Discounting & brand value

Industry after industry has followed a similar path.  To keep plants busy and continue growth companies invest heavily in new model development, and broader inventory positions which in turn impact their need to turn that inventory which subsequently creates faster movement towards promotions and discounts which in turn reduces margins and profits for both the manufacturer and the retailer alike.   sometimes stock performance pressure creates environments that are just wrong for the long term health of your business.   Check out this example regarding Dick’s sporting goods having to make some real hard decisions regarding vendors, stocking levels, and even engagement in the world of golf.   This could happen to your distribution channels as well if your not aware.



Dick’s Firings Signal Major Recalibration of the Golf Equipment Industry

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Written By: Tony Covey

The golf equipment industry’s retail model is broken.

That’s an opinion, but it’s an opinion shared by every last person I know in this industry.

As if we needed more evidence that the system is in need of recalibration, Dick’s Sporting Goods, the #1 sporting goods retailer in the USA, very recently fired 100% of  the PGA Professionals on staff.

That is, unfortunately, an undisputed fact.

ESPN’s Darren Rovell reported the number of people who lost their job at over 500. My sources put the number at roughly 550. Either way, it’s a bad situation.

As is usually the case when bad things happen, there is plenty of finger pointing right now. The fingers that aren’t being pointed at Dick’s are trained squarely on TaylorMade, and to a lesser extent, Callaway. Those who are being kind simply blame the equipment companies.

We have reached a tipping point.

Years of accelerated product cycles and equally accelerated consumer discounts have finally caught up with golf’s biggest retailer (Dick’s + the Dick’s-owned Golf Galaxy), and just as quickly it’s catching up with the industry’s two largest manufacturers…and everyone else too.

The Channel is Flooded

Selling off a little bit of inventory at a discount price isn’t necessarily a bad thing. It’s not killing anybody to slash prices and clear out a literal handful of PING and Titleist drivers after a one-and-a-half to two-year lifecycle.

When lifecycles drop to six months and the discounting starts after only 3 or 4 months, it’s a huge problem. It’s half the reason golfers have stopped buying equipment. We have no faith that what we can buy today won’t be cheaper tomorrow.

As one industry contact recently said to me, “golf equipment isn’t like toilet paper. People don’t need to buy it.”

Nailed it. Golfers don’t need to buy new equipment, and so for now, they’re not.

In fairness, nobody…not TaylorMade, not Callaway or anybody else plans on a six-month-release cycle. In golf, just like everything else, sometimes shit just happens. Nobody consciously set out to destroy the golf equipment industry.

The decision to drop the next big thing ahead of schedule is made for any number of reasons, not the least of which is the need to make the balance sheet look palatable for investors. You can absorb a bad quarter or two, but you can really only blame the weather for so long.

Eventually heads roll.

All In

The thing is, a business like Dick’s doesn’t buy as they go. They commit early, and they buy big. For a company the size of Dick’s Sporting Goods TaylorMade is their Costco, they save when they buy in bulk.

They did, and they got stuck holding the bag for a metric shit-ton of TaylorMade gear.

How bad is it?

I spoke with two senior level industry experts yesterday who estimate that a full 60% of Dick’s golf inventory is tied up in TaylorMade. Couple that surplus with another estimate that puts Dick’s TaylorMade sales down by upwards of 40% from last year, and well, it’s pretty easy to pinpoint the source of the congestion.

Net Down to Zero Profits

At any given Dick’s you’re likely to find upwards of 10 different TaylorMade drivers still on shelves. That number includes an assortment of standard models (R1, RBZ, RBZ 2, SLDR, SLDR S, JetSpeed), Pro & TP, black and white, and for good measure, a few Dick’s exclusive’s like the Gloire and RBZ SL.

Having a huge selection of gear, particularly at discount prices isn’t necessarily a bad thing for the consumer, but it’s a huge problem for Dick’s right now.

Because of the way most major manufacturers handle price cuts (a process known as Net Down), Dick’s (and everyone else) only makes much in the way of an actual profit when it sells the very latest and greatest.

For the rest of it (the 6+ month old stuff)…the cost of those discounts was already applied to the purchase of the new gear. So while selling a few R1s might clear some shelf space, it doesn’t actually make Dick’s any real money.

Good news…all those near-zero profit drivers, they still count in the market share reports (Dick’s doesn’t provide info to Golf Datatech, but most other retail outlets do).

Once upon a time retailers could Net Down and still turn a profit. Not anymore, not with this much surplus. With the retail market and the industry as a whole in decline, the accelerated release model has very quickly been proven unsustainable.

Enough Blame to Go Around

While TaylorMade faces the brunt of the criticism, the reality is that this mess isn’t totally on them. Callaway followed the TaylorMade model, and as recently as last year was still talking about being extremely aggressive with their releases.

I’m guessing plans have changed.

Over the last few seasons, Cleveland, Cobra, Adams…actually let’s call it what it is – EVERYBODY not named Titleist, PING, or Nike has aggressively discounted gear early in the season, and they too have contributed to the equipment clog.

