The Pellucid Perspective - August 2017 - 5

GOLF EQUIPMENT
SALES

Golf equipment direct-to-consumer distribution:
Force to be reckoned with or passing fad?
By Jim Koppenhaver

B

uilding on last month's story where I pointed out the
divergence in fortunes Year-to-Date (YtD) between the
On Course (solidly up in Dollar Sales May YtD vs. Year
Ago (YA)) and Off Course (sea of red for Dollar Sales May
YtD, see the By-the-Numbers section of this issue for the details and pictures), several things have crossed my desk recently
that suggest there's a sea change coming in the equipment sales
channel distribution in '17 and beyond. It's called Direct-toConsumer (DtC) distribution and we're seeing the initial signs
in the Balls category which, by their nature, tend to lend themselves quite nicely to the distribution model and potential for
disruption.
DtC has struck a number of much larger and more sophisticated industries and categories already so the telltale signs and
characteristics for success aren't hard to spot. Take, for example,
Dollar Shave Club. The Consumer Package Goods industry is
awash in data, employs some pretty smart people who steward
multi-billion dollar categories (i.e. some which approach half
the size of the entire golf industry) and spend heavily in R&D
to keep out unwanted competition to their existing empire. So
how the heck does a start up comprised of two relatively average
guys enter and steal over 10 share points from P&G's Gillette
razor business in the span of 5 years? It's called DtC coupled
with eliminating non-selling costs from the pricing structure
while producing a quality product at a reasonable margin. For
an interesting, high-level read on the trend and a couple of tangible examples, see this recent article in Forbes.
A little closer to home, any of you who have followed Nike
at all in the public press (Annual Reports, Quarterly Earnings,
etc.) have seen repeated references to their ongoing push to
reduce reliance on the 3rd party retail channel (Foot Locker,
Dick's, etc.) by moving consumers of their product to Nike
retail and to Nike online. The recent announcement of them
partnering with Amazon.com represents a slight speedbump
in the DtC strategy (in my opinion) which doesn't follow the
direct-to-consumer playbook by choosing to partner with the
one retailer (digital or physical) who can dictate the consumer
interaction terms with impunity. This is a "one-off " because
they're trying to mitigate their loss of distribution and brand
image control by disintermediating the 3rd party resellers via

Amazon, so they're in bed with one enemy to fend off another.
It's complicated... In everything else however, their consistent
and clear strategy has been to have an increasing share of direct
customer relationships, whether it be through Nike retail stores
or, preferably and ultimately, online sales relationships. I believe
they're paying attention to the increasing potential for DtC disruption out of the blue and, like good basketball defense, wanting to beat oncoming offensive opponents by getting to the best
defensive position first. OK Jim, thanks for the retail history
lesson; what does this have to do with golf?
In Q4 of last year, many of you became aware of and followed the story of the Kirkland Signature (K-Sig) golf ball that
was made available in Costco stores and at costco.com. It made
enough of a splash via word-of-mouth and rapid sell-through
that the guys over at MyGolfSpy picked up on it and benchtested the balls (being sold at $29.99 for two dozen) against the
leading national brand. Surprisingly, the golfers who had created the initial buzz were right. These were similar quality balls
selling at a 60% discount (using MAP per dozen for the leading brand as the benchmark) available via retail store or online.
Holy crap, Batman! Before anyone gets too excited, the $29.99
for 2 dozen appears to be a "snowflake" and it's now August and
not likely to snow again soon but the fact of the matter is that
someone let the genie out of the bottle that you could manufacture a quality ball and use a DtC (ish) model and sell quite a few
quickly at some positive margin (likely single digits here from
industry folks who have weighed in).
This led me down the path as an analyst (and consumer)
to see what other options for quality balls using a DtC model
might be out there. The guys at MyGolfSpy were pursuing a
similar line of thinking as they have subsequently highlighted
Snell Golf and Vice Golf. For some interesting related reading,
I commend to you the article on Dean Snell as golf 's matador.
In that article he offers some informed opinions on why the
$29.99 per two dozen isn't a "real" value point long-term for any
manufacturer, DtC or not, but he also outlines how his business
model to be exclusively DtC allows him to produce a quality
product at a competitive price and run a relatively simple operation without all the headaches of TOUR professional endorsements, managing a network of retailers, hiring sales reps, etc. as

Before anyone gets too excited, the $29.99 for 2 dozen appears to be a "snowflake"
and it's now August and not likely to snow again soon but the fact of the matter is
that someone let the genie out of the bottle that you could manufacture a quality
ball and use a DtC (ish) model and sell quite a few quickly at some positive margin
(likely single digits here from industry folks who have weighed in).
www.PellucidCorp.com

The Pellucid PersPecTive

5


http://www.costco.com https://www.forbes.com/sites/shoptalk/2017/01/09/going-straight-to-the-source-todays-thriving-d2c-brands-threaten-monopolistic-industries/#3a90fd0d5190 https://www.mygolfspy.com/dean-snell-golfs-matador/ http://www.Amazon.com http://www.PellucidcorP.com

Table of Contents for the Digital Edition of The Pellucid Perspective - August 2017

TOC
Like snowflakes, each golf course is unique
Golf equipment direct-to-consumer distribution: Force to be reckoned with or passing fad?
Parsons and PXG take club fitting to a new level, and price point
July golf weather impact: Much-needed national “bounce”
Boston metrics favorable, but more rounds needed
Moving day for the PGA, and Justin Thomas
The Pellucid Perspective - August 2017 - TOC
The Pellucid Perspective - August 2017 - Like snowflakes, each golf course is unique
The Pellucid Perspective - August 2017 - 3
The Pellucid Perspective - August 2017 - 4
The Pellucid Perspective - August 2017 - Golf equipment direct-to-consumer distribution: Force to be reckoned with or passing fad?
The Pellucid Perspective - August 2017 - 6
The Pellucid Perspective - August 2017 - Parsons and PXG take club fitting to a new level, and price point
The Pellucid Perspective - August 2017 - 8
The Pellucid Perspective - August 2017 - July golf weather impact: Much-needed national “bounce”
The Pellucid Perspective - August 2017 - 10
The Pellucid Perspective - August 2017 - 11
The Pellucid Perspective - August 2017 - Boston metrics favorable, but more rounds needed
The Pellucid Perspective - August 2017 - 13
The Pellucid Perspective - August 2017 - 14
The Pellucid Perspective - August 2017 - Moving day for the PGA, and Justin Thomas
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