2002: Business - Retailoring TaylorMade
Three years ago, Jim Stutts surveyed all that which was his to rule.
Newly appointed CEO of TaylorMade Golf, he had inherited a $330 million-a-year company – one of the largest in the business. With distinctive copper-colored clubs and a populous consumer following, TaylorMade was a recognized brand in golfdom.
But Stutts didn’t revel over his apparent fortune. For he knew the truth.
TaylorMade’s quest for greater financial gain had caused the company to chase a broader audience with lower prices. That strategy was eroding the essence of TaylorMade’s identity and disenfranchising fervent, committed golfers who had helped the company flourish. It was only a matter of time, Stutts reckoned, before TaylorMade would cede ground to the game’s emerging mega-brands armed with an array of goods from apparel to balls – the likes of Callaway, Titleist and FootJoy, and deep-pocketed, ambitious newcomer Nike Golf.
What happened next arguably is one of the swiftest, most comprehensive, golf industry transformations in decades.
To survive, let alone compete in golf’s New Economy, Stutts raced through his “to-do” list and within the past 18 months, revamped TaylorMade’s entire product lineup, beginning with the launch of the 300 Series drivers and ending with last month’s debut of Tour Preferred RAC wedges. He tapped TaylorMade into parent Adidas’ global infrastructure, ratcheting up international sales, and bulked up his company to compete in all arenas, adding Maxfli balls and improving Adidas Golf apparel and shoes.
Now, with the unveiling of the R500 drivers this month, a reborn TaylorMade begins rolling out its “second generation” of products and can boast impressive, short-term results. For starters, a barrage of performance-oriented ads featuring a global stable of stars - including British Open champion Ernie Els of South Africa, Canadian Mike Weir, Japan’s Hidemichi Tanaka and Irishman Paul McGinley – helped the brand resonate with avid golfers once again. The 300 Series and its three iterations stole driver momentum away from Titleist on the PGA Tour and gained ground on Callaway at retail. That helped the company finish 2001 with $552 million in sales, up 24 percent from $446 million a year earlier. Operating profit increased to $64 million from $45 million in 2000 – a 42 percent gain.
“I think the numbers speak for themselves,” Stutts says.
But for all of its achievements, TaylorMade’s reconstruction cannot yet be hailed because it remains to be seen whether the overhaul will endure over time.
Though some industry observers and analysts say the transformation is durable and positions TaylorMade to become a truly global power, others insist the changes haven’t bolstered the company’s fortune as much as it appears. Critics go a step further, saying TaylorMade remains the “same ol’ company” that can’t get out of its own way. They allege TaylorMade’s been seduced yet again by corporate ambition, and has reverted to “chasing sales” at the expense of retail relationships.
Nearly everyone in the industry, including competitors, credit TaylorMade’s product re-engineering and use words like “outstanding” to describe the 300 Series woods. But the clubs’ commercial success domestically hasn’t matched the level of its accolades.
In May 2000, when TaylorMade was riding its Firesole and less-expensive SuperSteel drivers, the company commanded 16.9 percent of the U.S. metalwood market at pro shops and golf specialty stores. But by May 2002 – with the 300 Series in full swing – TaylorMade’s dollar share actually declined to 16.6 percent. The 300 Series irons haven’t lived up to their billing, fiscally speaking, either. In May 2000, the company reported category share of 9.8 percent; that figure fell to 6.8 percent this May.
“One could argue that the product they made in the ’90s is more playable for the masses than what they offer right now,” says Ken Morton Jr. of Haggin Oaks Super Shop, a major northern California retailer. “TaylorMade has fantastic product right now, but it’s better suited for the great player.
Their recent strategy has gained them greater visibility, but it may be alienating the masses. That’s the paradox that they’re facing.”
Some competitors say TaylorMade has traded more consumers at lower prices for fewer buyers at higher prices, producing a net gain of zero.
“The reinvention of TaylorMade covers up their stagnation in the (U.S.) marketplace,” says a rival executive who requested anonymity. “But I suppose treading water isn’t a bad thing. They may not be swimming closer to an island, but if they hadn’t done anything, they might have been drowning right now.”
Stutts dismisses notions that his company is simply staying afloat. He points out that TaylorMade’s metalwood share had climbed to 19.7 percent a year ago and says the lower recent numbers indicate the 300 Series is approaching the end of its product life cycle. Furthermore, he boldly predicts the new R500 will capture enough share to dethrone Callaway.
