COVID-19 and Golf’s Direct-To-Consumer Business

While there are far, far graver concerns today than the state of the golf industry, this is a golf blog so let’s examine how COVID-19 is affecting different parts of the business.

This will be a snapshot of a few members of the Direct-To-Consumer (DTC) end of the business. DTC is in a unique position in that it doesn’t rely on the retail channel for its business. It does, however, rely on people actually playing golf. And with most courses shut down, we talked with the owners/CEOs of five DTC companies to see how they’re holding up during this pandemic.

We’ll discuss the group’s take on COVID-19’s long-term impact on the overall golf business later but let’s start with an around-the-horn status check on each company.

Ben Hogan

“It doesn’t matter to us if golf retailers are open or closed. It’s not our thing,” Ben Hogan CEO Scott White tells MyGolfSpy. “As long as the internet is up and running, we’re in business.”

Like everyone else, White’s team is using Zoom or Skype to keep the wheels of commerce turning. He’s in Southern California, the finance team is in Chicago, the R&D team is in different locations in the U.S. and the assembly plant is in Fort Worth, TX. That facility has been shut down for a couple of weeks now but website traffic remains through the roof.

And while things have slowed, White says it hasn’t been as bad as anticipated.

“We’re still taking orders, especially for the new Icon irons we just released,” says White. “BenHoganGolf.eu is up now and we see orders coming in on a pretty regular basis.”

Even before mandated shutdown, White says Hogan was slowing production due to COVID-19 and has been overly cautious for the safety of the employees.

“We have some older gentlemen and ladies who worked with Mr. Hogan a long time ago,” says White. “I’m replaceable, they’re not. It’s important that a Steve Dreyer is healthy. He’s the conscience of the company. It’s not worth risking anybody’s health just to build golf clubs.” (Dreyer is Hogan’s manufacturing director. He was in charge of manufacturing as far back as 1985 and worked directly for Mr. Hogan.)

Sub70

“We are closed until further notice by order of the governor of Illinois,” says Sub70 owner Jason Hiland. “Right now, it’s out to April 30 but that seems to be a moving target.”

Hiland’s other two businesses – component seller Diamond Tour Golf and e-tailer Hurricane Golf – are also shut down. “Technically you can still put an order in online but we can’t ship until we reopen,” he says. “So, obviously, volume is way down.”

As with any small company doing business with Chinese suppliers, Sub70 is dealing with shipping delays. Inventory that was due in February will finally show up this month.

“That’s why we ran out of Pro fairway woods and some MB satin forged blades from the 639 series,” says Hiland. “I talk via email with China every day. Life’s getting better, production is starting to come back online.”

“We should be in better shape at the end of April if we can turn the spigot back on.”

There are benefits to being small. One is a high degree of nimbleness in times of trouble. Hiland says that’s what’s going to help Sub70 come out of this just fine, provided the shutdown doesn’t last into the fall.

“We’re just hitting the pause button right now; we’re going to sit this thing out,” he says. “Sure, it hurts. We had a lot of momentum going but our employees are going to be OK and we’re going to be OK. We’ll see what it’s like on the other side.”

New Level

Like the other owner/CEOs we spoke with, Eric Burch has been in the golf business a long time and has seen a thing or three. New Level is his baby. That’s the good news. The bad news is he’s a single parent. Burch started the company solo lobos with no investors; it’s his money and his money alone.

“We’re not a major brand sitting on a pile of cash,” he says, “and it’s hard to get leaner than a one-man operation.”

Like Sub70 and Hogan, New Level has established itself in the DTC market with 171-per-cent growth in its second year. This year was trending in the same direction but COVID-19 has thrown a monkey wrench into the works at the worst possible time.

“Selling 1,000 to 1,500 sets of irons a year might sound like a lot,” says Burch. But for a small operation such as New Level, think of it like kindling used to start a fire. It’s enough to get everything headed in the right direction but if things start going in reverse, there isn’t much resistance.

A lean one-man operation is a benefit as is not relying on retail channels. However, the lack of investors appears to be leaving New Level short of the one thing any business needs, and that’s cash. It’s too soon to know whether it might be game over for New Level or if this is something from which it can recover.

Snell Golf

Like the others, Dean Snell’s Massachusetts operation has been shut down for a couple of weeks. All his customer service and order-entry people are working from home. The challenge, he says, is packing and shipping orders.

