The company will continue to sell golf footwear and apparel, but will halt production of clubs, balls, and bags. The company reported an 8% sales drop for its golf business last year, from $769 million down to $706 million. It does not break out apparel sales from the rest. Golf was its worst-performing business last year.
Nike tried to spin the news as a positive, saying the company “will accelerate innovation in its golf footwear and apparel business.” Nike brand president Trevor Edwards continued the spin: “We’re committed to being the undisputed leader in golf footwear and apparel. We will achieve this by investing in performance innovation for athletes and delivering sustainable profitable growth for Nike Golf.”
But make no mistake: the news here is that Nike is ditching golf clubs. And it’s smart to do so. The golf-club industry is broken.
Golf equipment brand TaylorMade, which Adidas Group acquired in 1997, is a good example. TaylorMade sales fell in seven of the past nine quarters, including a precipitous 26% drop in one quarter in 2014. It finally led Adidas to wave a white flag in golf equipment, announcing in May it would seek a buyer for TaylorMade, as well as for club-maker Adams and apparel line Ashworth. (It will hold on to Adidas Golf, which makes shoes and apparel, just like Nike will do.)
It’s unclear who would buy TaylorMade, because all the other golf-equipment businesses are struggling too.
TaylorMade was the No. 1 club-maker for years until it got unseated recently by Callaway, now the only publicly traded (ELY) company making clubs. Callaway had a great year in 2014. What qualified as a great year? It was the first year it made a profit since 2008. Last year, it was again profitable, but less so, bringing in $14.6 million compared to $16 million the year before. Analysts say TaylorMade is likely too expensive for Callaway.
Acushnet, which owns ball-maker Titleist and shoe brand Footjoy, filed for IPO this summer and is looking for $100 million or more to finance the offering. But its sales fell in 2015 to $1.5 billion and it posted a loss. It’s unlikely it can afford a big acquisition any time soon.
Why is the golf-club business so bad? Companies and industry experts point to two things: over-production and general sentiment.
When things were sunny in golf, club-makers became accustomed to releasing new drivers and clubs, and new ball models with small supposed improvements, every single year. After the 2008 downturn, product was sitting on shelves. (In a recession, upgrading to new golf clubs is likely something that can wait, for most people.) It’s why Adidas pointed to “slow liquidation of old inventory” in many quarters with bad TaylorMade sales. Golf shops and sporting good chains get stuck with merchandise they can’t sell, even at a discount. (It doesn’t help that so many sporting good chains have gone bankrupt and been liquidated.) The product life cycle has slowed for golf clubs, bags and balls.
Then there’s sentiment. Every year since 2008, more golf clubs have closed in the US than opened; they overbuilt in the boom. Memberships dropped across the country. Ratings have wobbled, though NBC’s Golf Channel reported encouraging growth this year in its millennial audience. Golf just isn’t as cool as pro football, basketball, or baseball these days.
The fall of Tiger Woods certainly did not help. Nike first got into golf with a golf shoe in 1984, and its first sponsored golfer was Seve Ballesteros in 1985. But the business truly took off when it signed Woods in 1996. Nike launched its first golf ball in 1998, and its first clubs in 2002. It built Nike Golf on the back of Woods’s success and stardom. When he faltered, so did Nike Golf. After his public infidelity scandal in 2009, Nike cut prices on all of its ‘TW’ merchandise; it cut Woods’s endorsement fee in half for two years (though it never dropped him); it eventually looked elsewhere.
In 2012, it made a new bet on Irish golfer Rory McIlroy, signing him to a mega 10-year deal. The star won the British Open and the PGA Championship in 2014, but hasn’t won a major since then. He has had great success on the green overall, with four major wins, but the charisma isn’t quite there; his stardom has never approached that of Woods. Nike also sponsors Michelle Wie, currently ranked No. 120 in the world. Woods, McIlroy, Wie, Brooks Koepka, Tony Finau, and the other Nike Golf-sponsored players will have to find new clubs to use.
Many have pointed straight to Tiger Woods as the sole reason Nike is exiting the golf-club game; it isn’t true. The same people try to pin the entire decline of golf on Woods. It’s too easy of an explanation.
The sport has suffered in the Internet age, but is at last seeking to implement hot new technology on the course, and the social media savvy of its young stars, to return to prominence. That could work.
How can golf equipment makers claw back? By changing, says Adidas US chief Mark King, who was formerly the CEO of TaylorMade. “I just think any category runs its play until the play doesn’t work anymore,” King told Yahoo Finance. “And then it’s forced to ask, Do we need to do things differently? I think that’s where the game of golf is today. It needs to change some of the entry points to the game to attract new consumers. And I think golf will find a way to do that, whether that takes five years or 10 years.”
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite. Sportsbook is our recurring sports business video series.
