Fall is a time for balance, reflection … and making sure no one is watching when you order a pumpkin spice latte.
During the autumnal equinox, the daylight and darkness of the night are practically equal, but as we progress towards December, the days get shorter, the nights get longer and everything gets colder. If you’re a golfer in the Northern Hemisphere, it’s impossible not to reflect on how bad this is.
If you are a golfer in the northern half of the northern hemisphere, this really inhale
Hey Autumn, I got your pumpkin spice reflection right here…
But fear not, dear readers. The winter solstice is coming and, with it, the hope of rebirth, renewal and a flock of birds. In the meantime, though, let’s celebrate the Harvest Moon by discussing a very specific topic that’s been rattling around the old skull for a while…
Yes friends, let’s talk about the price.
Are “greedy” OEMs reaping your money?
Let’s start with transparency. I don’t have solid insight into OEM profit margins beyond what publicly traded companies report each quarter. What we can say is that the limits on golf equipment are a lot less than you think.
That said, I was talking to a friend last week. He was fed up with the prices of golf equipment: “If these greedy OEMs were to lower the price, they would make up for it in volume.”
Sounds reasonable, except for one problem: From a business perspective, it’s complete BS.
Always has been. The problem, my friends, is math.
Let’s say you’re the executive VP of pricing for Acushnallaway Golf Company. You’ve convinced your board of directors that you can sell a ton more drivers in 2026 by lowering your wholesale price by 15 percent.
“We’ll be fine,” you tell them. “We’ll make up for it in volume.”
We know from your quarterly reports that your operating profit margin is about 20 percent (that’s before interest, taxes, depreciation, and amortization). This means that for every driver that sells to the Big Box Seller for $400, you earn $80 at a cost of $320 (Cost of goods sold, fixed and variable expenses, things like that).
The retailer then sells that driver for $600. That $200 “profit” is 33 percent gross difference. The retailer must consider all of his costs to determine his net profit.
anyhow … after reducing your wholesale price by 15 percent, you are now selling your Big Box driver to the Retailer for $340. Your cost, however, is still $320.
You’re making $20 per driver and leaving very little room for interest, taxes, depreciation and amortization.
Your Harvest Moon question of the day is this: How much more volume will Acushnallaway have to sell to “get it?”
“It’s the Great Pumpkin, Charlie Brown…”
One fall many years ago, this same friend bought a truckload of pumpkins for 40 cents each. Thinking he would get rich, he sold them at three for a dollar. Later, after counting his money, he realized his mistake.
He needed a bigger truck.
Acushnallaway will need a big truck. To “get it in volume”, they will have to sell four drivers at $320 for each driver at $400. The math is simple: 4×20=80.
That’s 400,000 drivers instead of 100,000 drivers, just to go back to where they were.
The question, however, is whether a drop in retail price of $90 ($510 instead of $600) is enough to quadruple sales?
If you think so, meet me at the farm tonight. We can greet the Great Pumpkin together.
I’m going to borrow my friend’s truck.
Well, they just need to cut costs…
My friend, who seems to have no head for business, remained unmoved: “Well, if they stopped paying these broke Tour players so much money and cut the advertising, they’d cut costs and still make enough money.”
The most interesting thing about publicly traded companies is that you can look things up. Acushnet’s selling, general and administrative expenses are consistently about 30 percent of sales. It is an essential line item and includes wages, commissions, utilities, travel expenses, maintenance, transportation, pickup, insurance and just about everything else. Specifically, it includes tournament advertising and sponsorships.
R&D has its own line item.
MediaRadar estimates that Acushnet spends roughly $100 million a year on advertising. This is about four percent of annual sales. Acushnet doesn’t disclose his pro Tour expenses, but educated estimates put it in the tens, not hundreds, of millions. Acushnet sponsors more than 2,000 players worldwide, most of them emerging players on the Korn Ferry, Asian and PGA Americas tours.
Topgolf Callaway’s SG&A expenses are about 35 percent of sales. Topgolf, however, skews that number.