“The operation is closed so my wife and I come into the warehouse and pack stuff up,” says Snell. “Orders still come in every day but we’re doing the whole thing ourselves.”

Snell says the company was having a very nice first quarter right up until mid-March and was ramping up for the April kickoff, which clearly isn’t happening.

“That first week, we saw orders slow down a decent amount,” he says. “I told my employees the other day that everybody has a job and will have a job. I’m not laying anybody off. I’ll take two or three months of no pay to keep our people. They work hard and have done a great job building this company. For me, that loyalty is important.”

Snell’s balls are made in Korea and its yellow MTB X ball has been back ordered for some time due to COVID-19. Shipments that were due in February now aren’t expected until early May.

“The manufacturing in Korea has obviously had some issues. They’re doing better now but it’s delayed some of our shipments. The issue now is the boats.”

Snell says shipping companies aren’t sending freighters unless they’re filled with containers so they’ve been sitting and waiting. Some of the bigger companies have decided to ship anyway, even if their boats are half full. That, however, results in higher shipping costs.

“We can’t throw those costs to our customers,” says Snell. “We eat that cost. But there are people right now with far worse things happening in their lives than us worrying about our shipping costs going up a little bit.”

Seed Golf

“Here in Ireland, we’re in Week Three of lockdown,” says Dean Klatt, owner of the subscription-based ball company Seed. “At the moment, we can only travel within two kilometers (1.2 miles) of the house, just to get food and medicine.”

Klatt says his facility has been shut down for about a week-and-a-half but he won’t be letting any of his staff go.

“Over here, the Irish government put in place a wage-subsidy scheme, so they guarantee 70 per cent of your staff’s salary for up to 12 weeks,” he says. “The balance we can cover ourselves.”

“In the short term – two to three months – we can manage. It’s not without pain but it’s not unmanageable.”

Most of Seed’s business comes from Ireland and the UK, but COVID-19 has put plans to expand into the U.S. on hold. Klatt says his six-person staff is using the newfound time and resources as an opportunity.

“There are a bunch of projects we kind of half-started on or not really completed so we’re putting this time to really good use,” he says. “I’m talking about new product development, upgrading our website – all the stuff we said we were going to do but hadn’t. At the end, this could turn out to be quite a creative period.”

Klatt says he does get access to his warehouse a couple of times a week to ship orders.

“It’s limited staffing so the orders aren’t turned around as quickly as they normally would. But since no one’s playing golf, volume is down as well.”

Seed’s balls come from Taiwan but Klatt says they’ve seen no issues with inventory or deliveries.

“Taiwan is one of the few countries that handled this really well,” he says. “They’ve had little to no downtime as far as I could tell. We had a container of balls due to leave March 27 and, sure enough, it left March 27.”

What’s On The Other Side?

For the most part, the principals we spoke with are confident their companies can ride this thing out, provided it doesn’t last too long.

“We’re smaller and can be more nimble,” says Sub70’s Hiland. “If we’re up by the middle of May and we find solutions to keep people healthy, then I think it’s going to come back quickly.”

“The Irish government has given us that wage subsidy for 12 weeks,” says Klatt, “so that’s an indication the government thinks it’s going to be about 12 weeks before we can get back to normal.”

And what will the landscape look like for the golf consumer then? Opinions differ.

“I think it’s going to be a great time to be in the market for golf equipment,” says Hogan’s White. “When we’re all back on the golf course, this whole thing is going to be a free-for-all. The big OEMs and retailers will have revenue to make up.”

“My guess is retailers have their stuff in from their front-end orders,” says Hiland. “Where bigger companies might be hurt is they’re obviously going to miss a couple of reorders. Three or four orders for the year may turn into only one or two.”

“The impact on us will be less than on retail,” says Snell. “But it’s still going to have an impact on sales because a lot of people aren’t playing.”

While deals may be had as retailers try to make up for lost revenue, supply may become an issue.

“There may be a glut of product in the short term to go along with a pent-up demand,” suggests Klatt. “But once they get through that glut, there’s a potential shortage on the other side because orders from the Asian factories have been paused or cancelled and they’ve slowed the factories down.”

