By ADAM SCHUPAK
Senior WriterEquipment makers and retailers are offering promotions, price cuts and new products to jumpstart what is fast becoming one of the worst years in a decade for the retail sector.
That grim conclusion – drawn by many leaders from the pro shop and off-course retail fronts – was further supported by recent quarterly results released by industry bellwethers Callaway Golf and Acushnet Co., which owns the Titleist, Cobra, FootJoy and Pinnacle brands.
For the second quarter, usually one of the strongest for equipment companies, Acushnet and Callaway cited double-digit declines in U.S. sales. (These setbacks, however, were offset partially by international sales gains.)
Retailers and analysts say consumer spending domestically has stalled over concerns about an economy wracked by foreclosures and soaring fuel prices. Adverse weather has limited rounds played in key areas, which also is affecting equipment sales, they say.
Another persistent complaint: USGA restrictions are hindering product innovation. In an analyst report on Callaway, Casey Alexander of New York-based Gilford Securities wrote: “The U.S. market looks like it could produce a year where equipment sales come in down 7 percent to 8 percent, which may not sound that bad until you judge it against 10 years of equipment sales that were plus or minus 2 percent regardless of what the economy was doing.”
Equipment makers and retailers agree golfers are postponing purchases. To spark sales, some manufacturers are cutting prices: Callaway has lowered its FT-i driver to $399 from $499, and its FT-5 to $299 from $425. From May to July, Callaway also offered consumers who purchased a driver a gift card to purchase as much as $100 of gas. Mark Marney, CEO of The Golf Warehouse, expects such incentives to become more prevalent during the second half of the year.
Retailers also are coping with consumers’ lukewarm reception to what was billed as the season’s new technological advance: adjustable clubs. They’re not writing off the new product altogether, but say the steep prices of initial offerings – as much as $1,000 for an adjustable driver – put off consumers.
Drew Pettengill, equipment specialist for St. Augustine, Fla.-based PGA Tour Stop, sums up the frustration expressed by several retailers: “There’s not a lot of sizzle right now.”
In some instances, the markdowns are meant to clear inventories for product launches, which increasingly are occurring in late summer or early fall. This year, such releases can’t come soon enough to generate some excitement.
Among the expected new gear: Titleist will introduce a series of new drivers; Ping will release an updated version of the Rapture line; and TaylorMade is unveiling a driver at the $399 price point.
Taking the practice a step further, Callaway officials say they intend to accelerate by several months the unveiling of some 2009 products. According to retailers and analysts, a new driver is expected to debut by year’s end to capitalize on the holiday shopping season.
Retailers also say they’re being hurt by shorter product life cycles. The growing practice of launching products in almost rapid-fire succession is conditioning consumers to wait, say six months, to buy a premium-priced driver because they know it will be marked down. That consumer behavior has become more pronounced during a sluggish economy.
“That mindset has come back to bite us,” Marney says.
Many of the above factors likely played a role in the sales declines reported by Acushnet and Callaway.
For the second quarter, Fortune Brands, Acushnet’s parent, reported the golf division’s net sales declined 5 percent to $452.4 million from $474.6 million in the same period of 2007. In the U.S., golf sales suffered a “low double-digit decline,” according to Craig Omtvedt, Fortune Brand’s chief financial officer.
Acushnet posted operating income of $68.1 million compared with $88.6 million for the second quarter a year ago.
A similar sales slowdown was experienced by Callaway. The Carlsbad, Calif.-based company reported second-quarter net sales fell to $366 million from $380 million – a 4 percent decline. But the sales dropoff was more significant in the U.S.: $176.1 million compared with $204.4 million a year ago, off 14 percent.
Broken down by products, Callaway endured its biggest sales decline in one of its strongest categories: Metalwood sales fell 24 percent to $86 million from $113.2 million a year ago.
For the three-month period, Callaway posted net income of $37.1 million, up 1.4 percent from $36.6 million.
Callaway CEO George Fellows underscored to analysts the improved bottom line – attributing that to prudent cost-saving measures – and maintained 2008 still will be prosperous. He says upcoming product launches will help Callaway reach the “higher end” of its full-year net sales guidance of $1.145 billion to $1.165 billion.
Fellows appears to be counting on “early adopters” to purchase the 2009 products now, which still would leave all other consumers who’ve resisted buying this year to unleash their pent-up demand next year.
In a recent conference call with Wall Street analysts, Fellows asked rhetorically: “Are we sacrificing 2009 (results) for 2008? The answer to that is an unequivocal, ‘No.’ ”
• • •
Adam Schupak is a
Golfweek senior writer. To reach him email
aschupak@golfweek.com.
Posted: 8/11/2008
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