The Pellucid Perspective - January 2018 - 2

GOLF INDUSTRY
REVIEW/FORECAST

2017: Relative calm but no recovery
By Jim Koppenhaver

F

or journalists, December is the month of the stock "year
in review" piece while our January go-to is normally our
"what to expect" piece. Being an amateur and somewhat
contrarian journalist by nature, I've made up my own convention over the years of taking a Janus perspective as we enter a
new year by looking both backwards and forwards at the same
time. So, what did we see looking backwards to the year that
was 2017 in the golf industry?
As we'll outline in the upcoming State of the Industry (SoI)
presentation on January 25th during the PGA Merchandise
Show, the topline metrics of the golf course operations sector
were basically sideways. Weather had no major deviation at
the national level (and came within 1% of our Jan '17 national
Golf Playable Hours (GPH) forecast) and rounds only slightly
underperformed that result. We've lost sight of facility revenue
and RevpAR with the PGA abandoning its PerformanceTrack
efforts but, anecdotally from the hundreds conversations we
have with clients dispersed across the US, most have seen a
slight abatement in discounting and were able to make modest
price increases stick, so greens fee revenue should have performed at parity or better to the rounds results. Velocity likely
held steady/improved marginally as the net supply change continued to inch down. On the consumer side, our '16 figures
('17 survey is in field as we speak) show that the decline in
the consumer franchise slowed slightly; whether that's a ledge
prior to a further decline, a leveling to a "new normal" or the
support point for a return to growth we won't know until we get
the '17 results and, most likely, the '18 and '19 as well to see the
trend and make some definitive call. We've also lost visibility
to the topline trends for consumer equipment with Golf Datatech pulling back on the publication of those monthly figures
via PGA Magazine but, the last we saw of those Year-to-Date
(YtD) figures back in May of '17, they were basically flat at the
Total Equipment/All Channels level.
Turning to the more qualitative aspect of the industry happenings, the golf operations sector saw the purchase of ClubCorp by Apollo Global Management mid-year which wasn't
viewed as an amazing valuation but does suggest that there is
still serious money interested in golf investment (or, as Fortune put it, betting they can "make golf great again"). Outside
that, there were no major changes-of-fortune for any of the
other larger multi-course operators but a continued reshuffling
of properties between the management companies. The NGF
suggests that the overall percentage of golf facilities under 3rd
party management is increasing but our figures show that it's
been fractional annually so not a major trend.
On the consumer equipment side, it seems that the major
manufacturers have settled into a more sane and sustainable
new product introduction pattern and have shunned past (stupid) retailer inventory "push" tactics. The big news was the sale
of TaylorMade adidas Golf (TMaG) to KPS Capital Partners,

2 The Pellucid PersPecTive

fulfilling the year-plus stated intent by Adidas AG to shed the
non-core, underperforming unit. This placed TMaG on firmer
financial and retailer relationships footing and appears to have
avoided major disruption among the Big 3 manufacturers in '17.
The two quieter stories on the equipment side were the continued, better-than-expected growth in the super-premium side
(PXG, XXIO and any other cool-looking acronyms containing the letter X) which is apparently driving Titleist and others to play fast-followers and test the waters in '18 and beyond.
The other quiet but continued drumbeat is in the balls segment
where the Costco K-Sig ball returned as a price-alternative
premium ball and companies like Snell and Vice continue to
make progress in the sole ecommerce (only direct-to-consumer) distribution model. Obviously the "loudest" story and (in
my opinion) hyped trend of '17 was TopGolf, which according
to the industry cheerleaders and the general media will "save
golf " and be our long-sought bridge to the Millennials. While
I agree that it appears to be a solid business model for TopGolf
and its investors, I'm still not seeing any significant trickledown benefits to our main engine of golf course operations or
our secondary in size sector of consumer equipment sales. Only
time will tell but right now they're the media darling and the
NGF and other associations are racing to shape the narrative
that TopGolf customers count as "golf consumers," hence the
consumer base is once again on the rise. Noticeably absent in
this effort is any quantitative research and conversion rates/dual
usage figures which outline how many of these consumers will
play green grass golf, how much they will spend annually or
how long they'll stick with the sport (inconvenient details...).
So that's pretty much '17 in a nutshell, what does my crystal ball
for '18 say to me?
In a phrase, "Steady as she goes captain." As has been the
pattern the last several years, I don't anticipate rounds to vary significantly from weather impact. (We haven't yet tallied up the national annual forecast yet though so I reserve the right to amend
if that figure, when shared at the SoI, is meaningfully higher or
lower than '17). The revenue picture from golf facility operations has some potential for upside if operators are able to "lean
into" slightly more aggressive pricing this year following the robust gains in employment, wage increases gathering steam and
the frothy stock market (recognizing that our consumer base still
skews significantly to the $75K+ crowd). I don't see facility velocity changing meaningfully, mostly due to the continued absence
of any major supply contraction annually. In the past I've falsely
hoped/expected to see a year where we have a net reduction in
supply of 250+ EHEs but it just doesn't appear to be in the cards
so, unlike the housing, airlines, hospitality and retail industries
which made dramatic and reasonably short corrections, we'll continue to see 1-2% annual reductions for an extended future period
(which will also stymie any uptick in new facility development).
I see the consumer base continuing to drift downward; my conJanuary 2018
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Table of Contents for the Digital Edition of The Pellucid Perspective - January 2018