“Retailers are going to be doing whatever they can do drive traffic,” says White. “The big OEMs have numbers to make and shareholders to report to, so I think it’s going to be a wild, wild summer, assuming we get through this in the next month or two.”

The advantage Hogan and Sub70 have over the big OEMs is, of course, price. But if TaylorMade or Callaway get out the big knife and start cutting 2020 model prices, that advantage starts to minimize. Will buyers will jump on a $500-plus driver discounted to $399 instead of a DTC brand priced at $250 to $300?

“It might be a small issue for us but it’s not anything I’m going to lose sleep over,” says White. “With our business model, we’re still going to be at an advantage.”

“We’re in a good situation here at Sub70,” says Hiland. “We have fewer layers in our model, a better price point and quality as good as anyone’s. Even if everyone’s budgets are a little tighter, we can be in that sweet spot for people.”

Longer-Term Impact

Sources tell MyGolfSpy that OEMs could see upwards of a 25-per-cent hit on 2020 sales and we’re hearing reports of layoffs, furloughs and pay cuts at many OEMs. DTC brands may not feel quite that big of a bite but it’s still two prime spending months taken out of the equation.

“In retail cycles, March and April are probably close to 20 per cent of the year’s total, depending on product category,” says White. “I don’t know if you can make that up on the back end.”

We’ve heard rumors of at least one mid-size OEM pushing back a major late-summer product release to January. Others could follow suit but it’s just too early to tell.

“The product life-cycle is certainly going to be shortened for all that stuff sitting in the dark and collecting dust on retail shelves,” says White. “Then you have the vicious cycle of getting a great deal on a 2020 driver versus paying full price for a 2021 driver. Golf consumers have kind of wised up to that game.”

“I don’t think there’s going to be a straight line on how all OEMs handle it,” says Hiland. “It’ll probably depend on how much inventory they have in stock and if they could stop some of their production.”

“Some really interesting stuff is happening with buyer behavior,” says Klatt. “Traditional retail has been on a bit of a downward curve anyway. I think this is going to speed up that transition toward online purchasing. We’re still getting orders because it’s relatively easy for people to do from home.”

Some DTC companies are well-heeled enough to ride out the storm, others not so much. If a company relies on one order at a time, it’s going to be tough, if not impossible, to survive.

“If you’re going to be successful, you’re going to fail,” says New Level’s Burch. While that statement sounds like a Zen Koan, it does provide some perspective. There is some solace in knowing any struggle right now isn’t due to bad management, poor decision-making or lousy product. Anyone who owns a small business – or even a large business – knows there are things you can control and things you can’t.

The Human Element

New Level’s one-man operation aside, each company says they’re keeping all their employees for the foreseeable future. All are healthy but each had a personal story to share.

Scott White’s wife, for example, is a nurse who has been working 14-hour shifts in Southern California while Dean Klatt’s wife is a general practitioner in Ireland. All of her patient consultations have been over the phone, something she considered unthinkable just 30 days ago.

Jason Hiland echoed the sentiments of many: the last two weeks have felt more like two months.

“I feel like I’m in a Twilight Zone episode,” he says. “I’ve literally forgotten what day of the week it is. Every day is kind of the same. I can’t wait for my normal life to come back.”

Dean Snell was still able to play golf when we spoke, so he ordered a pushcart online.

“When it was delivered to the steps my wife said, ‘Leave it.’ It sat outside for a day before she sprayed it with a can of Lysol.”

“There isn’t a clear end to this,” adds White. “I think it’s going to teach us all a lesson about patience and perseverance. I’m 100-per-cent confident we’re going to come out of this as good, if not better, than before. And, hopefully, it teaches us to be nicer, kinder human beings as well.”

“Business-wise, I can’t see anything on the other side where I’m going to say, ‘Boy, this was great!’” says Hiland. “On a personal level, do you find smaller things that you may have overlooked to now be a joy in your world?

“We have a local restaurant here that serves really great Mexican food. We hadn’t eaten out in I don’t know how long but last Friday night we had some delivered. It was the greatest meal ever. So maybe those little things in life you take for granted become a little bit more important and we take care of each other and help each other out a little bit more.”

There’s only one thing that could be added to that sentiment.

Dean Klatt put it nicely.

“Living in Ireland, when they open the pubs back up again – that’s going to be one big night.”