- Driving younger participation seen as key to sport’s future
- Retailers rethink strategies as consumer spending stays flat
Nike Inc.’s decision to stop selling golf equipment and a possible bankruptcy filing by the Golfsmith retail chain are raising concerns that the declining popularity of the sport is taking a toll on the companies that thrive on it.
Millennials, the key to the sport’s future, are shunning the expensive and time-consuming game in favor of more instantly gratifying pursuits like Pokemon Go and Netflix binges. That’s bad news for companies like Nike and Adidas AG, which said in May that it was starting talks with potential buyers for the bulk of its golf unit, TaylorMade, which generates about $1 billion in annual sales.
“In any sport, you’ve got to get young participation to drive long-term growth,” said Brian Yarbrough, an analyst at Edward Jones & Co. who covers Nike. “You’ve got to have a crop of younger people coming in at 20, 25 years old who will play the game 20, 40 years. You are not seeing enough of that.”
The number of U.S. golfers dropped to 24.1 million in 2015 from a peak of 30.6 million in 2003, during the height of Tiger Woods mania, according to the National Golf Foundation. The decline among young people is even more troubling: The participation rate has fallen 30 percent over the past two decades. In the U.K., where modern golf originated, the average age of once-a-week players jumped to 63 in 2014 from 48 in 2009.
Woods, who has won 14 major championships, helped ignite interest in golf in the late 1990s and early 2000s. But the popularity of the sport waned after he took a break following a car accident outside his Florida home in 2009 that led to an admission of marital infidelity. He never regained his earlier dominance, and younger champions like Jordan Spieth and Rory McIlroy have been unable to match his level of stardom.
Consumer spending on golf equipment in the U.S. has been largely flat over the past eight years. In an already weak retail environment where companies have to increase promotions to drum up sales, sportswear companies are being forced to give up areas with lower margins that don’t drive enough revenue.
“Golf equipment is an expensive business that comes with an R&D component because there’s surprising amount of technology built into that,” said Simeon Siegel, an analyst at Nomura Holdings Inc. who covers Nike. “If you can’t plot out meaningful industry growth, it makes sense to look internally and rethink your strategy.”
Sales at Nike’s golf division fell 8.2 percent to $706 million in the fiscal year that ended in May. That made it the company’s worst-performing major category. The world’s biggest sportswear brand gets about 90 percent of its revenue from footwear and apparel.
The day after Nike said it was pulling out of golf equipment, shares of the Beaverton, Oregon-based company gained as much as 1.5 percent. Callaway Golf Co. surged even more -- as much as 8.5 percent. The Carlsbad, California-based maker of golf clubs, balls, bags and other accessories, now has one fewer competitor to deal with in a stagnant industry. Callaway had sales of $844 million last year.
Golfsmith International, the retailer of golf clothing and equipment, is considering filing for bankruptcy as it looks for a new owner, according to people with knowledge of the situation. It hired the investment bank Jefferies LLC to solicit buyers for the roughly 150-store chain, without success so far, said the people, who didn’t want to be identified because the process isn’t public.
The company also hired Alvarez & Marsal to help it restructure, according to the people, who said that a sale could come as part of a Chapter 11 filing.
Even with the retrenchment, golf isn’t dead yet. The sport lured more new players in the U.S. last year than at any time since the early 2000s, helped by the popularity of young stars like Spieth and McIlroy. And Acushnet Holdings Corp., the company that owns the Titleist and Pinnacle brands, said the industry’s fundamentals in developed markets such as the U.S., Europe and Japan have shown improvement since the beginning of 2015. More female and young golfers could also help the industry grow, according to the company, which filed for an initial public offering in June.
The dilemma is how to retain younger players who try golf for the first time. One of the biggest obstacles is the sport’s difficulty. It can take more than four hours to play 18 holes. That’s prompted calls for shorter, easier courses and even experiments with bigger holes.
“Golf is not going away,” Siegel said. “It’s nowhere near the popularity that it once commanded, and that will probably never return. Nike made a call which essentially tells you, ‘We just don’t see it’s an avenue for growth.’”