Your Guide To OEMs, Part 1

Have you ever thought about all the golf club companies out there and said, “Sheesh! I can’t tell the players without a scorecard!” If so, I have two things to say to you. First, welcome to the Bag Drop. You’re my kind of person and I’m glad you’re here, even if you sound kind of dorky saying “Sheesh!” like that. And second, here’s your scorecard.

Read on to see part one of my three-part series on the top original equipment manufacturers (OEMs) in the market today.

Now keep in mind that this is just one man’s opinion. This isn’t about playing favorites, or about trying to name-check every golf company in the world (yes, I’m sure that your Uncle Navin did a great job with those King Snake knockoff irons he put together for you a few years back, but don’t be sore that I didn’t work him into this). This is about stepping back from the overwhelming crush of equipment you see at your local golf megamart and doing a reality check on where all the OEMs stand.

I’ll start with the current cream of the crop, which we can conveniently call “The Big Three”: Acushnet, Callaway, and TaylorMade-Adidas.

Acushnet

Brands: Titleist, FootJoy, Cobra, Pinnacle
Strengths: Golf balls, shoes, putters, dominant tour presence
Weaknesses: Flagship products aimed at smaller markets; increased competition

Acushnet Golf is the umbrella name for the four golf brands in the Fortune Brands mega-conglomerate. The three hard goods brands – Titleist, Cobra and Pinnacle – are carefully constructed to complement each other with little overlap. Titleist is the top-of-the-line, tour-proven brand for clubs and balls for serious golfers. Cobra is the technology/distance-oriented brand for average golfers who want clubs that hit the ball a long way. And Pinnacle is for value-conscious golfers who want long-distance golf balls. The separation allows each brand to be successful without over-reaching or stooping, which keeps them strong – and separate. And when it comes to golf balls, no one is close to the Titleist/Pinnacle combo. The FootJoy brand has a similar dominant position in footwear. Cobra has enjoyed a terrific resurgence over the past couple seasons (and I just love those David Feherty commercials), which helps the Acushnet family reach out to golfers below the “serious” Titleist standard.

The only weaknesses for Acushnet, if you could even call them weaknesses, are small. First, the flagship products for the Titleist brand – its drivers and forged irons, and the Pro V1 golf balls – are out of the reach of the majority of golfers in terms of price (high) and performance (hacks need not apply). So a set of Titleist irons marketed in this way is never going to sell in the volume that one from Callaway or TaylorMade is. But, then again, that’s part of the plan. If Titleist went for the 16-handicap crowd, it might upset the careful brand balance. And the increasingly competitive nature of the golf business, with more large interests like Nike and Adidas paying more attention to the industry, will likely lead to someone mounting a serious challenge to Acushnet’s golf ball dominance sooner than later.

Regardless of how many units are actually moved, no other brand gets the type of tour-driven buzz that Titleist does. The Titleist fanboys burn up the Internet with whispers about about what’s been seen in Ernie’s bag, or what Scotty Cameron trotted out on the putting green at a major. And Titleist does an excellent job of translating its massive spending on tour player sponsorships into an immaculate image of the most authentic golf brand possible.

Callaway Golf

Brands: Callaway, Odyssey, Top-Flite, Ben Hogan
Strengths: Irons, putters, woods, dominant brand presence, licensing deals
Weaknesses: Uncertain corporate future, sliding woods market share

After a remarkable 10-year run that was sparked by the release of the original Big Bertha steel driver in 1992, the world’s largest maker of golf equipment has had a few tough years. Company namesake Ely Callaway passed away in mid-2001, and the company is on its third CEO since then. After reinventing the modern metal wood with Big Bertha, the Callaway brand became synonymous with technology and premium pricing. In recent years, other companies have caught up in the technology race and the USGA and R&A have flattened the playing field in terms of product differentiation. That hurt Callaway a great deal, as did the aggressive pricing strategies of TaylorMade, which recently took over the No. 1 spot in woods sales from its nearby neighbor (Callaway and TaylorMade are located a few hundred yards away from each other in a business park in Carlsbad, California, where Acushnet also has offices).

