The Pellucid Perspective - December 2012 - (Page 6)

GOLF INDUSTRY ECONOMICS Accelerating Supply/Demand Equilibrium: What Can We Learn From Other Industries? By Jim Koppenhaver W hich one of these is not like the others regarding current supply/demand balance from sampling the 2012 industry trade news? A) Airline industry B) Hospitality industry C) Automotive industry D) Housing industry or E) Golf industry If you answered E), you’re correct. Anyone who has been following the general business news throughout the year has seen a continuous stream of headlines surrounding industries A-D which have reported that the balance between demand and supply has leveled out and, in some cases, is tipping once again in favor of the suppliers. While golf obviously isn’t the only industry still struggling to recover from the 2008 US economy meltdown, I thought it might be instructive to look at how the recovering industries have navigated their way back to better balance, and if there are any lessons which could be applied to accelerate golf ’s glacial progress back to better health. Let’s start with the first two industries, airlines and hospitality, which have shared a similar approach and path to relatively better balance. Both industries took the step of reducing capacity on a meaningful and systematic basis. One of the other advantages inherent in these industries and facilitating this remedy is the concentration of power and what I call “rational competitors.” In airlines, the carriers have mothballed a number of aircraft and dramatically reduced their system schedule (anyone remember the days of hourly non-stops from Chicago to New York City by multiple carriers out of the major hubs like Chicago?). They’ve also rationalized the equipment servicing each route, substituting regional jets (RJs) for standard aircraft widely across the system (over 80% of my flights in 2012 have been on RJs, as a personal example). Hotels have taken similar steps, as the major brands have offloaded poor-performing locations to brands lower in the value tier and many of the lower brand properties that weren’t cutting it have been shuttered and now sit vacant. This resulting trickle-down has had the dual effect of both improving remaining supply quality as well as reducing the overall available inventory. The automotive industry has benefitted from what I call “scheduled obsolescence.” During the height of the economic turmoil (I say height because it’s not over yet for a large number of Americans but it’s not as bad as it was in 2008-2010), more consumers decided that they could forego that new car on their “every 3 year” cycle and they either just stayed in their current cars or replaced clunkers with used cars. At some point however, the cost to fix that aging car starts to approach the payments on a new car and the economics provide a not-sosubtle nudge to some number of drivers that they should wade back into the new car pool. The other thing which I think also accelerated this return-to-normalcy was the spike in gas prices and the differential between an older gas-guzzler and the newer (in many cases smaller) fuel sippers. So the automotive industry benefitted from a somewhat defined replacement schedule and non-industry economic factors (gas prices). The housing market is yet a third way back to equilibrium; you get rid of the excess supply by letting the market work to find an acceptable price and use for the excess inventory at its own pace and course. In other words, you foreclose on properties that are underwater, put them up for sale and decide on a case-by-case basis what you’re willing to take for them. It’s pretty ugly and uncontrolled but it gets the job done. As evidence, I saw articles in the past year that said both Pulte and Toll Brothers are going to have solid years and were once again within shouting distance of the annual starts that they had seen back in their heyday. So what could the golf industry learn from these other industries’ recovery and attempt to emulate to speed our return to health for the average owner/operator? Let’s do a quick “what if ?” brainstorming on each of the above options: Constrain supply: This one is challenging to imitate a la the airlines and hotels because we unfortunately don’t have any real concentration of power or, lacking that, a majority of rational competitors. In other words, if multiple major players in, say, the Dallas market decided that a 10% reduction in supply Anyone who has been following the general business news throughout the year has seen a continuous stream of headlines surrounding industries A-D which have reported that the balance between demand and supply has leveled out and, in some cases, is tipping once again in favor of the suppliers. 6 The Pellucid PersPecTive December 2012

Table of Contents for the Digital Edition of The Pellucid Perspective - December 2012

The Pellucid Perspective - December 2012
Contents
Current industry issues a target-rich environment
Second time is the charm for Escena
Accelerating Supply/Demand Equilibrium: What Can We Learn From Other Industries?
Private club wins big with The Ultimate Skybox
Let’s make tee times like it’s 1999
November golf weather impact: ‘Tis the season of giving (back)
Columbus puts “premium” on golf, but is the price too low?
Esping’s EFO Financial acquires Colorado Brightwater Club
Anchors (rule) away!

The Pellucid Perspective - December 2012