The Problem With Technology – Why Strong Companies Are Hurting The Game

I love golf. I love everything about the game. I love watching a 275-yard drive fly down the middle of the fairway. I love being able to save a par after hitting a tee shot into the drink. I love the mental challenge of the game and don't even mind the occasional double bogey– as long as I don't make two in a row! And I love golf equipment.I love seeing new clubs for the first time or when somebody brings in an original set of MacGregor Jack Nicklaus Muirfield irons. That is why I am very troubled with the state of the golf industry right now. I am worried that if things in the industry continue on the same path they are traveling right now, we will be in rough shape in a couple of years.

Most of you are probably thinking to yourselves, possibly out loud, that I most certainly am off my rocker. Well that might be true, but I think that in this case, I am right on the mark. Yes, it's true that more and more people are taking up the sport and we have hit an all time high in the last five years. There are more golf courses being built than ever and billions of dollars are being spent on golf equipment every year. Golf equipment itself has never been better, balls are more durable and fly farther, drivers are larger and more forgiving than ever, and even cast irons feel good. But the golf equipment industry is in trouble.

Being a firm believer in Adam Smith free-market economics and completely anti-antitrust laws, it is out of character for me to say that some companies are just too strong, but I am going to. Without naming any names you can probably guess who I am talking about; the two or three companies who have made it almost impossible to sell golf clubs at retail price. The companies who feel that their technology is so advanced and cutting edge, that they must introduce a new driver or new set of irons every eight to twelve months and then clear out all of their old stock at half price. Sometimes the new equipment is nearly identical to its predecessor only slightly larger and other times there will be noticeable improvements. The bottom line though is that these tactics are driving the prices of golf clubs way down and making it almost impossible for smaller, and often quality, golf club manufacturers to compete.

Let's look at an example. Say a certain company's sales over the last several years have been quite high. They have a large tour presence and are one of the most recognizable golf brands in the world. Now this company released a new driver at the end of 2003 for the 2004 golf season. The driver has sold extremely well. Not even eight months into the 2004 season they introduce a revolutionary new driver to the market place with several variations and a sister club to follow in the next couple of months. Now this company has four brand new models in the market plus the original model, which was intended for 2004. So what do they do with all of the original 2004 models? Knock a couple hundred dollars off the price and clear them out! This is a great strategy for them right? Now somebody who wants to buy a new driver can still get this 2004 model for much cheaper than they could have a month ago no questions asked. Of course they will go for it. There aren't too many people who are willing to pay $500 for a driver that is the same or marginally better than one they can get for $300. And if they do want to pay $500 then they can get the newest of the new. This is a sound business strategy for the few companies that can afford to do it. Prices may be down a little bit but they are selling more clubs than ever. Unfortunately it’s the smaller companies that suffer.

Companies like MacGregor, Bridgestone, Srixon, and Adams all make great clubs that are right on par with what the big boys are producing. Unfortunately for them they are forced to retail their products for $50 to $100 cheaper in order to stay competitive simply because they do not have the name recognition. Now factor in that these companies have to find some way to combat the seemingly endless clearance sales happening on old products and they are in big trouble. All we have to do is look at some of the companies in financial difficulty; Tommy Armour has gone through several ownership changes in the last few years and looks like it may not survive. Orlimar declared bankruptcy last winter and has not yet rebounded. Hogan/Spalding was in deep trouble before Callaway purchased them last year. All these companies have been around the business for many years and are among the most recognized names in golf equipment but none of them were able to compete in the new golf equipment market. It's not because their clubs weren't good, it's because they couldn't compete with the special buys and factory clear outs.

It doesn't just affect the rival manufacturers though. This type of strategy has far reaching effects on the industry. Take a look at the retail level. Sure the Edwin Watts and Golf Towns of the world love this idea. Their margins stay the same or maybe even improve and the volume of drivers they sell increases. But what about the independent golf stores and pro shops? These stores usually don't have enough money or sales to have access to the factory special buys and now have to find some way to mark down their products enough to compete. With the margins on high-end golf equipment being as low as they are it is pretty tough to do this and stay in the black.

What about you as a consumer, you must think this is great. Now you can buy a 2004 model driver for way cheaper than it is really worth. But what about resale value? If your driver just dropped 30% in price in eight months how much is it going to be worth in another year? Just about nothing. That means that in three or four years when your driver is now five generations old you will get nothing in return for it. How's that for an investment? It's worse than buying a new car. Plus if rival manufacturers keep running into financial difficulties there isn't going to be much selection in the market place.

All in all it’s not a good scenario for anyone except maybe a couple of already wealthy CEO's. So I urge you to be open minded the next time you are shopping for new clubs. Don't be afraid to look at a Bridgestone driver or a Srixon set of irons or even a pair of Bite shoes. These companies all make great products that deserve some attention and need it to stay alive. Please don't deprive me of being able to see some really cool golf clubs in the future.

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