Editor’s Note: An insider tells how the industry works and why it is nearing self-destruction. The following article was submitted by a MyGolfSpy reader. He owns and operates multiple retail golf facilities and wanted to share with you some of what he experiences in dealing with accelerated product cycles, MAP pricing, and declining profit margins.
For obvious reasons, the author wishes to remain anonymous.
I’m a business owner of more than one retail shop. We have been in business for over 10 years. In my time, I’m pretty sure I can say I’ve nearly seen it all.
What’s the reason for writing this article?
The industry as a whole is in nearing self-destruction. Rounds played are down, golf courses continue to close, and from my perspective the golf equipment business has never seen a lower point than now.
We initially opened our doors as a franchise. My partners and I didn’t have a strong background in retail, however, being avid golfers we knew about equipment. Additionally, the backing of a franchise is supposed to carry some weight, buying power is supposed to be greater. Ultimately, it didn’t work out that way for us, but the franchise approach did provide support in attaining accounts with major vendors, opening up our store and properly merchandising our inventory.
After 3 years in business, we bought out of our franchise. Within the first year, we felt we had learned enough go it alone. The franchise leadership had changed (not for the better), and overall group buying power was lackluster. With 80-100 stores nationwide, one would hope the major vendors would consider our group buying power. This never proved to be the case, and as a result, we saw no increase in our margins. We are now a multiple location business branded with our own name.
It starts with buying power and margins
Here’s how our industry works:
Most companies release new product right after the annual PGA Show in Orlando. That used to be the case anyway. For the sake of discussion, let’s say that still is the case, because quite frankly that’s how, as a retailer, I think it should be.
Sales reps will visit us in the fall to show us the equipment that will be launched in the early Spring. Order management is always fun. We look at lots of numbers; sell-through by each company, in each category for the prior year. Additionally, we’ll look at Golf Datatech for insight into each vendor’s market share.
It’s not a complete guessing game, but there is a fair amount of looking into the crystal ball as well.
What’s the hot driver or set of irons going to be for the upcoming year? We need to know before we place our orders.
Vendor X will offer us a 6% discount if we book $25,000 worth of their stuff, and if we really want to make some money, $100,000 worth of merchandise will get us a 10% line item discount.
That’s wholesale folks. $100,000 of equipment/goods from one company can be a lot. Welcome to the game, and yes at this point it’s a game, and it’s a joke.
Here’s the problem. From vendor X, a $400 driver cost roughly $290 wholesale. We pay shipping (one of the costs of doing business the consumer almost never considers) on the driver, so $290 is now closer to $300. Selling for $400, it gives us a profit margin of 25% – $100 (money made)/$400 (retail).
Overall, as a healthy business we try to operate at 36%-38% profit margin. We’re already off by 10%-15% and the fun is just getting started.
Let’s say that, for some reason (it’s not very good) that $400 driver hasn’t seen much sell-through (you’re not buying it). Vendor X decides to run a $50 instant rebate on it. We, the retailer, are still into that driver for $290, so our immediate margin has just been reduced on our point of sale to 14.2%.
Vendor X still expects us to pay the invoiced amount of $290 for the driver. However, what we get to do is track sales for the 6 week promotion. At the end of week 6, we’re then going to be credited somewhere in the neighborhood of $12-$14 per driver.
Credit doesn’t keep the lights on.
So, what happens after 6 weeks?
More often than not the vendor will just drop the price for good. The $400 driver is now $350 or even $300. Again, we’re still into that driver for $290 (less any tremendous discounts they give us), and now it’s being sold for $300. We’re probably credited on our account, or in some instances in the past, we were given MORE of that product at NO CHARGE. Now we’re stuck with even more of those shitty drivers that didn’t sell and we’re not making any money on the ones that do.
Today there’s less of a push to take on additional product than there was in past and credits are much more common. Here’s the problem with that. Our margin of 25% may stay the same, but 25% on $300 is not the same DOLLAR amount made on that driver when our margin was 25% on $400. We now make $75 instead of $100.
What’s worse is when, because of poor sell-through early, the promotions begin after the product has only been on the shelves for 2 weeks. We have had 2 weeks to sell it!
We Don’t Choose Where to Spend Our Money
One other interesting (more fun) part of the business that consumers probably aren’t aware of is that with certain vendors you’re forced to spread your spending over multiple, and often undesirable, categories.