Let’s pause for a moment to appreciate those few companies who refused to contribute to what is now, inarguably, a total clusterfuck.

If you’re going to blame TaylorMade for being the leader, shake an angry fist at all of the followers too.

Dick’s shouldn’t get a pass in this either. It’s not a victim by any stretch. Absolutely TaylorMade has been known to do some arm twisting. You want the biggest wholesale discount, you’ll need to buy more inventory than anyone can reasonably expect to sell in this market.

Not only did Dick’s load up with the standard stuff, they partnered with TaylorMade on those exclusives I talked about too. Dick’s went all in with TaylorMade and they got busted.

Dick’s twisted its own arm.

Sadly…that’s only half the story.

The Other Half of the Story

There’s more to this than just a flooded retail channel. It would be easy to view those 500+ golf professionals who lost their jobs this week as collateral damage in TaylorMade’s war on the rest of the golf industry, but the reality is they’re victims of a badly miscalculated power play on the part of Dick’s Sporting Goods.

Have you ever stopped to think why Dick’s even staffed PGA Professionals in the first place? I mean, when you really think about it, it’s ludicrous.

You think the average big box customer cares about custom fitting, or having access to a credentialed PGA Professional? C’mon.

Would Best Buy hire sound engineers to sell stereos?

It’s just bad business to pay someone 40-50K per year to do the same job that somebody else will do for $10 an hour.

That’s not a knock on the PGA Pros who lost their jobs. It’s a safe assumption that the vast majority are more skilled and much more knowledgeable than the average Dick’s associate. They don’t deserve to be out of work right now. They’re talented guys who were in the wrong place.

What I’m suggesting is that Dick’s had a plan…and it wasn’t a particularly good one. The Big box business doesn’t need much in the way of professional anything, at least not at the ground level.

It’s reasonable to assume that the idea to staff PGA Professionals was conceived with the belief that by offering custom fitting (your actual mileage with that will vary) and other services (club repair, regripping) more commonly associated with Green Grass and mom and pop golf businesses, Dick’s could take an even bigger chunk out of the ass of the little guy…and the club pro too.

Credentialed PGA Professionals would add authenticity to Dick’s golf business. They would legitimize the money grab.

Dick’s misread the market and its own customer base.

Big Box is All About Price and Instant Gratification

While there will always be exceptions, the average big box customer doesn’t much care who’s behind the counter. He doesn’t care about custom fitting either.

The majority Dick’s golf customer doesn’t know the store has a PGA Professional on staff. If he does, it doesn’t much matter, because he’s not at Dick’s for the service anyway. He’s there for the inventory. He’s there for instant gratification. Dick’s has what he wants and he doesn’t have to pay for shipping.

Golf consumers aren’t much different than any other consumer. They want what they want for as little as they can possibly spend, and because of MAP Pricing, Dick’s can’t sell him a driver for any less than anybody else.

You know who can? eBay. It’s the only place where anyone has a competitive advantage at retail.

Those who are actually interested in fitting and a full-service experience, they were never going to come to Dick’s in any meaningful numbers. The Big Box stigma is too strong. Those guys…probably guys like most of you; you’re going to a custom fitter, or a golf specialty shop.

Dick’s believed that it could make golfers see them as something more than a big box sporting goods store. They were wrong and 500+ PGA Pros are out of work today because of it.

What Happens Next

This unfortunate Dick’s situation isn’t the story. It’s barely the start of a much larger one.

Big, big (and much needed) changes are coming to the golf equipment industry. Participation in the sport is dropping, and while I’m not one who believes it’s time to start the countdown to the total demise of the game just yet, the current retail sales model is broken. It’s clearly not sustainable in this declining market.

I don’t have any details solid enough to print just yet, but the firings are just the beginning of major changes to Dick’s golf business. The forecasters at Dick’s don’t believe the golf equipment industry has hit bottom yet. They’re cutting back…on inventory, and on floor space.

Make room for Yoga. That’s where the money is. And I’m not kidding.

That alone will impact the industry in a big way. Inside their biggest revenue source, golf companies will have less square footage peddle their wares. It’s a potentially massive shift.

We believe we’re going to see a much more restrained industry. Expectations will be reset. Product cycles will rationalize, and the rapid discount game is going to come to a very sudden halt.

Direct to consumer sales will be a larger part of the strategy for most golf companies, and that’s going to take yet another chunk out of what’s left of the retail guy’s ass. It’s going to get worse before it gets better.

My guess is that all of this trickles down to my side of the industry as well. There will likely be fewer and smaller media events. The free equipment frenzy that keeps the average golf blogger banging away at his keyboard is going to end. There’s going to be much less to go around.

Existing advertising models? We’ll see.

The entire golf industry is going to contract and consolidate.

Some will no doubt accuse us of being overly dramatic (we respect your opinion), but the industry has been tumbling towards this inevitability for a while now, and the firings at Dick’s are only a harbinger (what an ominous word, right) of even bigger changes to come.

At the risk of overstating it, we believe this is nothing less than chapter one of the biggest equipment story in the history of MyGolfSpy.

Stay tuned for the rest of the story…

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