In business you can go out with a bang and a whimper. The
whimper was heard from Lynx Golf last summer when the parking
lots around its Carlsbad, Calif., headquarters emptied for the
last time. The bang--of an auctioneer's gavel--came on Jan. 20
when the company's physical assets and fixtures were sold. The
once ubiquitous advertiser of Boom Boom drivers is no more,
lingering, in name only, as a house brand for the Golfsmith
chain of retail stores.
A few miles up the road another Titanium Valley plant sits idle.
The fate of Founders Club is writ small at a nearby Sports
Authority megastore, where Fresh Metal drivers, once favored by
Tour players Fred Funk, Lee Janzen and Lanny Wadkins, sell for
$9.98--the price of a pizza.
Got a metal detector? Somewhere out there, under a few feet of
waste in a landfill, is a lode of midsized stainless-steel
drivers and fairway woods. The clubs were buried there by a
leading company in the early '90s, when oversized drivers
suddenly became the fashion.
To Dick Rugge, product-development manager at Taylor Made, the
$10 driver is the most disturbing. "That's unbelievable," he
says. "The club's intrinsic value is worth so much more than
that." But Rugge explains all three bad outcomes--bankruptcy,
bargain bins and burial--in just four words: "We're a fashion
February 1, 1999
If Rugge's analogy is correct, 1998 was the year golf companies
tried to sell ankle-length skirts to Ally McBeal. Industry
leader Callaway saw sales of its Big, Bigger and Biggest Big
Bertha metal woods decline from 2.7 million units in '97 to 1.9
million in '98. Meanwhile, two upstart companies, Adams and
Orlimar, stole significant market share with their low-profile
fairway woods. Overall, the U.S. equipment industry ended four
consecutive years of sales growth, dipping an estimated 15% to
20% below '97's record volume of $2.5 billion. Black Rock (maker
of the Killer Bee driver) and Snake Eyes (a purveyor of wedges)
crapped out and joined Lynx as Golfsmith house brands.
"I think we got drunk on the success of the industry," says
Steve Pelisek, sales director for Cobra, another Carlsbad-based
company. "But that success wasn't based on the growth of the
game in the U.S. It was built on outside markets and price rises."
In his cluttered office off the warehouse floor at Taylor Made,
Rugge illustrates Pelisek's point by drawing a graph on his
whiteboard. "Our biggest mistake was believing in the
straight-line theory," Rugge says, labeling his horizontal line
YEAR and one vertical line HEAD SIZE IN CCs and a second PRICE.
"Up until 1991 woods were about 150 cubic centimeters in size."
He makes two dots, low on the graph. "All of a sudden they went
up to about 195cc--Big Bertha." Two more dots, slightly higher
and to the right. "In '95 they jumped to about 240. Titanium."
Rugge marks the graph again, then connects the dots, making two
parallel lines that rise sharply.
"So in '97 we said, 'Hey, this is a nice straight line. Let's
keep going.'" He makes yet another set of dots, this time
opposite 290cc--the size of Biggest Big Bertha and its bulbous
clones. "But we got surprised," he says. "There was resistance."
That is, golfers said no, they didn't want clubs that looked
like Ronald McDonald hand-me-downs, and they certainly didn't
want to pay $500 for one. "So here you have the point of
resistance," Rugge says, marking the unattained goal with an X.
"Adam Smith had it right. You reach a point where price exceeds
No lie. Smith's dictum is visible all over the golf business as
it gears up for this week's PGA Merchandise Show in Orlando. A
set of Ram FX oversized irons, formerly $400, sells for $199.99
on the Internet. Taylor Made's Ti Bubble2 driver, originally
listed at $425, is 40% off at Edwin Watts. Callaway's Steelhead
driver sells, and sells well, for around $230. ("It's the first
time Callaway has departed from premium pricing," notes a
Houston retailer. "That's an admission it has lost position with
the consumer.") On Wall Street golf stocks are an even better
bargain. Callaway, which traded as high as $38 5/8 in '97, now
goes begging at about $12. Arnold Palmer Golf and McHenry Metals
began the new year at about an eighth of their '98 highs. Even
Adams, despite lusty sales of its Tight Lies fairway woods,
dropped from an initial public offering of 16 to as low as 2
15/16. Says Taylor Made president and CEO George Montgomery,
"Nineteen-ninety-eight was a wake-up call." Which invites the
question: Why was everybody asleep?
Pascal Stolz, Cobra's vice president, thinks he knows why. He
can even tell you when the industry nodded off: September 1997.
"That," he says, "is when we all made the decisions that are now
affecting our lives."
