The Big Picture-Past & Present
Just about a year ago all of the world’s major economies were enjoying synchronous expansion, the first such occurrence in many years, leaving a clear field for economic expansion substantial worldwide growth. Unfortunately, this optimism was short lived as growth around the world slowed, impacted by the threat of trade wars, rising interest rates, social unrest and political instability, including but not limited to, the potential impact of Brexit on worldwide markets. While none of the major economies are immune from what appears to be a slowdown in the near term, the one market best positioned to avoid a significant downturn is the United States. While the U.S. will likely grow at a slower pace than it has over the past two years, most forecasts suggest economic vitality at higher levels than the bulk of other major countries in the near term.
Worldwide (ex U.S.) economic struggles in 2019 will negatively impact U.S. corporations that rely heavily on exports, with the most serious down shift on a macro basis in China. While the world’s second largest economy continues to grow at close to 6%, representing a substantial slowdown from where it has been of late. While China represents a relatively small market for golf products (estimated to be the ninth largest golf market for Equipment and Apparel by Golf Datatech), what happens there can trickle down and tangentially impact other countries and their economies. A good example is Australia, where over 1/3 of all exports are bound for China, and any slowdown in China creates hardships in the Land of Oz, and ultimately become a drag on the golf business.
The other worldwide economy being watched carefully in 2019 is the United Kingdom, which continues to balance on a knife’s edge as they attempt to negotiate an orderly exit from the European Union. As we sit here in early February of 2019 there is no way of knowing how Brexit will end. Will there be an orderly exit that allows all of Europe and the U.K. to contentedly co-exist? Or will there be a rough exit that leaves both sides unhappy and bruised? Only time will tell.
2018 Rounds Played & Weather
National Golf Rounds Played: After being negatively impacted by terrible weather and getting off to a difficult start in the first quarter of 2018, rounds were in a deep hole and never got close to recovering. Total 2018 National Rounds Played fell 4.8% for the year, the second consecutive significant contraction (prior year down 2.7%).
Serious weather disruptions appear to have become the “new normal”, and regardless of where you live in the United States you’ve faced serious weather challenges, from extreme cold to drought, high heat to floods, hurricanes, tornadoes, forest fires…and they all bring local level devastation and create a poor environment for highly discretionary activities like golf.
As a highly seasonal activity played outdoors, the number of rounds played is heavily influenced by climate and conditions. While no one wants to blame the weather for poor results, it is simply a fact that when it is extremely cold or excessively hot, or we face extraordinary precipitation, it negatively impacts rounds played.
Data from Golf Datatech’s rounds played partner, Weather Trends (a leading meteorological service), verifies the weather impact in 2018, as the Top 70 U.S. markets had 9.4% more precipitation in 2018 than in 2017, and the Top 260 markets were up 12.7%. Clearly, no one can beat Mother Nature.
Golf Equipment & Apparel Sales
Overall Golf Equipment sales were very healthy in 2018, with sales up nearly $110 million in the On/Off Course channels. The combination of a vigorous economy, tax breaks that put cash into the pocket of the average American, substantially increased asset values (both stocks and housing), and pent up demand from years of delayed purchases of new golf clubs, all drove total spending on equipment, and in particular on clubs.
Equipment sales were up 4.7%, led by the Off Course Specialty channel (+6.1%), while the Green Grass channel increased for the second consecutive year, and was at the highest level since 2001, topping $1.04 billion.
Total golf club sales increased by 6.3% for the year, led by Wedges (+13.2%) and Irons (+10.4%), while Consumables/Light Durables were up 2.7%, buoyed by a good year in Footwear (+6.0%).
Though the sales increases in dollars are heartening, underlying anxiety remains as unit velocity continues to decline. But these short-term concerns have been offset by substantial improvements in Average Selling Price, as price escalation has firmly taken hold across most product categories. Ultimately, both golf equipment and apparel manufacturers will need to drive increased unit volume and not just increase prices for long term stability and profitability, however in the near term higher prices provided cover for declines in unit sales.
While 2018 equipment sales in total were up significantly, apparel sales fell 6.7%, and combined the equipment and apparel categories grew by 1.0%.
Apparel got off to a very slow start due to terrible weather across a broad swath of the U.S., which drastically reduced rounds played. Since almost 80% of golf apparel is sold thru the Green Grass shops, the lack of foot traffic thru golf shops put a damper on golf clothing purchases early in the year, and then continued in negative territory throughout the rest of the year.
Golf Datatech has tracked and projected apparel sales since 2010 (12 month rolling industry wide projections above) and sales have increased in six of the last eight years, with declines in 2016 and 2018. Clearly apparel has outperformed equipment over the past eight years, however it has not been immune to unit declines just like equipment.
2019 PGA Show Kicks Off the Season
While we’re always careful not to read too much into enthusiasm coming out of the PGA Show, there was a positive buzz around the Convention Center in Orlando this past January, with several new products launching into relatively clean channels with minimal old inventory. At the same time, new channels are evolving, including custom fitting specialists for clubs and Amazon for consumables.
As we look toward 2019, “cautious optimism” appears to be the watchword in U.S. golf retail, however worldwide weakness and potential political/economic disruptions abound, all of which may negatively impact the US economy.