2018 Equipment, Apparel & Rounds Played Recap

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. 

Is it really “The Economy, Stupid”?

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.

 

 

Ever wonder how many really high priced golf clubs are being sold?

Prior to the 2016 the market for Ultra-Premium golf clubs in the United States was nearly zero, however the launch of PXG combined with the rapid expansion of Custom Fitting Specialty stores that feature precision digital fitting, allowing for more exotic shafts to be widely available, and the category took off.  For the first time we’re taking a look into the new world of $599+ drivers, irons over $200/stick, putters over $350 and wedges over $150.

“The Development of the Ultra-Premium Golf Club Category” is Golf Datatech’s latest consumer study, providing an in depth, deep dive into the golf equipment business.   Released in September of 2018, this study digs deep into the emergence of this category, including brand usage by product type and price point, attitudes about the purchase process, insights into the importance of club fitting, and the club fitter, when spending this kind of money on golf clubs.

While many golf industry experts felt the Ultra-Premium category was going to be a very small niche, this study suggests it’s likely much larger than most estimated, well into double digits (as a % of sales) in the categories measured.

And beyond just investigating their feelings about this most recent purchase, we also examined satisfaction levels along with future purchase intent.  What became obvious is that just because Serious Golfers spent significantly more on this most recent club purchase, the next time around they are not looking to spend anywhere near as much.  The implications are clear, not only will past purchasers of Ultra-Premium clubs have to be happy and satisfied with their purchase, they will also need to be given outstanding reasons to make their next purchase.  

Anyone interested in purchasing the Ultra-Premium study should contact Suzie Phillips at info@golfdatatech.com.

 

 

Golf Market Updates-Equipment Thru August 2018

New golf equipment data thru the month of August 2018 from Golf Datatech indicates the golf equipment business continues to roll along, with sales increases across almost every product category, and total sales up almost 8% on a YTD basis.

Green Grass grew by 7% while Off Course Specialty stores were up over 9%.  After taking more than a year to find their footing, the Specialty Channel has adjusted to Golfsmith closures from the back half of 2016, and is now solidly in the black.  What is interesting to note is that many of the Specialty Stores that remained in the business last year saw healthy sales increases, however the upside in their individual stores did not offset the decline impacting the category in total as the Golfsmith stores closed.

Golf Club sales are up double digits YTD, led by wedges and irons, while woods and putters are relatively flat.  On the consumable side, golf balls and golf gloves are both trending positively in both units and dollars, while semi durable purchases (bags and footwear) are up significantly more.

What is driving Equipment Sales so much higher?

Golf Datatech believes Golf Equipment sales are being impacted by a variety of factors:

-Improving economy, with GDP running a full percentage point higher than it was for the same quarter prior year

-More money in the pockets of the US consumer because of the tax cuts

-Substantially higher net asset values as their investments and houses appreciated

-Consumer Confidence is running high

What Potential Headwinds Exist for the rest of 2018?

-Potential impact of tariffs on raw materials and components used for golf clubs

-Potential economic slowdown due to the impact of tariffs on prices

-Random acts of political malfeasance…in today’s world anything is possible.  

What is the most likely outcome for the rest of 2018?

The November elections (and no one can predict what else) may cause a change in direction on the macro level, however by the time that occurs the bulk of 2018 will be in the books and it will be remembered as the year when golf equipment sales bounced back in a big way.

 

Good News Continues in Equipment…Apparel Still Lags

At the risk of “jinxing” the momentum in golf equipment sales, I’m happy to report that May was another very positive month for the US market. Golf Datatech’s latest US Retail sell thru for the month of May indicates continued strong sales gains in most equipment product categories for the fifth consecutive month.  Consumables/Light Durables were up 6% and Golf Clubs gained by double digits vs. same period year ago.  Stimulated by a robust US economy, strong asset positions due to stock market gains and improved housing prices, and more dollars in the every day American’s pockets due to a reduced tax burden, purchases of golf equipment was up sharply.  Add in the first decent month of weather nationally in May, and in total the golf equipment business is in a good place heading into the summer months.

Unfortunately golf apparel is not faring as well.  YTD Green Grass sales are down over 7% while the Off Course Specialty channel (by far the smaller of the two) is up nearly 5%.  Some of the On Course deficit is likely a result of very poor weather across much of the country in 2018, which has negatively impacted rounds played as well as apparel sales.

Equipment

While unit sales have not fully rebounded in all equipment categories, they’re up in seven of the ten segments we track in hard goods (balls, gloves, shoes, bags, drivers, fairways, hybrids, irons, wedges, putters).  The largest increase has been in wedges, a category with significant new product introductions and substantial positive momentum that is up over 20% for the first five months of 2018.

Iron sales are also up sharply, with Average Selling Prices soaring and at all time highs, while increases in driver pricing are moderating after several months of rapid growth.  It wasn’t that long ago (October of 2014) that ASP’s on drivers were in the $220 range, while today the average is nearly $360.  The only club category continuing to  struggle remains putters, which continue to see shrinking unit sales while ASP’s creep higher.

After struggling for several months due to less than ideal weather, ball sales finally rebounded in May and in total the category is growing marginally in units while ASP’s have stagnated.

Golf Apparel

Combined On/Off Course sales in golf apparel continues to trend lower in dollars, however the pace of the decline continues to lessen.  After a horrific start to the year due to severe weather (down 11% in January), total sales in golf apparel were only down 3% for the month of May, suggesting the category is moving closer to equilibrium, but the early season hole remains.

The one recent bright spot is men’s shirts, which represents the largest single sub category of golf apparel, and which have creeped back up level with YAG in May.  Generally speaking, as men’s golf shifts goes…so goes total golf apparel.  However, the only sub category that appears to have heavy inventory is Men’s Shirts, which might suggest heavy discounting could be lurking around the corner if sales for June do not turn positive in a big way.