GolfGear’s Loss Reflects Plight of Small Firms in the Industry
Reflecting the deep slump in golf-equipment manufacturing, a Garden Grove maker of high-end clubs Friday reported mounting losses and warned that it may not survive as an ongoing business.
GolfGear International Inc., a 12-year-old company, said it was further cutting back on costs, including through layoffs, while trying to raise the cash needed to continue operating. But in reporting third-quarter losses of $367,228 on a 27% decline in sales, the company gave no indication there was a sales turnaround in sight.
GolfGear is perhaps best known for its Tsunami club, which is protected by nine patents and made from forged metal such as titanium. GolfGear says the Tsunami can outdistance other drivers by 25 yards, noting that it has been used by golf enthusiasts such as former President Bush.
But like a lot of discretionary goods these days, the $799 driver isn’t selling. And it’s the same story for many clubs, balls, tees and other golf equipment.
Despite the boost from Tiger Woods and the proliferation of playing courses in recent years, the golf manufacturing industry is ailing.
Analysts say the $2.5-billion U.S. market for golf equipment will post anemic or no growth this year. And overseas demand in once-golf-hungry nations such as Japan has slackened.
The industry’s titans, such as Callaway Golf Co. and TaylorMade-Adidas Golf, figure to ride out the slump, given their well-known brands and deeper pockets. But smaller players, such as GolfGear, are in jeopardy.
“You’re going to see severely wounded and weakened companies getting knocked out,” said Bud Leedom, an analyst for Wells Fargo Van Kasper in San Diego.
GolfGear’s sales for the nine months ended Sept. 30 have fallen 34%, to $1.7 million, and its net loss has widened in the nine-month period to $755,633.
As of early fall, the company had 14 employees in Orange County, where the clubs are made. Its stock is trading over the counter at 3 cents per share.
“I don’t know if the average Joe out there is feeling wealthy enough after looking at their shrinking 401(k) statements to go out and spend $399 on a driver and $60 on a golf shirt,” said Brett Hendrickson, an analyst at B. Riley & Co. in Los Angeles. “The [golf] industry’s nervous.”
Part of the problem is the somewhat surprisingly slow growth of golf. The number of golfers has stagnated at slightly more than 26million in recent years, according to the National Golf Foundation. In the first six months of 2001, the number of rounds played dropped 3.9% compared with a year earlier, according to Golf Datatech, a market research firm.
Although bad weather earlier this year accounted for some of the decline, analysts said many apparently are finding the game tedious and too expensive, with a typical set of clubs now going for about $1,000. Family Golf Centers Inc., which at one time operated about 100 golf centers nationwide, filed for bankruptcy protection last year and later liquidated its assets.
“Americans are a very harried group of people who don’t have 51/2 hours to chase a little white ball around a big spread of acreage,” Hendrickson said.
Others, however, think the game of golf--and sales of equipment--will pick up again when the economy improves. For now, even the big names are hurting.
Callaway, the largest golf manufacturer in the country, saw its third-quarter sales fall 6% and its profit slide a whopping 67%. Callaway’s stock closed Friday at $16.04, up 39 cents, in New York Stock Exchange trading, but its shares are down almost 14% for the year.
Callaway’s well-known founder, Ely Callaway, died last summer, but the company has continued to develop new products aimed at making equipment for the average player and forging partnerships with the retail industry to boost Callaway’s golf-wear business.
Another golf maker, Adams Golf Inc., whose Tight Lies fairway woods lit up the golf world in 1998, has seen sales plummet and losses mount as competitors have swamped the market with knockoffs, Chief Executive Barney H. Adams said. The Plano, Texas-based club maker has laid off more than 130 workers since mid-August.
“I don’t see any magic potion or genie for the golf industry,” Adams said.
And as if golf equipment manufacturers didn’t have enough trouble, Nike Inc. plans to introduce its first clubs next year; analysts said that will further intensify competition.
Still, the bigger golf-equipment makers are expected to outplay the field, helped by their formidable marketing resources. TaylorMade, for example, is projected to spend $80 million on promotional activities this year. TaylorMade also has stars such as two-time U.S. Open champions Ernie Els and Lee Janzen endorsing its products.
By comparison, GolfGear was looking at spending $80,000 this year to promote its products. To compensate for its lack of marketing muscle, GolfGear recently hired a couple of telemarketers to drum up business at pro shops and country clubs. Recently, the company was considering new markets such as China, and it has increased the number of product demonstration events it attends. To cut costs, workers no longer receive health insurance, and Chief Executive Don Anderson has deferred about 40% of his roughly $100,000 salary.
Company officials weren’t available for comment Friday. But in a recent interview, Anderson said he had no intention of giving up.
“We’re making original, world-class clubs that perform as well or better than anything out there,” he said, noting that Callaway and TaylorMade were once small companies like his. But given its lack of resources and the tough economic environment, the question is: Can GolfGear play through the rough?
