Golf equipment and price

[wade410]

Dumb question but are the big box stores loosing money on last years clubs?

 

I went looking at the local stores this weekend looked at the new sldr and the new calaway whatever at $300 + I know I wont be getting a new driver anytime soon. It seems to me that there is no middle ground on new equipment. It is either extremely cheap off brands or it runs several hundred dollers each club. It doesn't seem that anyone puts out a quality mid- priced line right now. To bad to because to me it seems that there would be a large market in the $100 to 200 dollar range for a drive and the 50 to 70 for a wedge. I am not a marketing genius by any stretch but I can't see how the big two right now could be profitable bringing out 3 or 4 lines a year at the current price point.

[Tony Covey MGS]

Short answer, no. Old product can actually be a huge winfall for big box.

 

Basically, since Big Box places huge orders (all stores, all SKUs) they get substantial volume discounts compared to mom and pop, on course etc. Every OEM is a little different but the big guys, TMaG, in particular offer what's called Net Down.

 

Here's how it was explained to me (cut and paste from an email)...

 

If a manufacturer charges you $200 for a $300 driver, your margin % is 33%. If the manufacturer then decides to drop the retail price to $225, they must drop the wholesale price to $150 for the retailer to hold at 33%. So, if you had 3 drivers in stock ($600 in wholesale drivers), to get the price to $150 each, they would send you 1 driver for free, making it 4 drivers for $600 wholesale, or $150 each. Where it sucks for retailers with TM is that if you have 30 drivers in inventory that you haven't sold, the only way to get the wholesale price down low enough to compete with big box is to take in 10 more. Now you have 40 drivers. It's a never-ending cycle.

 

With big box excess inventory doesn't present nearly the same issue that it does for smaller guys where floor space is at an absolute premium. Think about what 20 extra drivers looks like at Dick's compared to small on-course shop.

 

The story I've been told is that big box is actually using this to their advantage. A reliable source told me that Dicks/Golf Galaxy basically bought all of TaylorMade's Stage 2 inventory. They'll make a killing on it (in sales and net down for new product) over the holidays and because they'll be the only ones with any real inventory, the hope is they can condition golfers to shop big box.

 

While Callaway denies it, the evidence suggests that the lion share of Optiforce was allocated to big box, which has made it difficult to come by elsewhere, which is again a huge win for Big Box.

 

Where this has the potential to get very interesting...for obvious reasons retailers are becoming wary of excess inventory and so the solution is to order less up front and then try and back-fill shelves as product is sold. The golf companies definitely don't want to get stuck with excess inventory either, so if initial sell-in (wholesale orders) drop (because of inventory control measures at retail), you will see factory orders (OEMs from China) drop as well. If this becomes widespread, the end result could be smaller production runs, and some actual product shortages.

 

What's interesting, when you talk you retailers (non big box) most will tell you that while they hate net down, and having to take on additional product that they potentially can't sell, unexpected late seasons releases (Optiforce and SLDR for example) can significantly boost business at a time when the selling season is usually all but over.

[wade410]

Thank so if I am understanding correctly the price drops are from the manufacture who is promising a certain return on their investment if the store hold their line on pricing.

[SPY ZINGER]

Good email, T.