In September '97 the industry was euphoric over an expected
explosion in the number of golfers. Analysts looked at several
factors--Tigermania, a growing interest in golf among women, an
expanding Asian market, the aging of the baby boom generation,
rich new television contracts for the PGA Tour and burgeoning
equipment sales--and concluded that the game was growing. The
analysts believed that avid core golfers, those who play 25 or
more rounds a year (and pay premium prices for equipment) might
grow from six million to eight or even 10 million.
It didn't happen. What growth the game enjoyed came at the
beginners' end of the scale, and new players don't buy $500
titanium drivers. (The total number of U.S. golfers has climbed
6%, to 26.5 million, in the '90s.) Exports to depression-wracked
Asia dried up completely.
Instead of growth, the club makers confronted stasis. "We're in
the replacement business," says Pelisek. "We're not the computer
or cell phone industries, which have a lot of new customers."
Typically, core golfers buy new clubs every four years. But if
they aren't excited by something new, they might wait for year
five. "That's a 20% downturn in business," he says, citing a
number that matches last year's slide. "In '98 we didn't give
our customers very good value, so they didn't replace."
Looked at another way, the technological innovations of the
'90s--oversized heads, fat shafts and titanium--may have
motivated golfers to replace their clubs prematurely, creating
the illusion of growth. U.S. companies have sold roughly six
million titanium drivers, or about one for every avid golfer.
Says Montgomery, "I see saturation of titanium drivers."
The underlying flatness of the club market is masked by
unprecedented volatility in market share. In '97 Callaway
controlled an estimated 36% of the metal-wood business; last
year its share shrank to 30%. Adams and Orlimar, nowhere on the
radar as recently as '97, combined for a 16% share of fairway
wood sales by the end of '98.
What looks like consumer fickleness is actually a predictable
consequence of a fundamental shift in how clubs are sold. Until
the mid-'80s equipment companies marketed most of their clubs to
the trade--that is, to club pros in on-course pro shops. In the
'90s Callaway led the shift to consumer marketing, flooding
television and print media with pitches aimed directly at
golfers. A parallel shift of business from club pro shops to
chain retailers significantly boosted volume for hot products
but also eroded brand loyalties. Today, a start-up outfit with a
good infomercial can steal market share faster than you can say
Ely Callaway, the 79-year-old founder and chairman of Callaway,
has been the most obvious loser. In '98 he laid off a thousand
workers, pushed out the company's CEO, cast off publishing and
driving range subsidiaries and looked on glumly as his Big
Berthas gathered dust on showroom floors. Meanwhile, the
industry clucks over Callaway's biggest gamble: a gargantuan
golf ball factory nearing completion just up the road from
company headquarters. Industry sources estimate that Callaway
will have spent as much as $150 million on the plant when it
opens later this year, with no assurance that he can take
significant share from ball leaders Titleist and Spalding.
Competitors, though, are not exactly chortling over Callaway's
difficulties because the company's unsold inventory of
titanium-headed clubs, estimated at $160 million, threatens to
water down the market. "The pipeline is full," worries the floor
manager at a Texas golf discounter. "The old clubs just sit
There are several ways to handle excess inventory. In the '80s
Bridgestone tossed thousands of unwanted clubheads into the
Pacific. Taylor Made, the company that literally buried its
unfashionable metal woods in the early '90s, took a different
approach in the mid-'90s, pushing both discounted old and
premium-priced new products on retailers. Some product is
snapped up at distress prices by diverters, retailers who buy
more than they need and secretly sell the rest to steep
discounters. Finally, there is barter--trading clubs for TV
exposure or catalog space.
Competitors can only guess at Callaway's strategy because Ely
Callaway has been uncharacteristically quiet of late. In an
article written for a trade magazine, he recently ripped the
press for overhyping "a false trend toward shallow-faced metal
woods" and promised that his company would dazzle buyers at this
week's show with a new oversized titanium driver. (The 263cc
Great Big Bertha Hawk Eye will sell for around $400.)
By refusing to put Bertha on a crash diet, Callaway is bucking a
trend bigger than clubhead size--the trend toward shorter
trends. Back at his whiteboard, Taylor Made's Rugge points out
that for centuries, before 1979, woods had been made out of
wood. In '79 stainless steel took hold and dominated until '91,
12 years. In '91 oversized steel emerged, ruling for four years.
In '95 titanium swept the decks and dominated for two years.
"From infinity to 12, to four, to two," Rugge says, sounding
like a pathologist describing the waning efficacy of
antibiotics. "People are impatient. We barely get one thing
assimilated when something else comes along to tempt us."
He didn't say it, but that's the good news. Golfers still would
rather buy a better game than practice for one. They will bite
when the club makers produce tastier bait. "Golf is an
aspirational game," says Cobra's Pelisek, "and buying new
equipment is one of the ways to get better."
These days that's what passes for optimism in Titanium Valley.
What looks like consumer fickleness is actually a predictable
consequence of a fundamental shift in how clubs are sold.