The PXG Effect

PXG has arrived, and the reality is, it isn’t the failure, fad or gimmick du jour some golfers and competitors hoped it would be. Fads don’t leave footprints in 26 countries. Gimmicks don’t land professionals like Zach Johnson and Billy Horschel. Fads fade, and they certainly don’t change the entire landscape. Gimmicks become punchlines in internet forums.

PXG is neither.

The early signs suggested PXG would be limited to the bags of one-percenters and those wanting to garner a few more looks at the range. What’s happening is far more drastic. Boutique brands are getting their bells rung, and mainstream OEM’s aren’t entirely immune either. A sudden shift in market dynamics has left PXG in prime position to be a major force in professional golf.

PXG is here to stay.

PXG is the company few saw coming, yet somehow in just over 12 months, it has forced premium market bulwarks Miura and Epon to seriously examine their businesses. At the same time, it has chipped away at industry mainstays like Callaway and Titleist at high-end custom fitting locals like TrueSpec Golf and the New York Golf Center.

Call it the PXG effect.

TaylorMade is on the verge of being sold off. Nike has exited the equipment industry, and GolfSmith is closing stores while considering bankruptcy. None of this bodes well for an industry oft reported as being in decline, and yet a start-up company with a pricing structure many said would guarantee its failure has increased sales by 1,100% since last October.

It’s possible history will look back and earmark the advent of PXG as a defining moment in golf equipment history.

The Requisite ORIGIN STORY

Bob Parson’s story is well-documented, but for the sake of context, here’s the abbreviated version.

Parsons is the billionaire GoDaddy founder, who habitually spent hundreds of thousands of dollars annually on golf equipment. It’s a ridiculous number that crosses the boundary between absurd and unbelievable, which is why it’s important to note that MyGolfSpy was able to verify Parsons’ claim independently.

Despite his money and his efforts, Parsons was never able to find the perfect clubs. So rather than continuing to experiment with the status quo, he decided to launch his own golf equipment company. Early in his endeavor, Parsons convinced Ping’s varsity team of engineers (Brad Schweigert and Mike Nicolette) to join him, ostensibly by offering them every engineer’s Shangri-la – no time constraints and an unlimited budget.

The pair was given one rather onerous task: Develop the world’s finest golf equipment.

While there’s been plenty of conversation around whether or not PXG has met the standard it set for itself, what no one is talking about is the significant and disruptive impact PXG is already having on the collective industry landscape.

“Last June, we hadn’t sold a club. Now, we’re at a run rate (based on May 2016) of $42 million”, Parsons told me. $42 million is a long way from peak TaylorMade money, but we can’t lose sight of that fact that we’re talking about a one-year-old company playing by its own rules. In doing so, PXG is creating equipment showcasing a combination of ball speed, forgiveness and playability, and design the industry hasn’t seen before.

Early on, competitors scoffed pointed fingers and even laughed. PXG wasn’t a serious threat to anything. Spending money by the bucket guarantees nothing. Having a reputable name doesn’t assure success either. If it did, Nicklaus golf clubs would be da kine rather than a forgettable footnote in the annals of golf equipment history.

PXG was labeled a fad, a joke and a flash in the pan. The entire equipment industry is contracting, and the conventional wisdom is that only a fool would start a golf company in this environment.

People like Bob Parsons are different. They see opportunities others don’t. They have the courage (and the resources) to defy conventional wisdom – even when it requires delivering a message which causes a certain degree of consternation for the establishment.

In this case, the message is that golf companies have been responsible for relatively little actual innovation over the last decade.

While PXG started as a venture of passion, Parsons believes if you focus as much on the process as you do the product the profits will eventually come.

Thus far the approach seems to be working.

PUTTING THE BOOT IN BOUTIQUE

Competition is good for consumers. It forces companies to produce higher quality products and keep prices in check. But on the industry side, there’s a profound anxiety that accompanies the entrance of a company like PXG into an established market.

Jeff Sheets, Technical Director for Premium Market Mainstay Epon asserts “We love PXG…they’ve opened up new price points to people.”

One has to wonder if the welcoming committee might be hiding torches and pitchforks. A $2000 set of irons isn’t new, but a competitor with legitimate technology and a growing tour presence is an entirely different kind of threat to the market segment previously dominated by Epon and Miura.

