Tour Edge and the Battle of Attrition

Consistently turning a profit in golf equipment business is no small achievement. In fact, you probably have a better chance of playing Cypress Point than making a fortune selling clubs and balls. And that’s before any consideration for the wholly unpredictable current economic environment.

So why do some companies make it big while others become dust in the wind?

Is it timing? Luck? Performance? Differentiation? Adaptability? Leadership?

Answer: “D.” All of the above.

Larger companies tend to have more cash on hand, making it easier to weather any economic storm – even one caused by a pandemic.

But beyond the market leaders, there exists a host of club manufacturers looking to cash in on a void – or what we’ve termed the opportunity gap. If there’s an on-paper favorite, recent history suggests it should be Tour Edge.

“Tour Edge has always been a challenger brand that has had to go toe to toe with the largest golf OEMs,” says David Glod, Founder of Tour Edge. “For 34 years we’ve learned how to navigate those waters.”

However, no brand, regardless of past success, is immune to the harsh realities of an extremely competitive marketplace. Or put another way, the market sets the rules. Consumers determine the outcome.

90-24-6

Revenue is the lifeblood of any company and, like sausage, how it gets made isn’t always a pretty picture. With that, retracing recent financial reports from Callaway (ELY) and Acushnet/Titleist (GOLF) presents an intriguing, if not counterintuitive, approach to driving sales. More on that in a bit.

With that, one potential angle to contemplate is whether smaller OEMs (Tour Edge, Inesis, Sub70, New Level) will leverage similar strategies as each battles to fill a meaningful portion of the aforementioned opportunity gap. To understand where this gap exists, just think 90-24-6.

Quick recap: Golf’s five largest OEMs (Callaway, Acushnet/Titleist, TaylorMade, PING, Puma/Cobra) hold roughly 90 percent of the market share in the equipment space. As a group, they dictate expected retail prices and release cycles. There’s your “90.”

Of the approximately 24 million golfing consumers, roughly six million account for the majority of the annual spending. This segment attracts most of the attention from major OEMs. There’s the “24” and the “6.”

The remaining 18 million potential customers represent a lucrative and important market for small and mid-sized manufacturers, provided they can offer an attractive combination of price and performance.

Everyone has a plan…

Not so many months ago the outlook for the industry at large was rosy. More people were playing golf for the first time, the economy was chugging along and I’d already penciled in Tiger for several more majors.

But, like Mike Tyson said, “Everyone has a plan until they get punched in the mouth.” Well, this wasn’t a punch. It was several haymakers, a double-suplex and a sleeper-hold all in one.

Not that anyone anticipated such a drastic and immediate economic fallout but echoing the thoughts of the industry as whole, “the timing was not good for anyone on this thing,” Glod told MyGolfSpy. “We had our most complete product line-up in our company history and we were on track to shatter every sales record this year.” Best-laid plans of mice and men and all of that.

It might require some creative latitude but trust me on this one. Judge Smails (the Caddyshack curmudgeon) more or less foretold the economic context in his now-famous boat poem.

It’s easy to grin (and sell some golf stuff)

when your ship comes in and you’ve got the stock market beat (people have disposable income).

But the man worthwhile (companies that will confront adverse conditions and succeed – or at least stick around),

Is the man who can smile, When his shorts are too tight in the seat. (margins aren’t high enough to invest in growing the company but there’s enough to keep the lights on).

Diversify Your Bonds

As mentioned, the financial reports from the two largest publicly traded golf brands (Callaway and Acushnet) give us some perspective on how each plans to hedge in certain areas and expand in others.

From 2018 to 2019, Callaway’s total sales went from $1.42 billion to $1.7 billion – an eye-popping increase of 37 percent. However, 75 percent of that growth came from Jack Wolfskin, the premium European lifestyle and outdoor brand Callaway purchased in 2019. Add in sales from other brands under the Callaway umbrella (OGIO, Travis Matthew and a chunk of Topgolf) and it seems Callaway is in acquisition mode. The goal of which is to, in part, equipment-proof its business. Yes, there’s some irony in an equipment company working to become less reliant on its most identifiable product line, but c’est la vie.

In 2019, Titleist’s parent company, Acushnet, produced gross sales of $1.68 billion with a net profit of $121 million. Golf balls accounted for $551 million of the total. FootJoy ($442 million) and Titleist gear such as hats and gloves ($150 million) added handsomely to the bottom line as well.

The biggest companies understand that continued growth and success depends on finding ways to become less dependent on any single market segment. It’s a reasonable strategy, even if it’s a bit counter-intuitive. It’s like suggesting Apple become more economically stable without selling more electronics.