Time will tell whether Callaway is a fallen giant, or one that merely stubbed its toe and fell temporarily off-stride. Signs are encouraging for the company this year. Callaway is still the leader in irons sales, and is making slow but steady inroads in the golf ball business. Long-time sister brand Odyssey remains the top-selling putter in golf on the strength of the 2-Ball franchise. Recent acquisitions Top-Flite and Ben Hogan have been a drain on the bottom line, but are starting to show some dividends. Callaway’s been on a roll in recent months with multiple major championships won with the new FT-3 driver and plenty of good press for the forged X-Tour irons and new HX Tour 56 golf ball. The company also has a very successful licensing agreement with Ashworth for the Callaway Golf Apparel line and another licensing agreement for golf shoes, which gives Callaway a name presence in nearly every golf product category.

The biggest question now is whether Callaway remains a publicly traded company (symbol ELY on the NYSE) or accepts a buyout to go private. A group headed by MacGregor Golf has made an offer (which one industry expert likened to a minnow swallowing a whale), and Nike has been rumored to have interest. It’s a lot easier to buy market share than to earn it, which makes Callaway an attractive target to other industry players. If matched up with a deep-pocked corporate partner like Acushnet and TaylorMade, Callaway could be a formidable force for the foreseeable future.

TaylorMade-Adidas Golf

Brands: TaylorMade, Adidas Golf, Maxfli
Strengths: Woods, apparel, momentum
Weaknesses: Golf balls, product churn reputation

In the late 1990s, the golf business was headed by an established Big Four: Acushnet, Callaway, Ping, and TaylorMade. It looked like Ping and TaylorMade were on their way out, to be replaced by upstarts like Adams and Orlimar, perhaps.

Things didn’t quite work out that way. Orlimar flamed out completely and is now a house brand of King Par, a large midwestern golf outlet. Adams went public and quickly sank like a stone, though it remains in business. Ping did drop back a bit, and in my mind has dropped just below the other three top OEMs.

But TaylorMade didn’t just stay big. It got bigger. After years of watching its market share in woods and irons slip, the company was purchased by global sporting goods giant Adidas. After a few false starts at rebranding the TaylorMade name, the newly minted TaylorMade-Adidas Golf got things right big-time when it launched the 300 series titanium drivers in 2001. First of all, the drivers greatly outperformed the previous generations of Burners and Firesoles that TaylorMade had released. Second of all, the marketing might and money of Adidas was fully focused on establishing TaylorMade as “the leading performance golf brand.” This was done through slick advertising and an amazing burst of spending on the pro tours. Seemingly overnight, every other player on TV was wearing a TaylorMade hat. The 500 series followed up on the 300’s success, and now the r7 and r5 models have brought TaylorMade all the way back to the top of the woods market. And the company has done it by appropriating parts of Titleist’s “serious golfers” attitude toward the tour while going after the same high-handicap, big-money market as Callaway. A tough balancing act, but TaylorMade has been right on target the past couple years.

Along the way, TaylorMade created some enemies in the business though an aggressive program of blowing out old inventory at extremely low prices and cutting prices on new equipment much more quickly than was the norm for the golf business. This cut into margins for other OEMs and for golf shops as well, but it was all good for consumers. Titanium drivers have dropped considerably in price as a result. The sweet spot for most drivers on the market today is $299, with a few brave enough to charge $399 and plenty of others willing to come in at $199. Five years ago, all those price points would have been at least $100 higher. But, many retailers complain that customers now wait for price reductions before jumping on new equipment. Convenient though it may be, TaylorMade can’t take all the blame for this phenomenon. I think the real culprit there is named Wal-Mart, but that’s a story for another time.

Like Callaway, TaylorMade goes head-to-toe in terms of products, from hard goods to golf balls (after buying Maxfli in the late 1990s) to apparel and shoes under the Adidas brand. TaylorMade has tried to establish its Rossa putter line as an independent brand, but the jury is still out on that product line. But the company has done an excellent overall job of breathing new life into an old brand through innovation and sheer marketing and sales moxie. As long as the marketing budgets stay high and interesting new designs like the moveable weights in the r7 drivers keep coming, TaylorMade will stay in the upper echelon of the industry.

Next Week…
Check back next week for my look at what I’ll call “The Next Three:” Cleveland, Nike, and Ping.