“We’re selling the hell out of them [PXG].” said Hoyt McGarity, Co-founder of TrueSpec Golf.

If PXG is winning the sales battle, then someone has to be losing it. McGarity told us that, at TrueSpec, PXG wins the majority of the time. Epon remains within shouting distance, but where’s that leave Miura? McGarity opines, “Well, this has got to be killing them.”

Josh Chervokas, CEO of the New York Golf Center, is seeing similar results.

PXG has the advantage…for now, but it’s a copycat industry and we expect competitors will react and respond in some fashion. Says Mike Nicolette, Director at PXG, “We expect that, and we appreciate that. Competition is good.”

With 70 approved patents and counting, it will be an uphill battle for anyone, especially engineers operating under the type of time and budget constraints that don’t exist at PXG.

Neither Miura nor Epon was willing to share detailed numbers, but Bill Holowaty, Executive VP of Product Strategies for Miura, did concede, “PXG has had an impact on [consumer] purchasing decisions.”

Dustin Vaughn, Program Manager for Epon North America, quantified it a bit better. “From 2014 to 2015, we were up 30%. 1st Quarter of 2016 was flat to down, but 2nd Quarter of 2016 looks a lot more like 2nd quarter 2015.” Dustin chalks the poor start to 2016 up to a native curiosity.

But should and do can be as different as John Daly and Corey Pavin.

Chipping Away at the Mainstream

What about the mainstream golf companies?

The premium market is one that the big boys might be well advised to avoid, but that hasn’t kept some of them from testing the waters.

Nike is gone, and TaylorMade is in a period of transition. When the dust settles, mainline OEM’s may be content to split the share from those who dropped off. For the time being Callaway, Ping, Cobra, and Mizuno haven’t directly responded to PXG, but Titleist has shown a willingness to enter the fray.

Earlier this year, Titleist released its C16 concept series of drivers and irons. The new models feature new materials, new technology, and a brand new price point. Equal parts compelling and risky, and made in actually limited quantities, C16 was the litmus test for Titleist’s viability in the premium market.

According to a source who spoke on condition of anonymity, the C16 has exceeded Titleist’s every expectation. We’re told that there are less than 200 of each driver head left, and the likelihood is that additional Concept products will be released to the premium market in the future, though not on any specific timetable.

With the impending arrival of the 917, the waters could get muddied. Visually, 917 is almost indistinguishable from the C16, but its mainline technology comes at a substantially reduced price. Will this sabotage the premium line while leaving the average golfer wondering if he might be getting watered down technology?

PXG has no such dilemma. Unlike Epon and Miura, PXG has a single story based on quantifiable technology, and unlike Titleist, there aren’t similar products available at significantly lower price points.

Epon and Miura aren’t the only ones feeling the heat from PXG. Callaway’s Apex line was the darling of 2015 for custom clubfitters, but PXG is poaching sales from Callaway’s aging (by today’s standard) flagship as well. This isn’t so much a knock on Callaway as it is a statement on the legitimacy of PXG. When the product costs twice as much, and you don’t have a track record or any history to leverage, and yet it’s winning performance battles, and golfers are buying it, that speaks volumes.

Perhaps more correlative than causal, you may have noticed that iron prices are on the rise. Callaway, Ping, and Mizuno have both introduced new product at the $1200 mark. The point of interest here is the trend, not the absolute number. As baseline prices creep higher, the price gap between niche and mass market slowly shrinks, and consumers may be inclined to go with the more expensive product, especially when it offers better performance.

AN OVERNIGHT FORCE ON TOUR

The PGA Tour is a meritocracy where players earn the privilege to compete for millions of dollars on a weekly basis.

It’s also where golf equipment goes to be validated.

While many equipment and ball counts are routinely bought and sold several times over, it’s fool’s logic to willingly sacrifice quality for short-term money. The best way to enjoy the fruits of the lucrative PGA Tour are to stick around, and that can’t happen unless you consistently play well.

So how in the name of Zeus’ beard did an unproven start-up land some of the best players on the planet? Naysayers want to believe it’s Parson’s deep pockets, but PXG insists players came to them. The answer, according to PXG’s staffers, is simple.

The equipment is better.

