Fernando H. Green Blog: Is the $500 Driver Bubble About to Burst?

By: Tony Covey

The May sales report for the golf equipment industry came out a couple of weeks ago, and what it shows could be cause for concern for both manufacturers and retailers.

While it’s a huge stretch to say that you stopped buying golf equipment entirely in May, it’s reasonable to say that you bought quite a bit less of it than most anyone in the golf industry thought you would.

We're told that hard goods (anything with a grip) sales from January through April were more or less flat on a year over year basis, which makes a sudden May (typically one of the most lucrative months for golf equipment sales) downturn all the more surprising.

How bad is it?

The numbers we were provided show that, industry-wide, unit sales of metalwoods were down nearly 30% on a year over year basis, while unit sales of irons for the same period dropped by roughly 20%. As you might expect revenues declined as well, again led by the metalwood category where dollar sales were off by more than a 22%.

In fact, every major hard goods category declined by double-digits on a year over year basis, and while apparel and footwear weren’t hit nearly as hard, sales in those categories also declined.

The golf equipment industry is evolving to a new model, and the consumer doesn’t appear to be embracing it.

So what happened?

The obvious and simple answer is that you, the consumer, took a sudden break from buying golf equipment last month.

The question that’s a bit harder to answer is why.

To get a better sense of what might be going on we checked in with our contacts on both the OEM and retail side.

The OEM Perspective

The OEM guys we contacted cited a list of potential culprits that includes many of the usual suspects; the weather, the economy, uneasiness over the election, fewer millennials taking up the game, and the ubiquitous market saturation, or more aptly, over-saturation, of the last several years.

Others pointed to more specific issues. $500 flagship drivers are out of many golfer’s price range, and with entry-level models now hitting shelves at $350 of more, there’s a legitimate lack of product, or at least new product, available at truly accessible prices.

It’s entire possible that the industry has started to price itself of it its own market.

Toss in things some companies have done to right their metaphorical ships – things like extending product cycles, improving inventory management, and ultimately offering substantially fewer discounts, and you’ve got a reasonable estimation of the source of the current problem.

For the moment, the days of slash and burn appear over. The industry is evolving (for real this time) to a new model, and the consumer doesn’t appear to be embracing it.

The Retailer Perspective

The good news from the retailer perspective is that it’s not happening everywhere.

One retailer I spoke with (might remember him from his Insider's Look at the State of Golf Retail) told me that his business is up 6% from last year, but the drop doesn’t surprise him. He attributes his growth to focusing heavily on two brands, mixing in a little bit from two more, and carrying little to nothing from anybody else.

In his estimation, if the industry lost 3 or 4 OEMs it probably wouldn’t be a bad thing for the overall health of the market.

Another retailer told me that while his metalwoods numbers are down, his profits in the driver category are level, and fairways and hybrids aren’t off as by nearly as much as the market as a whole.

More encouragingly perhaps, his iron and wedges sales are actually up by 5%, which he largely attributes to strong sales of PXG.

That retailer, who spoke on condition of anonymity for fear of industry reprisal, places blame squarely on the OEMs and the changes many have made to both the timing and frequency of their releases.

“Releasing products in September through December is terrible for the seasonal market no matter what the OEM’s forecasts show. I don't know how many times we have begged them to go back to the old release-it-at-the-show days. New product in September does not stimulate sales, and by the time spring rolls around the buzz is gone.”

The same source also cited longer release cycles, new product that’s barely distinguishable from the previous generation, and a general lack of innovation as contributing factors to the decline.

“With the golf market being 9% of the population, to be realistic, once you have a hot product and it has been out for a while, the market is saturated. You need to stimulate growth with some new innovation.“

Our Theory

After talking with retailers and the guys inside the OEMs, and of course reading through your comments on our stories over the last year, we believe that while weather and other macroeconomic factors may have contributed to the dip, higher in-line prices coupled with a substantially fewer discounts likely account for the bulk of the explanation.

It’s possible, even likely, that some manufacturers believed that a sparse discount market would encourage more consumers to pay full retail price. Instead it appears a good number of you may be content to wait it out.

Eventually everything goes on sale, right?

Should the OEMs be concerned?

The short, and perhaps most accurate answer is that it’s really too soon to know. It’s important to note that we’re talking about a single data point, one month, a blip if you will, but nevertheless, it’s a fairly big blip on what has been a relatively clear, or at least consistent, screen.

While June’s numbers (due mid-July) will likely provide some clarity, one OEM insider believes we’re seeing a redefining of what a healthy and profitable equipment industry looks like.

Simply put, this could be the start of a new normal.

If we are on the edge of a downturn the timing is potentially more disruptive for some than others. Acushnet (Titleist/FootJoy) is preparing for an IPO, adidas is working to sell TaylorMade, Adams, and Ashworth, and some smaller OEMs are struggling to maintain business in a changing – and potentially shrinking - market.

If the June report shows a return to expectations, there’s no reason to think the new business as usual won’t continue. If, however, a second blip suggests the beginning of a trend, some may again resort to discounting to help ring the register and boost revenues, while others may find company survival threatened.

Blip or trend…we’ll know in a few weeks.