Inside the Bubble: Golf In the American Marketplace Part I

Written By: Jay Baker

Today the golf industry is going through a paradigm shift in its fundamental structure. Chances are, if you are reading this, you have purchased some sort of golf product in the last 30 days and most likely made a major golf purchase, such as clubs, in the last 90 days. Get ready because the way you “buy golf” is changing. There are three major factors I would like to address over the next few days to provide a constructive deconstruction on how the future of golf retail will be shaped.

Before I became a commercial retail broker, I spent several years in the golf retail industry on the manufacturer’s side. I worked for a few different companies, some really large and some really small, and was tasked with wearing several different hats through my career. Now working in another trade, I look back and wonder how golf companies stay in business.

While the true golf crash didn’t happen until this year, the readjustment on how golf clubs are sold has been going on for quite some time. I know that in my golf retail experience, the industry changed greatly, yet in some ways unfortunately stayed the same. MyGolfSpy has certainly covered several stories this year that reflect some of the major issues with the changes in golf.

I learned several things working in the golf industry, most notably that it is controlled by a secret organization. Sources say that the guys pulling the strings on the marionette are crusty, old, archaic, white men with shadows over their faces. Cobra Commander is thought to have once been their leader.

The secret organization believes golf exists in its own bubble and cannot be altered by outside factors. This diabolical round table suffers from control issues, isn’t progressive, could care less about growing the game, and has an evil lair somewhere in Carlsbad. It’s like Scientology without the Sea Org.

Seriously though, the BIG 5 golf companies manage about 90% of the money in golf retail. There is little transparency and control is the most important thing to them. However, there are several factors in the American Marketplace that influence the golf industry and is out of their of control. I recently attended an ICSC convention at the end of October where retailers and brokers significant components that will reshape the retail industry in the near future. Golf retail will not be immune whether the old guard likes it or not.

I’d like to take the next few days to cover topics that don’t have to do with rounds played, weather, or the growth of the game. These topics are external factors that very few retailers or manufacturers in the 21^st century can ignore. They will even affect you as a customer if you plan to buy in the next year and will change how equipment is bought and sold.

Part 1: The Internet

Ermigherd! I just said the worst 4-letter word to any Brick & Mortar establishment right now. B&M retailers are scared to death of the “Internets” and fancy space computers. However, through my research for the article, I’ve learned that not only should the B&M retailers not be afraid of the Internet, they should embrace it.

This feels like a fad.

After speaking with a UPS Market Analysis Manager, I found out that the eCommerce is growing at about 10% each year, based on the shipments. That’s consistent growth but nowhere close to a takeover. Only 6% of all sales are pilfered by eCommerce from the B&M retailers. That means 94% of all retail spending takes place in stores (Source: ICSC). My 4^th grade Math teacher would be so proud of me right now.

Source: ICSC

Even more intriguing, retailers believe that the eCommerce sales will have a ceiling at about 10% due to several issues. Ridiculous shopping policies/terms, lack of inventory ready to ship, low quality knock-offs, increasing shipping costs, and fake customer reviews are all factors that negatively influence a person’s decision to buy online.  Trust is key when making an online purchase.

Source: ICSC

I can hear you through the computer screen “Of course the retailers are saying that!  Conspiracy! Where’s my Guy Fawkes mask?” Well, au contraire mon frère. The B&M retailers actually need the Internet.

It’s called omni-channel retail and it is the future of buying. The Internet is actually used to compliment B&M retail, not compete. Macy’s claims online shopping makes some stores stronger than they might have been otherwise (Karen Hoguet, CFO).  Omni-channel consumers are (3 times) more likely to shop and spend more on average (3.5 times) than single-channel shoppers. eCommerce can improve poor locations with in-store pickups, which has higher net sales than direct shipment and exchange (Source: ICSC).

A recent survey by Alexander Babbage, INC. for ICSC indicated several advantages in-store shopping still holds over online shopping:

•  73% touching/trying merchandise before buying
• 58% easier to shop/find a specific item
• 58% combine in-store shopping with other errands
• 40% fun activity with friends and family

In store conversion rates are still 4 times higher than the online experience. People will always prefer to “touch and feel” before making a purchase. If the consumer has to fill an immediate need or want, the eCommerce is not even an option.

The Amazon/TMAG same-day-delivery program was 86ed after the drone mistook golfers for ISIS.