You can’t say, “I want all of my money to be put into woods and irons, because those are the best-selling categories.” Nope, as a business owner I’m basically required to purchase 60 hats, 120 gloves, 18 bags, 120 dozen balls, 24 putters, and oh why not, some towels, divot tools, and umbrellas.
Vendor X wants…basically demands, that its entire line be represented in my store.
After all is said and done, margins may even trickle down to 18%-20%, meaning on an initial investment of $100,000, we’ve made all of $25,000. That covers 2 months of overhead.
Why did margins move so low?
For all that stuff in the categories we didn’t actually want to bring in to begin with, we’ve had to discount to 10% over cost or sell at even cost. There’s no way in hell the vendor will simply take the unsellable back.
The standard response from our reps:
More credits…no actual money.
12 reps, 12 vendors, this is lots of fun (not really).
It’s far from uncommon to discover that an online discount retailer has dropped the price on a cascaded product (usually previous generation stuff). The typical response from rep; “They must be blowing them out, do the same.”
Are you going to give me some actual money to do that or should we just YET AGAIN take it in the shorts?
“Let me know the next time you have an order and I’ll get you a percentage off wholesale.”
Unwrapped is Unmovable
It’s also not unusual to basically be stuck with a dozen or so drivers that are not moving. Can we send them back for credit?
The standard response is, “Have they been hit?”
No vendor wants product that has been hit, but we’re the ones in the trenches day in and day out working with customers to move their product.
A customer that comes in and demos 8 different drivers often wants to walk out with one still in the plastic. It makes it extremely difficult to run a profitable business. The numbers suck in our industry and most of the vendors do too when it comes to supporting their retailers.
The Demise of Dick’s Doesn’t Hurt
I’m sure you’re aware of the situation at Dick’s Sporting Goods. I don’t know where to start other than I’m glad it happened. Obviously it’s unfortunate that the PGA professionals lost their jobs, but I have no love lost for Dick’s.
Dick’s was and is based off the premise of volume. They are the Wal-Mart of our industry. They’re not alone, but they get the brunt of the criticism because of their never ending advertising, and arrogance.
We all have MAP (minimum advertised pricing) policies we have to adhere to. We always play by the rules, but these guys didn’t on several occasions. The demise of Dick’s golf business is the best thing to happen in the industry since my start in it. I won’t say much more about it because there’s a lot that has to play out, and hopefully it will sooner rather than later.
The Internet Makes Competing Difficult
MAP pricing? That apparently doesn’t apply to a lot of online retailers. Add to cart for price is a great feature!
Why don’t we sell online?
We’re not interested in volume, but rather giving a quality experience to our customers. We don’t have the capital or manpower to invest in the online space.
We’ve invested heavily into our point of sale and our simulator units over the past 3 years. I’m told things are going to change with internet sales, but I’ll believe it when I see it.
It’s always fun (frustrating as hell) when we spend an hour of our time with a customer demoing 8 drivers, only to be told, “Thanks, I’ll be back.”
Welcome to Best Buy and window shopping. We’ve thought of instituting a policy similar to a golf course where if customers want to demo a driver, we’ll rent them a bay for 30 minutes. It’s a catch-22 because we often ask people if they want to try something out.
“Yes sir, you can try that out but it’ll be $10.”
Why people buy a $300 driver online without ever trying it, is beyond me. It happens all the time. We know it happens because we’re the lucky ones that get to put the new grip on it, or take it on a trade when they’re ready for our expertise on actually getting fit for a driver.
The internet is tough to contend with, and I hope for the sake of the entire industry there is some shake up regarding policy on it.
Direct to Consumer is Direct Competition
We’re now moving into an era where we’ll be put into direct competition with our vendors. I haven’t talked yet about the vendors we actually like, but I will now.
I’ve had customers spend $800 on a set of irons through us, and the following year they purchase another set directly from our vendor for another $800.
Why does this happen? We treat our customers well. They seem to like buying from us.
It turns out that customer has been given a $100 gift card from the vendor. The customer comes to us – we’re local and most of our customers like to support local – and asks if they can use his gift card here.
We call the vendor and find out that the card can only be used directly through them. The customer wants to shop with us, but they can save money by going directly to the manufacturer. How does that support the industry as a whole?
There’s truly nothing like having your big brother beat you up, only to hold you down so your little brother can jump on you at the same time!
Some Actually Do Golf Right
There are 3 (equipment) vendors that I’ve told people we could carry to the exclusion of others and we’d be just fine. Example: A golfer visits the vendor’s their fitting headquarters. He walks out with his complete fitting information and is told to purchase his clubs at his local golf store or golf course.
