Brewer's blueprint: CEO takes Callaway back to roots
Wednesday, August 28, 2013
CARLSBAD, Calif. -- It took only six weeks for Chip Brewer to reach his breaking point.
Brewer, who became Callaway Golf’s chief executive officer in March 2012, had hoped to use his first two months at the company to assess his staff and the state of the business. “I was trying not to make too many rash decisions,” he recalls. But when Callaway’s R&D team laid out the 2013 fairway-wood strategy, Brewer had seen enough.
“I couldn’t stand it anymore,” he says now.
Alan Hocknell, Callaway’s design chief, recalls that Brewer “was a little flabbergasted” that there were no plans to launch hotter fairway woods. Brewer describes it as his “C’mon, man!” moment.
“Last year high-COR (coefficient of restitution) fairway woods were running the table,” Brewer says. “Callaway wasn’t even in the game even though we have always been a leader in fairway woods.”
Hocknell explained that innovation had been constrained under previous management because of cost controls. That answer didn’t satisfy Brewer, who has a disarming way of cutting through the clutter and honing in on the objective.
“He looked at me and said, ‘Do you know how to build a hotter one?’ ” Hocknell recalls. “And I said, ‘Well, yeah.’ And then he was even more surprised that we hadn’t built one.”
Brewer says he immediately “blew up” the 2013 fairway-wood line. Six weeks later – a blip in a normal product-development cycle – Hocknell’s team returned with prototypes for what would become the X Hot fairway woods.
The result was the company’s hottest-selling product and, Brewer hopes, the start of a turnaround that he was brought in to engineer. But long term, that episode might be even more significant for other reasons. Brewer quickly learned what his R&D team could do when challenged.
And Hocknell, in turn, learned that the new boss wanted to unleash the R&D team to innovate.
• • •
This reporter’s first memory of Brewer was a meeting in 2000 at Adams Golf’s headquarters in Plano, Texas. Adams had ridden a one-hit wonder, the Tight Lies fairway wood, all the way to Wall Street, only to crash-land after a disastrous public offering.
That day 13 years ago, some writers had convened for the introduction of a new line of Adams irons, which had steel shafts with graphite tips – a cool idea, but one that never gained traction. Brewer had been recruited in 1998 to run sales and marketing, but it was understood that he would succeed founder Barney Adams as CEO. On that day, however, Brewer sat at the corner of the conference table, not at the more commanding position on the end, and let colleagues lead the presentation. At the time, there was a general assumption around the golf industry that Adams Golf would join a growing list of equipment companies – Goldwin, Founders Club, Lynx, Orlimar, McHenry Metals – that had burned so brightly, only to quickly flame out.
Only that never happened. Brewer, a self-proclaimed “product geek,” gradually assembled a cracker-jack R&D team at Adams, led by Tim Reed, who recently joined Callaway.
Adams reshaped the hybrid category with innovative products and became a significant player in the metalwood market.
After hitting bottom in fiscal 2000 – posting a net loss of $37.2 million on sales of just $42.5 million – Adams returned to profitability in 2003, Brewer’s second year as CEO, and was profitable in all but two years of his remaining tenure.
Flash forward to May 2013: Brewer is sitting at the head of a conference table in Callaway’s headquarters, clearly in command. His office is across the hall, and in it is a large portrait of company founder Ely Callaway, who revolutionized the golf industry in the 1990s with his booming drivers, easy-to-hit irons and deft marketing touch.
But Callaway died in 2001, and somewhere along the line, the business he built lost its focus.
The company won a high-stakes bidding war for Top-Flite, only to lose millions over the past decade in its ball business before selling Top-Flite last year. It also bought and sold the Ben Hogan brand. It has licensed the Callaway name for apparel and footwear, with mixed results. And it dabbled in electronics with uPro rangefinders before turning over that business to a third party last year. All the while, neighborhood rival TaylorMade was kicking sand in
Callaway’s face, dominating the metalwood category and winning PGA Tour counts.
“Somewhere in and around there, we lost our ability to succeed in the core business,” Hocknell says. “When you strip all of those other activities away, the noise level subsides and you can get on with what you’re really good at.”
Brewer has sought to bring Callaway back on point. It hasn’t gone unnoticed.
“It’s really refreshing to have Callaway back in the golf business . . . (with) their focus on products and not the other peripheral stuff,” says Scott Peters, owner of Golf & Ski Warehouse, a four-store chain based in New Hampshire.
Mark Timms, founder of Cool Clubs, says he had sensed “a lot of frustration over the years” among Callaway’s staff and attributed it to a “disconnect between (previous) senior management and everybody else there.” On another Timms’ visit early in Brewer’s tenure, a change already was apparent.
Recalls Timms: “I really noticed a big difference in all of the people there, that they were pretty excited about having Chip there and having somebody in the golf business running it.”
