Report: TaylorMade Sales Decline for the 3rd Straight Year

Let’s not waste so much as a minute dabbing polite polish on anything. adidas Group’s 2015 Financial Report is out, and for the third straight year, TaylorMade has been singled-out for less than stellar performance.

For those who’d like to peruse the full report, here it is. It’s actually a fascinating read for those interested in both TaylorMade and adidas brand strategy, but for those who want the CliffsNotes version, I’ve got your back.

Here we go.

TaylorMade’s net sales have once again declined. The company finished 2015 with € 902 Million in Net Sales, down from € 913 Million (2014), which was down from € 1,285 Billion (2013), which was down from TaylorMade’s peak of € 1,344 Billion (2012).

It’s fair to say we’re looking at a trend.

Within those numbers is a 13% decline in currency-neutral revenue due to sales declines across most categories, in particular the metalwoods and iron markets where TaylorMade’s recent history has placed it in the leadership position.

As with the last few reports there were mentions of declines at TaylorMade specifically offsetting successes within adidas’ other business units.

When it comes to the actual numbers, there’s nothing in the report that shines a particularly positive light on TaylorMade, which is likely why adidas Group CEO Herbert Hainer had this to say about TaylorMade in his letter to shareholders:

If there’s a silver lining to be found in any of this, it’s that the rate of decline has slowed. It’s quite possible TaylorMade has bottomed-out, and that detail alone could offer some promise for the future. The guys who are paid to play M1 really like M1, and initial orders have been strong…better than anticipated even.

And of course, there’s that restructuring programme.

We’ve been hearing about the TaylorMade restructuring plan for a year now, and we’ve most definitely seen signs of that plan in action. There have been layoffs (including a substantial reduction in headcount at the VP-level), assembly has been outsourced to Mexico, and while it has apparently been lost on the majority consumer thus far, TaylorMade has been incredibly restrained with respect to both the frequency of its releases, and its discount model.

Also no small thing from a revenue perspective, TaylorMade has raised prices, most noticeably on its flagship products.

As for what else the company plans to do, here’s a quick intro on to the why’s and what’s of the ongoing efforts to streamline the business.

And what exactly are those levers?

They’re all laid out in the report.

Let’s briefly discuss, block by block:

• TaylorMade has already raised list prices ($500 retail for M1), and as we’ve discussed, product lifecycles have already been extended. This should ultimately prove the trend in the golf equipment industry. One year minimum on the shelf, with 18-24 months becoming commonplace for certain product lines. This is good for TaylorMade, good for retailers, and even with higher prices, likely better for consumers too.
• The days of retailers buying in bulk, saving big, and then complaining about excess inventory appear to be over. Any discounts will be linked to retailer performance.
• As a benefit or consequence (perspective is everything) of longer lifecycles, retailers (and consumers) can expect retail prices to hold longer. The days of rapid discounting are largely over. When over-saturation becomes a risk or product doesn’t sell as expected, look for TaylorMade to reroute inventory (both retail and from its own warehouse) through its outlet stores. In theory, this should reduce saturation within the larger marketplace, while also shifting the discount burden away from retailers.
• Production Costs and Supply Chain is boiler plate stuff. Fewer releases means you’re shipping less, not changing tooling as often…all of that sort of stuff that ultimately cuts costs. Toss in more intelligent forecasting and better inventory management, and you get the picture.
• Look for TaylorMade to concentrate on what it does best (products with mass-market appeal). I expect we’ll see few, if any, niche releases like the Mini Driver, or even the UDI. Even smaller releases require complete effort. Effort costs money, and TaylorMade isn’t going waste bucks where there isn’t any bang.
• Again…fewer releases means fewer marketing initiatives, which means less money spent on marketing. That’s not to say the TaylorMade marketing machine will disappear. If anything, it should be more focused than it has been in recent years.
• That second bit about re-prioritizing global marketing spend…it’s a bit of common sense. TaylorMade is popular in the US, Europe, Japan, and South Korea, so that’s where it’s going to spend the bulk of its marketing dollars.
• All off the above ties contributes to reducing Operating Overhead costs.
• And while it apparently didn’t even warrant its own bullet point, as frequently discussed, adidas has hired an investment bank to help it offload Adams and Ashworth, and while it’s being tap-danced around a bit, perhaps TaylorMade too.

Good News/ Bad News

In the good news department, the adidas report mentions TaylorMade’s healthy market share positions in key categories. Specifically the metalwood category where TaylorMade is above 30% and the iron category where TaylorMade finished 2015 above 20%.

What isn’t in the report (and shouldn’t be since I’m now including 2016 in the conversation), is that despite all of the buzz around M1 (current best selling model), and now M2, TaylorMade’s share of the metalwoods market for January 2016 is basically identical to its January 2015 share. The one positive is that with fewer heavily discounted clubs clogging shelves, it’s a healthier position given that a higher percentage of sales are for full-ticket items.

Just one guy’s opinion, but I’m incredibly bullish on the M-series metalwoods. M2 will steal some sales from M1, but at the end of the day, it’s all sales for TaylorMade. I’m predicting a strong year in the metalwood category. Of course, strong is still a long way removed from the 52%+ of the RocketBallz days.

Things aren’t quite as rosy in the iron category. It’s harder to make the case for a measurably healthier market share and the unpleasant reality is that as of January, TaylorMade has dipped into the 17% range; its lowest share in the category in years. It’s possible the M iron might provide a slight bump, but as I said in yesterday’s story, I’d bet against it.

What Does It Mean for TaylorMade?

Simply put, TaylorMade is doing what it has to do, and for the most part, I think what it’s doing is the right thing for its business. In doing that TaylorMade looks to be doing right by both its retail partners and the consumers. These are potential positives.

There are also no guarantees that it’s going to work, which is why I believe that, as far as adidas is concerned, all options for TaylorMade remain on the table…that strategic decision Mr. Hainer mentioned.

The numerous industry insiders I’ve spoken with believe that much of the company’s future, or at least its future with adidas, is tied to the retail success of the M Family. Nothing at this point is certain, but it’s worth following closely.

To no small degree, this is the make or break year for TaylorMade.