Furthermore, it’s not a strategy that small and mid-sized OEMs are well-positioned to mimic. These companies, which are by definition smaller, don’t have a portfolio of diversified assets to leverage. There isn’t a single best approach to creating high-value (moderate-cost) equipment. In general, the priority is to use any net profits to help grow the core business, not necessarily acquire ancillary brands as a form of insurance.

It’s only because the major manufacturers have spent the last several years chasing each other up the pricing ladder, that real opportunities for lower-cost brands exist on the lower rungs.

What Becomes

Tiger Woods couldn’t sell enough equipment to keep NIKE in the game. adidas sold TaylorMade to a private equity firm, KPS Capital Partners, in 2017. Ben Hogan was there, took a hiatus, and now is back as a quasi-DTC brand.

Change is inevitable but survival is not. See: Adams, Nickent, Scratch, Yes! and Hopkins to name just a few that didn’t make it.

The reasons these companies failed are varied, though performance isn’t at the top of the list.

The economics of the golf industry can be brutal. At the end of the day, no one really cares if your golf company makes it or not. Truthfully, we could eliminate a handful of OEMs from the landscape and most wouldn’t notice any difference. It’s callous, but a reality, nonetheless.

Competitive balance is important. A dynamic marketplace that pushes companies to innovate and create better products is vital. But how many companies do we actually need? At what point does choice become superfluous?

Who Wins?

We’ve already established the lucrative opportunity presented by some 18 million potential consumers. We might assume that purchasing decisions for the majority will center around value rather than label appeal. If there’s an incumbent in this race, it’s likely Tour Edge. It’s certainly not the only option but most other manufacturers in this space would admit (if they were being honest) that they view Tour Edge as having a leg up.

Fair enough, but why?

David Glod started Tour Edge just prior to the stock market crash of 1987. His company survived that as well as the Asian Crisis (1997), the Dotcom bubble (1999-2000) and the Great Recession of 2008. More than that, Tour Edge has managed to turn a profit every year.

“Constant pressure has led us to thrive in a tough market and to create designs that are loaded with cutting-edge tech at astounding price points. Being smaller has allowed us to be nimble and to do things differently than the larger brands,” says Glod.

Though the streak might come to a halt in 2020, three decades of operating in the black doesn’t happen by accident. It’s also true that Tour Edge has largely employed a business model different from Callaway, Titleist, TaylorMade and others. This allowed Glod and his team to gradually cultivate a following based on performance. There’s no better example of this than the original CB line of fairway woods.

Because Tour Edge is privately held, we don’t get the same access to annual financial records but there’s plenty of anecdotal evidence that speaks loud enough.

Plans and Such

For most of its existence, Tour Edge was all about grassroots, word-of-mouth advertising. It didn’t pay tour players to bag equipment, creating an authenticity that resonated with plenty of consumers. Still, the technology caught the attention of plenty of PGA TOUR players who used Tour Edge fairway woods without compensation. Brandt Snedeker bagged a CB4 model en route to winning the 2012 FedEx Cup and Tour Championship. Matt Kuchar, J.B. Holmes, Luke Donald and Brian Gay also repped Tour Edge while winning a combined 10 times on the PGA TOUR and making several Ryder Cup appearances.

That all changed when TaylorMade effectively shuttered Adams Golf. At the time, Adams owned the fairway wood and hybrid space on the PGA TOUR Champions (golf’s senior tour). But starting in the fall of 2017, Tour Edge decided to stake its claim, assembling a small but important cadre of players like Tom Lehman, Scott McCarron and Bart Bryant.

The upside was clear. Tour Edge had a proven avenue to create additional exposure and tour validation. It did, however, violate its long-standing practice to not pay players to use Tour Edge equipment. For Tour Edge, it was a 10-steps forward, one-step back situation.

Also, consider that the funds needed to support Champions Tour players are a far cry from what it costs to get into the bag of marquee players on the PGA TOUR. Yes, tour spend is down overall but the per-player investment is less on the Champions. Another potential risk is the inherent association with a population that’s primarily older, white and male. For better or worse, consumer perception isn’t likely to change based on a single advertising campaign or set of commercials so for now, Tour Edge appears to be all-in with this demographic.

Could this alienate a certain segment of buyers who otherwise would have been inclined to buy Tour Edge equipment? Possibly. Then again, the industry at large is disproportionately white and male, so what do I know?