• • •
Brewer laid down a marker with the X Hot fairway woods, but he didn’t stop there. Virtually every 2013 product was changed, many significantly.
The products that were scrapped reflected what Hocknell says was Callaway’s tendency “to manage its product strategy by spreadsheet.”
Before Brewer’s arrival, Hocknell says, there was a tendency to play it safe; products “were more revisions of things that we had before versus brand-new ideas.”
The X Hot irons, for example, were scheduled to be “derivative” of the Razr irons, with a focus on “distance control,” or accuracy, according to Hocknell. But he says Brewer instructed the team “to reclaim the distance mantle.”
“Chip set the standard that nothing should get out of R&D unless R&D is proud of it,” Hocknell says.
The rapid transformation of the product line wouldn’t have been possible without one of Brewer’s most important hires, operations chief Mark Leposky.
Soon after taking the job, Leposky recalls Brewer summoning him to a meeting to discuss the product changes. Leposky quickly had determined that previous Callaway products often were “overly cost-engineered while losing some performance benefit” – that is, innovations had been stripped from products if they were deemed too expensive to manufacture. Leposky’s message was, “We don’t have to settle for that.”
Leposky narrowed the supplier base, which allowed the company to gain greater control over manufacturing and quality control. He improved efficiency at the custom-club assembly operation in Monterrey, Mexico, which was known for shipping wrong products and making late deliveries. Over the past year, Brewer said, labor costs in Monterrey have fallen 45 percent per unit, and consumers receive 95 percent of custom orders within five days.
“They had so many issues for a while; they couldn’t get stuff out for a variety of reasons,” says Mike Clinton, chief operating officer of GolfTEC. “We’re not seeing any of that right now.” Clinton says his customers “again have Callaway in the consideration set.” That’s evident from a 29 percent jump in Callaway sales at GolfTEC this year.
Callaway also sold its Chicopee, Mass., ball plant and leased back a quarter of the factory, leading to a 49 percent productivity improvement.
Leposky, who talks about the supply chain as “a competitive weapon,” will be particularly important going forward because of Brewer’s plan to ramp up the pace of product introductions.
• • •
Callaway’s market share has begun to edge back up: On a recent conference call with Wall Street analysts, Brewer said hardgoods market share in dollars rose to 13.4 percent from 12.6 percent a year ago.
At Cool Clubs, Timms says Callaway’s “market share with us in fairway woods has gone up tremendously.”
Charlene Gallob, vice president of procurement for Troon Golf, a large course-management firm, says demand for the fairway woods “has been very high – beyond our expectations.”
The Callaway sales team, in turn, is paying more attention to its customers.
Timms says he didn’t even know Callaway’s previous regional sales manager, but has received three visits from the company’s new regional rep, talks with him regularly and finds him “very involved and very helpful.” That reflects Brewer’s emphasis, dating to his Adams tenure, on building strong retail relationships.
“Chip’s always been a great listener,” says Kerry Kabase, VP of purchasing at Edwin Watts Golf Shops. “When we met with him in the past, he spent a lot of time with his customers and was always picking their brains.”
• • •
Despite recent progress, Brewer and his team know their work has just begun. Harry Arnett, senior VP of marketing whom Brewer hired away from TaylorMade, talks often about the “five-year war” – not with other equipment companies, but rather “a full assault on our ways of the past.”
Arnett has pushed the company to be golf’s “most open and engaged brand” while maintaining its premium identity – a delicate balancing act.
He has placed a heightened emphasis on social media, favoring quick and direct conversations with consumers over slower, more-staged marketing campaigns. Arnett reasons that for every consumer who praises or criticizes Callaway’s products or marketing, hundreds more feel the same way. So none can be ignored. He also hopes to combat industrywide “consumer cynicism around new products” by talking directly with consumers.
The strategy has another benefit: Help erase a troubling perception of the brand.
“I think Callaway is more viewed as my dad’s company than my son’s company,” says Golf & Ski Warehouse’s Peters, though he notes that Callaway remains his biggest vendor, in part because he has a Callaway Performance
Center at one of his stores.
Brewer and Arnett agree with that assessment. Brewer says the Callaway he inherited was “still a great brand, significant in scale, but in danger of becoming a used-to-be, a has-been.”
Fifteen months into Brewer’s tenure, those concerns are abating. “A byproduct of this (social-media marketing) is that we’re getting a lot younger and connecting with a younger consumer group,” Arnett says.
That’s bolstered by Callaway’s strategy of signing some of the PGA Tour’s biggest hitters to underscore the renewed emphasis on the long ball. Young bombers such as Gary Woodland, Nicolas Colsaerts and Luke List recently joined the Tour staff, complementing Callaway’s marquee names, Phil Mickelson and Ernie Els.
For the first time in years, the trend is positive. To Hocknell, who joined the company in 1998, “That feels like the Callaway of old.”