2004: Mill River: Lower prices at what cost?

It sounds like a great deal: Pay your golf club an annual fee of slightly more than $100, and buy anything in your pro shop for as little as 10 percent over wholesale.

These deals, commonly referred to as Mill River plans, which are used by many golf clubs around the country, often are popular with members. But they fuel the animosity of many off-course retailers who can’t compete with Mill River pricing at neighboring golf clubs. And the slim profit margins that go along with selling for only slightly above wholesale make it difficult, sometimes impossible, to operate pro shops profitably.

“All it really does is screw up the marketplace,” says Mike Adams, an Arizona-based retail consultant who works extensively with green-grass retailers.

Mill River plans take their name from Mill River Golf Club in Oyster Bay, N.Y., which in 1964 apparently became the first club to adopt such a pricing policy. According to Gary Jorgenson, general manager of Mill River GC, club founder William Roach wanted to ensure a guaranteed income for his head professional. The club’s 270 members now pay $125 annually under the plan. “If they spend $500 or $600 over the course of the year, they’ll get their money back,” Jorgenson says.

About 14 percent of clubs have some sort of Mill River plan, according to a 2002 member survey conducted by the Club Managers Association of America. Mill River policies can be found at clubs across the country, though there are pockets where they’re concentrated, particularly in the Upper Midwest and the Northeast.

Controversy over Mill River plans arises, in part, because manufacturers such as Callaway Golf and TaylorMade-Adidas Golf require all their accounts – except Mill River clubs – to abide by unilateral pricing policies governing new products.

For instance, Callaway’s New Product Introduction Policy sets the retail price for its ERC Fusion driver at $499, while TaylorMade’s New Product Sales Policy dictates a price of $399 for the company’s R580XD driver. This year, Callaway’s policy covers 16 products, TaylorMade’s seven. If retailers who carry those products sell for less than the established price, they risk being dropped as accounts by those companies.

But Mill River clubs are specifically exempted from Callaway’s policy; TaylorMade’s policy doesn’t include a stated exemption, but the company sells to clubs with Mill River plans. (Callaway and TaylorMade officials declined to comment for this story.)

A prominent West Coast retailer says his “gripe” is that under these policies, “we are restricted from competing in our market.” And, he adds, “If a product isn’t selling, we don’t have the option of marking them down and moving them out.”

“I don’t think you should be able to break the contractual agreements that are set out to stabilize retail pricing by forming a private club within the club to get preferred pricing,” says Phil Upham, who operates four Edwin Watts Golf Shops in Massachusetts. But Mill River foes don’t necessarily limit their criticism to Callaway and TaylorMade.

Scott Peters, owner of Golf & Ski Warehouse, a three-store chain in New Hampshire, says he recognizes that manufacturers need green-grass exposure. But in selling to Mill River clubs, he says, all manufacturers “are educating the knowledgeable consumer that buying it at cost is OK.”

Green-grass shops account for only about 20 percent of equipment sales, but remain an important retail channel for golf companies. But some question whether premium manufacturers, who generally refuse to sell to mass merchants such as Wal-Mart for fear of seeing their brands tarnished by cut-rate pricing, aren’t sending a contradictory message by selling to green-grass shops that offer steeply discounted prices.

“Why would you as a manufacturer want to have your product sold in that atmosphere?” asks Peters. “And what is the incentive for me, as a good retail partner, to carry your product if you’re going to sell to those clubs?. . . To me, (Mill River clubs) use and abuse the privilege of selling your product.”

Mill River plans are a delicate subject for manufacturers, most of whom prefer not to discuss the issue.

“It’s really not on our radar, first and foremost, because it has to do with the selling price, which is an area we strictly stay away from,” says Pat Loftus, vice president of sales and marketing at Ping.

Mill River policies are the subject of much sniping from off-course retailers, but they also present potential headaches for the clubs that adopt them.

“The real downside for the club is that if they don’t buy right, how do they mark down from 10 percent over cost?” says George Whalin, president of Retail Management Consultants. “You just get killed. So they buy so conservatively.”

Indeed, Jeff Drimel, head professional at Rolling Green Country Club in Medina, Minn., says “leftover inventory is the killer.” At annual sales, he sometimes struggles to sell sale items for 70 percent off the wholesale cost – a big loss for him. Drimel says club members have strongly supported the shop, which he owns, during his nine years at Rolling Green. But he plans to ask members to review the plan when he discusses his next contract.

At Briarwood Country Club in Sun City West, Ariz., general manager John Kauffmann says inventory sells briskly, yet “the club probably subsidizes” the pro shop, where all merchandise is 20 percent above wholesale.

“If we have to move something at 30 percent off, it’s obviously going for less than we paid for it,” he says, though he adds that the Mill River policy is a useful tool in recruiting new members.

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