Many years ago James Carville’s oft quoted phrase formed the foundation of a very successful presidential bid, turning that catchphrase into pay dirt for an up and coming politician from Arkansas.  In trying to understand 2018’s golf equipment sales expansion thru the On and Off Course Specialty channels, our analysis keeps coming back to the origins of that simple statement.  While there is a lot of very good product in the equipment market, there hasn’t been a quantum leap in technology or design that would typically spur substantial sales improvement.  So what is driving sales higher?

So far thru Q3 2018 we’ve seen the following sales increases in equipment:

Consumables/Light Durables              +4.8%

Golf Clubs                                               +9.1%

Total Golf Equipment                           +7.2%

Golf Datatech believes much of the 2018 sales improvement is based upon broad economic improvements in the US economy, coming on the heels of nearly a decade of very cautious spending, particularly on discretionary consumer durables, like golf clubs.

Macro Economic Positive Impacts

The following measures provide some evidence to support the economics of expansion:

-US GDP was +3.5% in Q 3018 vs. +3.2% in 2017, on a YTD basis total golf equipment sales have been outpacing GDP by more than 2:1.

-Consumer spending for Q3 was +4.0%, significantly higher than expectations from economists. Since consumer spending represents more than 2/3’s of US GDP, the consumer is a critical piece of how the economy performs.

-US Consumer Confidence Index = 138.4 in September of 2018, the highest since 2001, and continuing an upward trend since reaching a low of 25.8 during the Great Recession

-US Unemployment sits at 3.7%, down from nearly 10% during the height of the Great Recession

-Asset values for many Americans are up substantially, with the stock market at record highs before the most recent correction, however even with the downward move stocks remain well above Pre Recession levels.  And housing values have rebounded significantly from their lows, leaving many feeling better about their nest egg/retirement years.

-The 2018 tax cuts put extra dollars in the pockets of the average American, providing them with spending cash, some of which they are spending on golf products.

-All this positive consumer data is finally helping most Americans come out of the bunker they more or less stayed in since the Great Recession decimated their asset values, their retirement plans, and their lives in general.  For many those mental scars will never totally disappear, however distance and time provides some return to “normalcy”.

Golf Equipment Gains

In Consumables and Light Durables we’ve seen improvements in both units and dollars across all the various categories, led by shoes and bags (up 7%-8%), while balls and gloves edged slightly higher (2%-3%).

In Golf Club terms, the number of sticks sold in irons and woods had been declining for several years, however of late many of the club categories have seen bottoms form on their long term unit trend lines, and in some cases they are starting to move higher.  At the same time, average selling prices have exploded, the combination of unit improvement and higher ASP’s has the club category in particular, rocking like it hasn’t in many years.  Clubs are led by Wedges, Irons and Hybrids (all up 15%+) while drivers, fairways and putters have all hovered near flat to slightly higher.

Potential Headwinds

Looking forward, there are potential headwinds facing the golf industry, including but not limited to:

-Interest rates have moved significantly higher, and every indication is that they will continue to rise at least in the short term.  Higher rates have the potential to dampen broader economic growth, slow profit gains for corporations, and lower stock prices,  while also negatively impacting housing prices and potentially reducing consumer confidence, all of which could influence consumer spending moving forward.

-The full impact of the proposed tariffs and the potential for a full scale trade war with China could have an impact on the golf industry.  Higher prices on products due to tariffs will likely mean slowing demand, which is not where golf equipment wants to go, given that it’s just started to grow once again.  This is not a certain outcome, because the tariff situation thus far seems somewhat fluid, however longer term it could evolve and become an issue.

Summary

While golf companies rightfully focus on new designs, new materials, moving CG’s, improving MOI’s, and gaining the maximum distance for their golfers, the broader US economy will always have a substantial impact on sales of golf equipment.  Given the uncertainty and unease surrounding the results of the upcoming mid term elections, what happens to the US economically remains important to projecting where the golf industry will head in the short term.