The Pellucid Perspective - October 2017 - 10

GOLF FINANCE

Credit Management a "hot" topic?
Acushnet playing tough?
By Stuart Lindsay

couple weeks ago, one of our clients told us they had
gotten a letter from Acushnet (Titleist, et. al.) outlining new credit information required to continue their
account. This was followed by another contact questioning this
new documentation and they also sent a copy of the new credit
form. Both facilities reacted poorly - particularly the client that
we provide monthly data analysis for who is a very low volume
buyer of Acushnet products.
Ordinarily, this might not be considered in Pellucid's wheelhouse, but most of you don't know that my early business career required developing an intimate knowledge of the Uniform
Commercial Code (UCC) and the proper perfection of security
interests. In our business, we had to manage UCC issues for
over 1,200 accounts in 5 states. In addition, I served as a guest
lecturer at two universities and the Farm Equipment Wholesalers Association convention faculty on the subject of credit
management. More recently, I have been a keynote speaker for
the Golf and Tennis sub-group of the National Association of
Credit Managers on two occasions.
Credit Management is a severely under-appreciated and
misunderstood part of the sales process. This is particularly true
in the distribution of durable goods to independent retailers
that create "floor plan" options allowing for the delivery of merchandise before payment is received. Common in seasonal businesses such as golf, farm and outdoor power equipment, credit
policies and decisions quietly impact both product exposure and
the financial health of the manufacturer/distributors that offer
floor plan options.
When we see a major change in policies and procedures
as indicated in the recent Acushnet communications, the first
question is why this apparent "tightening" is being done. Given
well documented golf industry struggles, is Acushnet experiencing increased credit losses? A quick look at the balance sheet
shows that the "bad debt" reserve has increased from 4.1% of
their gross receivables in 2014 to 6.5% in 2016. An increase
of over 50% would seem to confirm an increase in anticipated
credit losses. We would guess that these higher losses elicited
some C-Level attention and the usually inconspicuous credit
management staff was tasked with addressing the issue.

Pellucid's experience with Acushnet has been overwhelmingly positive in project work. We have been able to observe a
well-run business that has achieved significant market dominance in several categories first hand. We will leave the heavy
duty financial analysis lifting to our friend Casey Alexander, but
Acushnet also has a very strong balance sheet. Also, while the
bad debt allowance is a relatively high percentage of receivables,
in real dollars, the allowance represents well below 1% (.78%)
of total revenue.
To try and better understand the newly tightened policies
at Acushnet, we looked at the only other publicly traded major
golf equipment company, Callaway, to see how their bad debt
allowance compares. Interestingly, Callaway's allowances are
much higher. Callaway allocated 12.3% of their gross receivables for bad debt in 2014 and 10.5% in 2016.While the trend
is directionally opposite of Acushnet's, it should be noted that
Callaway's bad debt allowance represents a relatively high 1.7%
of total revenue - more than double that of Acushnet.
While there are many nuances and real differences in product mix (also inventory turns) between Acushnet and Callaway, what we find noteworthy is two apparently opposite credit
management approaches. Acushnet appears to be tightening
credit while Callaway is taking a riskier approach and willing
to accept the prospect of higher bad debt losses in order to preserve retail outlets and product exposure.
As Callaway broadens its product line into golf bags (Ogio)
and tries to build momentum for its ChromeSoft balls, product
exposure is critical. On the other hand, Acushnet's insistence on
UCC protection for even small accounts will almost certainly
result in reducing their number of retail outlets and concurrent product exposure. While it may be Acushnet's intent to
reduce the number of smaller accounts with these stricter credit
policies, using a one size fits all UCC security document may
not really be necessary and could result in a bigger loss in retail
product exposure than anticipated.
As the number of off-course golf retailers continues to
shrink, it looks like green grass sales are showing some signs of
life. How these two different credit approaches work out will be
interesting to watch.
n

Credit Management is a severely under-appreciated and misunderstood
part of the sales process. This is particularly true in the distribution of
durable goods to independent retailers that create "floor plan" options
allowing for the delivery of merchandise before payment is received.
10 The Pellucid PersPecTive

October 2017

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