Zach Johnson took his entire team out to Scottsdale and examined anything and everything from all possible angles before reaching the same conclusion as Ryan Moore, James Hahn, Billy Horschel, Chris Kirk, and most recently, Charl Schwartzel. These aren’t some also-ran hacks – they’re elite professional golfers whose equipment is inextricably linked to their success.

Think about that for just a moment. A growing list of elite professional golfers is trusting their livelihood to a less than two-year-old equipment company. That’s nothing short of remarkable.

These aren’t isolated cases either. Other names you’d know have kicked the tires on PXG, but sources speaking on condition of anonymity have told us that, more than once, the decision has come down to money, and it was PXG that wouldn’t pay the ask. For all of its apparent resources, the company isn’t spending recklessly.

Nike folded its hand and expectations are TaylorMade will make sizable spending cuts on Tour. If you believe in the traditional pyramid of influence, where the PGA Tour Pro is the top of the food chain, this leaves PXG is in prime position to be as big of a force on tour as it wants to be.

For Every Action…

With the sudden emergence (and success) of PXG, a competitive response is inevitable.

Epon is retooling its North American product offerings. August 25th witnessed a teardrop shaped wedge with multiple bounce/grind options, and – here’s the kicker – an iron with the spring steel face technology of the 503/703 series in a head similar in shape to the AF Tour. Color it however you please, but this is most certainly Epon’s answer to the PXG 0311T.  You can also expect Epon to have a more forceful presence at the PGA show in January but don’t expect to see PXG there.

“You don’t see Ferarri at the Detroit Auto Show, do you?” Parsons asked rhetorically.

Miura’s intentions remain a bit of a mystery, though Holowaty did promise, “There will be lots of new products you haven’t seen in the past…lots of really cool things coming.”

The tacit question is will these cool new toys have the firepower to go head to head with PXG? The question for Miura isn’t as much will they change as can they change? The DNA of Miura is that of a small, family run business who believes better players will ultimately “Discover Perfection”. It’s not an edgy company with a bent for pushing the technology envelope. That said, if rumors of Tiger Woods bagging Miura irons come to fruition, Miura could find itself in prime position to disrupt the disrupter.

Callaway, Ping, Cobra, Mizuno and others will likely stay the course while incorporating like technologies to the extent it fits within the brand identity and, more importantly, the brand budget.

Both Callaway and Ping have worked hard to establish solid identities which don’t require an elite line to compete directly with PXG, while companies like Cobra and Mizuno simply aren’t large enough to find the kind of reward that justifies the risk.

With few challengers in a market one could argue PXG created for itself, sales will continue to climb, and when we’re talking about it as a 100-million-dollar company, you can bet every OEM will have a version of the 0311/0311T.

Much like the 1949 Willys Jeep Station Wagon is the reason every auto manufacturer makes some version of an SUV, PXG will be the reason every OEM has an iron with player aesthetics and game-improvement ball speeds.

This has always been the holy grail of iron design.

It’s not always about who is purchasing your products (demographics). The way a company can alter the attitudes and opinions of people (psychographics) makes it possible to create new boundaries. When people alter why they want a particular product, cost becomes less of a determining factor.

Who would have believed that it would be routine to spend $300 on a pair of Beats headphones, $400 on a Yeti cooler, or $700 for a damn phone? So is $2,800 set of irons really any more absurd?

Only the Beginning

The significance of PXG isn’t limited to sales figures and the number of PGA Tour wins. It’s equally visible in both calculated (Epon Personal 3) and uncharacteristic (Titleist C16) product releases from its competitors.

The greatest impact a company can have is to forever change the landscape of its industry. Graphite shafts, woods made of metal, solid-core balls, Anser style putters. To varying degrees, all were received with a healthy skepticism, but in time each proved to be universally better than the status quo.

PXG is broaching new territory; its identity is as unique as it is unprecedented. There isn’t a single company PXG is looking to emulate. In this regard, PXG is the embodiment of Parsons himself. Boundaries be damned, PXG is doing to do what it wants to do, and it’s going to do it with an unapologetic flair; pushing boundaries while providing those consumers that can afford it with the best-performing golf equipment on the market.

McGarity says, “I don’t see them going anywhere…[they’re] only gaining traction and getting bigger.”

How big will PXG get? As big as it wants.