“By the spring of 2004, we will be No. 1 in metalwoods – fairway woods and drivers – in the U.S.,” Stutts says.
Although first quarter operating profit fell 23 percent, Stutts also forecasts strong 2002 results: $654 million in sales and operating profit of $75 million.
Many retailers, including Leigh Bader, owner of Joe & Leigh’s Discount Golf Pro Shop in South Easton, Mass., acknowledge that TaylorMade’s brand positioning is “light years ahead of where it had been.” But some are wary of the company’s high expectations.
“The customer today is not in a self-indulgent mood,” Bader says. “With the economy the way it is, and the threat of terrorism lingering, customers are experiencing buyer’s remorse even before they pull the trigger. I’ve never seen behavior like it.”
In addition, unanswered questions about the status of the U.S. Golf Association’s proposed high-COR rule and whether .860 drivers will be allowed in USGA events or state competitions are keeping serious golfers from making purchases.
“We have so much uncertainty in the world today,” Bader says. “Do we really need to have it in golf as well?”
Regardless of what the USGA decides, some retailers are still irate at TaylorMade for introducing the R500 when inventories of the 300 Series still remain high. Indeed, several have accused TaylorMade of “loading up” retailers with the older line as late as this spring and accelerating the R500 release so TaylorMade could continue posting impressive sales results.
According to sources, TaylorMade offered retailers deals that were too good to pass up: a chance to buy large quantities of 300 Series with numerous incentives, including a discount off the invoice, another discount for timely
payments and a rebate to help pay for local advertising. After they placed their orders, retailers allege TaylorMade “blindsided” them with news of the R500 summer debut, rendering their recent 300 Series purchases virtually obsolete.
“TaylorMade more than any other vendor in the business is a front-loader that designs all kinds of programs and incentives for the retailers to carry as much inventory as possible,” says a major retailer.
Other retail operators, however, downplay the still-simmering incident and say their peers need to be held accountable for their actions.
“I’m the one who writes the (purchase orders). If I’m heavy (with inventory), that’s my responsibility,” says Pete Line, vice president of Carl’s Golfland in Bloomfield Hills, Mich.
Stutts maintains many retailers are happy with the early R500 launch because it could stimulate the marketplace and generate sales for them. Furthermore, he says recent price reductions in the 300 Series not only help preserve the line, but offer retailers a lower TaylorMade price point to woo price-conscious consumers.
Though there may be issues with some U.S. retailers, TaylorMade’s distribution is stronger than ever, company officials say. In 1999, roughly 85 percent of accounts were off-course retailers, reflecting the company’s “bigger is better” philosophy of the time. It dismissed the smaller, yet highly influential pro shop. That’s no longer the case: on-course retailers represent 35 percent of TaylorMade’s accounts.
And by using parent Adidas’ worldwide distribution network, TaylorMade has boosted international sales to the level of U.S. sales. Three years ago, only 36 percent of the company’s business came from overseas markets.
If nothing else, TaylorMade’s transformation reflects Stutts’ global view of the industry and his belief that only a mega-brand can compete on an international stage. Which explains why he orchestrated the acquisition of Maxfli and invested in a makeover of Adidas Golf.
“Adidas-Salomon and Nike have the same mission statement, if you will, but we’ve taken very different approaches,” Stutts says. “Nike believes the ‘Swoosh’ should be in all product categories. . . . Adidas believes it is a powerful and strong brand, too, but in some categories we don’t believe it has the same authenticity.
“Within golf, we feel the same way. TaylorMade doesn’t necessarily work in all areas of golf. If we’re going to become the No. 1 golf company in the world, we need to attack the marketplace with a multibrand strategy. TaylorMade is where we focus on the equipment side, Maxfli is what we attack the ball market with, and Adidas performs quite well in the footwear and apparel categories.”
For now, Stutts’ theory leaves retailers and industry observers with an interesting case study in brand development. Some say the sum of TaylorMade’s parts will be greater than the whole; others contend that aside from cost efficiencies, such a compilation will yield few benefits, and promote little, if any, “crossover” loyalty among consumers of the three brands.
In other words, the jury is out. But Stutts and his management team, including top executives Mark King and Robert Erb, are convinced their game plan will work.
“This was a strategy we put together,” Stutts says. “We have stayed the course, and we will not deviate from it.”