We like these guys, and we move a high volume of their equipment. They don’t get into pricing wars. They stand behind their product, and maintain 18-24 month lifecycles.
They also don’t sell direct to the consumer.
Their businesses are based on quality. That’s what we stand for too. We fit people. We want people to play better golf. We’re certified fitters with all 3, and we’ll move as much volume with any 1 of these vendors as a most stores in a population center 5 times our size.
All of my employees, myself included, used to be unbiased with regard to what we sold. We aren’t anymore. We are not hard sellers, however, we now get behind certain vendors much more than some others because of the business practices I’ve discussed.
These 3 vendors have it figured out. The great thing about them not discounting their product is that we run between a 32%-38% profit margin with all of them!
We make money when we properly fit a customer into a set of irons he’ll hopefully be happy with for 5-10 years. That’s how the business is supposed to work.
Where do I see the industry going and where should it go?
I haven’t touched on product lifecycles much. Some may love them, but we hate it when they’re 4-6 months, and consumers should too.
Wise up consumers!
There’s a reason that $400 driver is now $249.99 6 months later – IT’S NO GOOD.
Get out of your groupon/discount/sale mode and realize that spending $600-$800 for that properly fit set of irons now will benefit you more than looking for the $300 discounted set.
I’ll probably get flack for that statement, and rightfully so. I’m a consumer too. I want good deals, but I still understand quality.
Invest in Your Pastime
I need a new riding lawn mower. My neighbor is selling one for $250. I could buy it and take the risk that it needs a new battery/tires/belts. What might that cost? A couple hundred bucks maybe. I’m more inclined to spend $800-$1,000 on a new one I know will last me 10+ years.
I tell people that same thing in our store,
I don’t care if it’s skiing, fishing, hunting, or whatever. Invest in it!
Do we sell used irons for $200, or complete sets for $400? Yes we do. Is there a market for this? Of course. I’m not calling those people out; I’m calling out the guy that just wants a discount because he can get a discount.
“What’s on sale?”
I can’t tell you how many times I’ve been asked that one – “The whole place is on sale, dumbass (I’d never say that aloud to a customer by the way).”
Try the stuff before you buy, work with a certified fitter to make sure it best fits you, and pay for it. You’ll be glad you did. Oh, and don’t forget if it breaks (because we are dealing with amateur golfers), we do have a full service repair center, or we can send it in if it’s covered by warranty (see the lawnmower analogy above).
Lastly, IF for some reason you’re struggling on the golf course with that new driver, please feel free to come back in at ANYTIME, and we’ll help you get it dialed in again. Perhaps even give you a couple of pointers on your swing; if you’re open to it (we’re very cognizant of not giving tips if people don’t want it).
We sell golf equipment, but keep in mind we’re human too and nice guys, and at the end of the day want people to enjoy the game and the time they spend with us so we see them again.
Where is the Industry Going?
Now that I’m off that the tangent…where is the industry going?
Hopefully to longer life cycles. I believe is inevitable. From there, I’m not sure. Where does it need to go? Where it was 10-15 years ago. We need golf courses and smaller shops with the expertise a big box store staffed with college kids working for beer money won’t have.
Golf companies need to get out of the direct to consumer selling model. I also believe the market is over-saturated with vendors. I’d like to see 2-3 of major vendors go away.
Lastly, vendors must rein in the internet. I personally wonder if we’re not losing some people from the game because they’re getting bad information, or had a bad experience with someone selling them the improper equipment? When the retail industry is based on volume, as opposed to quality, I can’t help but think it’s a factor in the decline of the game. Scale things down for the good of the industry.
As I wrap this up, please know that I’m only writing because of my passion for the game of golf and the equipment side of the industry. I love working with people in our stores, hearing about the birdies, holes in one, golf trips, etc. Most of all, I love hearing from the repeat customer we sold a custom set to who has since dropped from a 15 to a 9 handicap because of proper equipment and practice.
Yes, I said practice. We get that equipment alone cannot do it all. In fact, I play with many of our customers and they are now family friends.
Because of my passion for this game, I wanted to convey what it’s like in our shoes right now, and specifically how challenging the equipment business has become. It is this way because of many factors, but primarily it’s the consequence of poor decision making and of poor business models by several of the major vendors.
I’m optimistic that there are good things to come in this industry. Golfers and consumers should be too.
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