the tank” and “we were trying to assist consumers to get back into the market.”

TaylorMade’s early closeout “definitely hurts retailers,” he added. “It’s like having a pre-Christmas sale. No retailer wants that.”

But Mark King, TaylorMade’s president, defended his company’s actions.

Though product closeouts typically occur at the end of the season, King said the 300 Series has been in the market more than 18 months – longer than some competitors’ products – and is ready to be replaced. He also said repricing the 360 and 320 models gives TaylorMade a presence at the $299 price point.

“We are reading the marketplace and being quick and nimble,” King said. “We’re taking care of our own business.”

But that approach has raised the ire of some retailers, who blamed TaylorMade for leaving them in a lurch at a most inconvenient time. They accuse TaylorMade of “loading up” retailers – allowing them to buy more inventory upfront in exchange for deferred payment – with 300 Series clubs. That means retailers have had to endure price cuts on clubs – in some cases, even before their selling seasons have started.

TaylorMade has placated retail partners by offering “credits” to offset its price cuts. Others don’t seem happy about what they say is the company’s accelerating product cycle, but are resigned to its apparent necessity.

“TaylorMade has to maintain marketshare and sales. . . . In year two of a product’s life, they need some hook to pull it through, and that’s a price cut,” said Ken Morton Jr., director of retail at Haggin Oaks Super Shop, a major on-course retailer in Sacramento, Calif.

Other industry leaders say the price reductions are a result of faster product cycles without the benefit of technology breakthroughs.

“The need to meet numbers is producing products with limited differentiation,” said Jeff Harmet, Cobra Golf’s general manager. “That’s led to parity in performance and parity in prices. Why should you pay more for the same performance?”

It’s a trend that has led to a resurgence for Cobra, Harmet said. But no company arguably has prospered under current conditions as much as Cleveland.

Leveraging its market-leading position in wedges, Cleveland has combined its premium brand status with materials sourced from less-expensive, high-quality Asian foundries and products marked below those of superpremium manufacturers such as Callaway, Ping, Titleist and Nike. The result: Cleveland has nearly tripled its metalwoods marketshare at pro shops and off-course retailers combined.

“We’ve attacked the category pretty much the same way Lexus has gone after Mercedes,” said Greg Hopkins, Cleveland Golf’s president, who is one of the few reveling in today’s market dynamics.

“I think the Callaways and the TaylorMades have to worry about damaging their credibility with the consumer. . . . They don’t want to become like the computer industry, where consumers know if they just wait a few months, they can get a good deal,” Hopkins said. He said Cleveland is strong enough to compete with discounted products from the game’s top brands. Others, however, may not be as fortunate and may need to lower their prices even more.

“If TaylorMade is at $299 and Adams is at $299, who’s going to win that fight? Adams has to come down,” said one retailer who requested anonymity.

Though more price jockeying is expected, many industry observers say cries of a price freefall are greatly exaggerated.

“Anytime there is a significant adjustment that forces our average price point down we get concerned, because then we have to chase units,” said Fred Quandt, senior equipment buyer for retail chain Golfsmith International. “I think what you’re seeing, though, is a compression in prices, not a collapse.

“It’s not a crisis yet, but call me in 30 or 60 days.”

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