The Goods

Tour Edge doesn’t own any soft goods or apparel brands. However, each line of equipment acts almost as a separate entity with certain characteristics meant to address the needs of 90 percent-plus of golfers. Tour Edge doesn’t likely gain anything by competing directly against TaylorMade, Callaway and Titleist by using a similar approach. So, while the statistics (ball speed, MOI, spin rates, etc.) might suggest some equivalency, Tour Edge doesn’t have the same depth of shaft selection or the variety of clubheads as the larger companies.

This hasn’t kept Tour Edge from holding its own in MyGolfSpy’s annual Most Wanted testing.

Glod is quick to remind golfers, “all you need to do to see how we stack up on the biggest stage is to study the 2020 Most Wanted driver test results. The EXS 220 was one of the most consistent performers across the board in every metric.”

Beyond its flagship EXS line, Tour Edge has four distinct lines, each with a distinct target market and selling points.

CBX

Until recently, CBX was synonymous with Exotics. Starting with CB1, the Exotics line of fairway woods was responsible for establishing the cult-like following that put Tour Edge on the map. Or at the very least, into the forums and conversations of niche gear junkies. Moving forward, the line is likely to continue to showcase Tour Edge’s exploratory manufacturing techniques and latest materials. It will be the lowest-volume line and carry the heftiest price tag. Just basic Econ 101 stuff there.

EXS

In terms of which line consumers most associate with Tour Edge, it would love EXS to take center stage. It’s the primary example Tour Edge uses to support its “pound for pound, nothing comes close” tagline. It’s also the only line engineered to compete directly against market leaders. As noted, one of the reasons Tour Edge can maintain lower prices is that it doesn’t offer the variety of lofts and aftermarket shafts throughout the metalwood line-up as some of the big boys.

Part of Tour Edge’s reasoning is that most of its target golfers won’t see much, if any, benefit from dropping another $300 on an exotic shaft. To that end, Tour Edge invested in an R&D robot (T.E.D., short for Tour Edge Developmental) to help determine the highest-performing shafts based on swing speed. This is one of those “good for most, but not for all” approaches.

As much as Tour Edge would like golfers to believe there’s a single shaft which is best for all players in a swing speed range, that isn’t the case. However, this limited selection means there’s less opportunity for golfers to totally botch a self-fitting. Also, while more criteria than swing speed should determine the optimal shaft, it’s a reasonable place for the majority of golfers in Tour Edge’s target demographic to start. Basically, it’s an approach that’s good enough for most golfers and far better than grabbing a club off the rack.

We should also point out that with a single head model and three shafts, this intentional limitation helps reduce extraneous costs of additional tooling and expensive after-market/exotic shafts. At some point, every company has to decide for which golfer it isn’t going to be an ideal fit. For Tour Edge, it’s the golfer who is willing to pay a premium for the full menu of latest technology and access to a wide array of custom fitting options.

Hot Launch/Bazooka

At first glance, the HL4 and Bazooka lines might not wow you but make no mistake, these are cash cows. Both feature a reasonable amount of modern technology with slightly fewer total options than EXS. Hot Launch is the focus of Tour Edge’s 48-hour fitting-to-delivery initiative. Bazooka is arguably the least expensive, most functional $350 boxed set on the market.

The real story here isn’t seen in the spec sheets or features and benefits documents. It’s that these higher-margin, higher-volume lines serve a similar function for Tour Edge as name-brand cereal does for grocery stores. The success of the less expensive lines supports the existence of the more expensive ones.

It’s a reality mostly unacknowledged by internet-savvy gear heads. Simply, it’s not in the wheelhouse of topics generally debated or covered by those with an above-average golf equipment IQ. However, whether a company is still around in 2021 might be due to the product lines and brands you don’t hear much about or recognize.

All that aside, should Tour Edge assume the lead and capture a controlling piece of the 18 million value-thirsty golfers, I doubt Glod and his team will much care if anyone understands the underlying economics. The checks will all cash the same.

Parting Thoughts

There are many calling for golf to become more accessible. No doubt the cost and availability of equipment are part of that picture. To be clear, the equipment portion of the golf industry is pressing up on $9 billion a year in retail sales. That’s plenty of monetary incentive for any equipment brand. It also puts the equipment industry big boys on a collision course with the medium and smaller-sized enterprises.

The primary point of differentiation for value-based companies like Tour Edge is the price. But what happens when the industry leaders crash the price party and employ the slash- (prices) and-burn (inventory) approach?

Glod is optimistic. “We will pick back up right where we left off because all of our products’ performance speaks for itself and because we feel we are the most complete manufacturer in terms of offering something for every different type of golfer and price point.”

That’s all well and good, but is it realistic?