2003: Mass appeal
The next big thing in golf might not be what equipment you buy, but rather where you buy it.
Giant discounters like Wal-Mart and Target, which historically have been shunned by golf’s premium manufacturers, are increasingly showcasing goods from top-shelf golf brands. Already, Titleist sells its HVC balls to mass merchants, as they are often called, and Precept is considering opening an account with discounters, too. Spalding sells its Strata ball line at such locations, and this year is escalating its relationship by creating a set of clubs for discounters to sell exclusively.
For now, Callaway has tabled talks about selling its Warbird ball to mass merchants. But the sheer fact that such discussions were held within the company, which is renowned for its restrictive distribution policies, is a telling sign of the retail changes that are afoot.
Which raises the question: Will mass merchants soon gain the legitimacy that once belonged only to on-course pro shops?
Many industry observers say such an evolution is inevitable and cite a confluence of factors: the need for revenue growth in a weak golf market; the lack of breakout technology to ignite sales as titanium drivers did in the mid-1990s; the changing demographics of consumers who shop at stores like Wal-Mart and Target; and the natural evolution of the golf industry.
Eddie Binder, Spalding’s former marketing chief and now an industry consultant, believes manufacturers and retailers will be driven to expand their business relationships by their mutual need for new revenues. Manufacturers and retailers have been searching for the next technological innovation, to no avail. Through October 2002, Golf Datatech LLC, a Kissimmee, Fla.-based industry research firm, reported that year-to-date golf product sales in all channels of retail distribution lagged behind 2001 figures.
Binder believes that as discounters slow the opening of new stores, they’ll focus more on building same-store sales through “in-store destinations,” much as Target and Kmart have done in other product categories with lines from celebrity designers like Todd Oldham and Martha Stewart.
“And when that happens, they’ll potentially become more and more interesting to (the major brands),” said Binder. “The only question is when. We certainly won’t see it in 2003, maybe not in 2004, but it will happen. It’s just a matter of timing.”
Indeed, as new distribution channels emerged or existing ones adapted to market changes, the golf industry historically has adjusted. Thirty years ago, on-course golf shops represented something of a cartel, shielded from competition by manufacturers that did not open their distribution to other retail channels.
The rise of off-course specialty chains such as Edwin Watts Golf Shops busted that cozy arrangement, just as the powerful sporting goods chains that have emerged over the past decade have grabbed an increasing share of golf sales.
Mass merchants also are becoming more valuable to the industry because of the changing demographics of their shoppers.
Tom Gruger, Wilson Golf’s business director for balls, has done extensive consumer research on the discounters, which are important customers for his company. He was most surprised that these consumers “played a lot more golf than we thought,” he said. “The other surprise, and we’re seeing it in what the marts are stocking on their shelves, is a more upscale person is shopping in the marts.”
It’s a large, mostly untapped market. A former top executive of a major brand noted that sales of irons sets priced under $400 represent nearly half of the category market, and companies like Callaway and Titleist don’t even compete for that business – yet.
“Major branded companies are moving down into the market because they see a new consumer base that is buying there,” said Matt Adams, a consultant to Pro Select, a prominent mass-merchant club brand. “They see new and fresh money, and if they can hook them early, they can make them a customer for life.”
When Callaway Golf introduced its Warbird ball last year, there was industry speculation that the company would develop a Warbird subbrand that it would sell to mass merchants and sporting goods accounts.
Joe Urzetta, Callaway’s vice president of sales, said internal discussions centered around this question: “Would we ever want our brand there, and if we did, would we ever want to do it with the Callaway brand?” For now, Callaway has answered in the negative, and it has been reluctant even to open its distribution to sporting goods stores other than chains such as Galyan’s Trading Company, Dick’s Sporting Goods and Copeland’s Sports – stores that often have PGA pros on staff to assist shoppers.
Callaway, which has protected its green-grass and golf specialty retailers zealously, puts serial numbers on its clubs to prevent redistribution, and has tentative plans to do the same with its balls. But even Callaway might revisit the idea of selling to mass merchants.
Said Urzetta: “If we did consider doing it, it would probably be with golf balls only, and only select golf balls.”
This year Spalding will introduce a recreational line of Top-Flite clubs that will be sold in Wal-Mart and Target, as well as by sporting goods and golf retailers. The mass merchants will carry the Top-Flite Aero boxed sets – three woods, eight irons and a bag – that will retail from $199 to $249, along with individual putters, wedges and drivers ranging from $30 to $50.
The company used to sell clubs through mass merchants under the Spalding name, but got out of that business four years ago because “we weren’t making any money on it,” said Lou Tursi, executive vice president of sales, marketing and customer service. But Tursi said competitors like Wilson were quick to fill the void. This time around, he said, the company is convinced it can make a profit by maintaining tighter controls on inventory.
While many of its competitors have quietly begun to sell at least some products to mass merchants in recent years – a practice formerly viewed as taboo in the tight-knit golf industry – Spalding has openly and aggressively courted these so-called “downstairs” retailers. That’s not surprising. For the past four years, Spalding’s strategy has been set by Jim Craigie, a former senior Kraft Foods executive who is not wedded to the traditional ways of the golf industry. (Tursi, Craigie’s top lieutenant, also hails from Kraft.)
The mere suggestion that a premium golf brand would be sold through mass merchants used to be heresy – an affront to the 15,000 pro shops across the country and the hundreds of golf specialty stores that would be hard pressed to compete with discounters. Craigie didn’t share the golf world’s anti-discounter bias. And so Spalding announced in 2000 that it would offer its Strata ball line to mass merchants.
“I almost pray for the day when Wal-Mart decides to get serious about the sporting goods industry because it will help all the categories,” said Craigie. “They are huge, they merchandise well and they price well. So we decided, why should we exclude this major channel from having Strata golf balls?”
While Spalding took heat for that move, Tursi argues, convincingly, that his company was merely doing what competitors already had quietly started to do: open its distribution to mass merchants. “The difference,” said Tursi, “is that we publicly went out and said we were going to do this.” Titleist, in fact, had already begun selling its low-end HVC ball line to mass merchants.
“It used to be that you would never see the Titleist brand in Wal-Mart, period,” said Wilson’s Gruger, a former Titleist executive. The HVC introduction, he said, “was a major shift in the market.”
The reality is that the major brands already are prominent at the marts, though not necessarily by choice. A former senior golf executive estimated there are 40 “sophisticated” gray marketers, and many other smaller operators who redistribute products to mass merchants without the authorization of manufacturers.
Titleist, Nike and other high-end brands insist they are trying to intercept gray-marketed product, and are shutting down or suspending accounts caught engaging in the practice.
Still, visit your local Target and you’ll see the entire product lines of Titleist and Nike lined up next to the Strata product line. Gruger is among those who believe that the Titleist Pro V1, the gold standard in the current market, is Target’s best-selling ball.
Precept, hit by gray marketing of the popular MC Lady ball over past two years, is considering opening its distribution to at least one mass merchant, according to Stephen Graham, senior director of sales. Graham, though, describes it not as an attempt to increase sales volume, but rather as a measure to fight gray marketing.
“Hopefully, that would somewhat control it,” he said. “If we only (sell to) a certain chain, it might knock four or five out of the picture.”