Online retailers like Bonobos, Athleta, Warby Parker, Baublebar, and Piperlime are now opening physical locations. They understand the importance of omni-channel strategies and could also be motivated by escalating customer acquisition costs. Here is what they are saying in their own words:

• “We had tested offline in a few different pop-up concepts, but [then] last summer we
saw a couple of customer behaviors that made us realize we needed to move fast in terms of offering physical retail to customers. A lot of online-first brands have seen this happen.” Amy Jain, co-founder of BaubleBar
• “The opportunity online is synergistic with our retail strategy, and creating beautiful, profitable freestanding stores just complements our Web business in several ways.” Neil Blumenthal, co-founder of Warby Parker
• “[O]n average, order values in the Guideshop stores are double what they are online, return rates are lower, and repeat transactions happen in a shorter time period.” Kaitlyn Riley Axelrod, senior public relations manager, Bonobos (Barbara Thau, “Getting Physical: Online Retailers Move Offline,” Chain Store Age, May 7, 2013, http://www.chainstoreage.com.)

All of the people that spoke with me and the research I gathered shows that the Internet isn’t the big bad bogeyman that traditional B&M retailers would lead you to believe. Golf shouldn’t be scared of the Internet either.

Honey badger don’t care! This is golf retail.

Yes, golf retail probably does have more of an Internet problem than a clothing store or grocery store. There’s also a large used equipment category that the grocery store doesn’t have to consider either. However, the Internet is not the reason golf stores are closing. Despite what the message boards tell us, not everyone is going to Golfsmith to try clubs on the simulator only to buy fake ones on eBay.

Online shopping increases the possibility of buying fake equipment as well.  Don’t even get me started on Ali Baba.  Usually B&M golf retailers are authorized dealers whereas online golf retailers don’t always have a professional relationship with the manufacturer. There is even a dirtier side where the manufacturers dump product to non-authorized online retailers at a deeply reduced price to move inventory in large volumes. While the prices for seem too good to be true, the equipment is in fact legitimate. Some consumers will pay extra just for piece of mind but others take advantage of a fire sale. Sellers on eBay have been especially known for their problems concerning fakes and pricing policy offenses.

However, even eBay has acknowledged they can’t kill your neighborhood golf store, but I am sure they are working on it.  Devin Wenig, President of eBay Marketplaces, stated in a recent article: “I should say the death of the store has been greatly exaggerated. There will be a transformation of retail real estate, but not an end to it. You could step back and connect the dots and say, ‘the world’s going to have e-commerce only’ and that ‘stores are dead,’ but we don’t see that future at all – in part because I don’t think consumers want that future. I think people like to shop and they like the serendipity of stores. Shopping is as much about entertainment and engagement as it is about utility.” (Devin Wenig, “How Digital is Transforming Retail: The View From eBay,” Mckinsey & Company, July 2014, http://www.mckinsey.com.)

The B&M golf retailers should be trying to figure out a way to establish omni-channel strategies, like in-store fulfillment for online purchases, which can increase the number of ways they interact with the consumer and the serendipitous exeperience. It’s easier said than done but one strategy that can be utilized is fitting. You can’t effectively custom fit online. Employees should demonstrate a strong knowledgebase during fittings to keep up with the online-informed customer. Furthermore, the social interaction can be the chief motivating factor for a consumer to visit a physical store location. Store managers need to emphasis that to their employees.

Source: ICSC

A Corporate Golf Sales Rep, who asked to remain nameless, told me that he still finds people crave customer service and his company’s customers respond to that experience. A properly fit golfer is a happy customer. Self-fitting online can be a crapshoot. He believes that the Internet will slightly reduce the size of B&M golf retailers as well as reducing the inventory on-hand but that is going to happen regardless because custom-fit golf clubs are becoming more popular.

“But the Internet said I needed a XX low spin/high launch monster.”

Of course this isn’t taking into consideration direct to customer sales from the manufacturer, which can be a problem for some retailers. Ping and Titleist do not sell clubs direct to the customer online, so their retailers are better protected. I don’t think either of them will change that policy for the foreseeable future either. If it ain’t broke, don’t fix it. Others such as Taylormade and Callaway take a different approach and don’t mind cutting out the middleman.  How can online or physical golf stores compete with their supplier? They can’t. This will probably be the most interesting front as golf retail progresses online.

The Internet can be a great complimentary piece to a B&M golf retail operation. It not only helps the consumer but the retailer as well. We are seeing more and more retailers take back the control of their online presence to help supplement in-store execution. The Internet problem that golf faces can be a solution going forward and it will be for the successful retailers. The consumers will ultimately benefit as well. Some will embrace the change while others will treat technology like mixing OJ and toothpaste or alcohol and texting. In the end, it will forever change the way you buy golf equipment.

More to Come

Be sure to come back tomorrow to read Part 2 (Real Estate) of Jay’s series.