(Seriously, the corporate split it can’t come soon enough for Callaway.)
“All the leaves are brown…”
Even if Acushnallaway cut the Tour’s advertising and spending in half, would it lower the retail price of your new driver? It could, but it’s doubtful it would be enough to move four times as many drivers as possible to make up for it in volume.
There are a few additional problems with the above scenario. First, who the hell are you going to sell four times as many drivers to? This is tough sledding at the best of times. It’s much harder once you cut your ad spend in half. And don’t forget your competitors. Their pencils also have rubber.
Moreover, you can also RELATED four times as many drivers? No? Then you will need to invest in more machinery, manpower and production space to build them. Your shipping and receiving operation will need to grow and you will need to expand your order intake to handle four times the volume.
We won’t even bring quadruples of errors, warranty claims, bad debts, and whether your supply chain can support that kind of volume.
Lowering the price to make up for it in volume is a tall order. And if you think a market downturn is inevitable and will force OEMs to lower prices, well, my friend, you’re in for a very long and never-ending fall.
However, if you follow the rituals of neopaganism, the Winter Solstice is coming.
And with it, there is hope, renewal, and the ultimate triumph of light over darkness.
“Second Spring”
If you know your Camus, you know that “autumn is a second spring where every leaf is a flower.”
He also said, “One must imagine Sisyphus happy,” so he found hope in war. So no matter how much winter sucks, the Winter Solstice says better days are yet to come. For golfers, those best days come directly to the consumer.
The Business Research Company says global sales of golf clubs should reach nearly $8 billion this year and $9.44 billion by 2029. While DTC brands account for less than five percent of all equipment sales, reports say DTC’s compound annual growth rate (CAGR) is outpacing that of traditional sales channels.
That’s a fancy way of saying that more golfers are seeing DTC is a viable option. If you want a true boffo, wedge or iron set, you have great choices from Takomo, Sub 70, Ben Hogan, MacGregor, Maxfli and others.
Yes, I know. You cannot demo or qualify for DTC brands. It’s a legitimate concern, but as an adult, you’ll have to make a decision and find a solution. The best DTC brands offer demo programs that allow you to test putts on your course for a few weeks (probably better than hitting a few shots at the net). Additionally, as long as the iron categories stay the same, equipment moves between brands. If two degrees of flat and a solid DG Mid 100 works for you on the Titleist T250, it will work for you on the Maxfli XC2.
You can’t maximize or optimize, but you will save. Besides, most of us can play pretty good golf with pretty close specs.
Forever autumn or eternal spring?
They say we vote for the kind of world we want to live in with our dollars. If this is true, this election needs a very long vote.
One can buy new clubs the old-fashioned way: by saving up for them. Or you can fire all the guns at once and put them on your credit card. Then there is DTC. There is very little difference in iron performance between mainstream OEM and DTC brands. In many cases, the price of DTC is half the price of major brands.
The metalwood gap between DTC and regular flow narrows every year and you can get shockingly good wedges and digs from DTC as well.
You can expect discounts at the end of the product cycle, but they’re not what they used to be. Used, of course, is always an option.
On the other hand, I suppose you can expect the big OEMs to expand and lower their prices, but I wouldn’t advise it.
Thanks for indulging me, friends. Let me leave you with some fall thoughts.
First, OEM boardrooms aren’t filled with fat cats who wantonly raise prices while lighting $50 cigars. I’ve spent 30 years working for HVAC manufacturers, and I’ve learned a universal rule: No one worries more about selling price than the people who make the stuff. They have customers and competitors.
And they can do the math.
Therefore, it is wise to explore your options. Be a smart consumer, not just of products, but of information about those products. Don’t rule anything out just because you can’t walk into a store and hit it up. What DTC lacks in demo capabilities, it makes up for in customer service.
And never try to lower your price and make up for it in volume. It rarely ends well.
It’s your money, Golfspies. Spend it wisely.
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