Ten years ago, country club executive committees were voting to keep Nike-logoed golfwear out of their pro shops because the duds were seen as too “street.”
Things are different today. Eight years into Nike’s Tiger Woods era, Nike’s apparel is sold at every channel of golf retail — in fact, it’s the category leader in the United States, and Nike golf shoes are No. 2. Three years into its life as a serious clubmaker, Nike Golf is showing early signs of becoming a power in the equipment space. It’s all part of an evolution that has tested the skills of the worldwide sports juggernaut at every stage.
Publicly traded Nike doesn’t break out its golf revenue, but executives intimate that the golf division grosses close to $500 million — a strong 40 percent of that outside the United States — which would put it halfway or more to the revenue power of Fortune Brands’ Acushnet Co. and Callaway Golf, with roughly $1 billion and $800 million in revenue last fiscal year, respectively. Nike executives say it’s profitable, with revenue gains of roughly 20 percent each of the past three years.
But it’s common to hear golf marketers and agents say that Nike Golf hasn’t performed up to its own expectations. Company executives disagree with this. “We’ve gotten to be a pretty big company in a marketplace that’s been pretty hostile, in equipment, participation, the larger economy, 9/11, whatever you want,” said Bob Wood, president of Nike Golf.
In many ways, however, it hasn’t performed up to the industry’s expectations, which assumed that Nike’s deep pockets, supply-chain advantages and resonance as a sports brand would quickly persuade the public to buy in.
The fact is, Nike’s ubiquitous presence in sports doesn’t make it immune from any of the challenges that face golf companies: making good equipment that fires the consumer’s imagination, creating a brand name that reinforces this and, if the company can afford it, signing endorsers who reinforce this even more.
But Nike has gone about it in reverse order, leading with a marquee endorser, who lent credibility to the brand name but fostered expectations for the company’s hard goods — clubs and balls — that were simply unattainable.
Nike signed Tiger Woods to his first endorsement, in 1996, two years before it spun out Nike Golf as a stand-alone brand. Apart from his newsworthy temporary defection back to a Titleist driver last year, Woods has brought all the cachet a golfer can to one company, winning his first tournament after switching to Nike irons, in 2002, and his first four majors after switching to a Nike ball, in 2000.
But the company has found the road to brand-name acceptance harder, because certain brands — like decades-old Titleist, with its 50-plus percent market share in balls, and the now-established TaylorMade and Callaway, with their reputations for game-improvement clubs — just say “golf” to people, especially the older demographics that are crucial to golf revenue.
In contrast, Nike is attempting an unprecedented feat of brand elasticity: to market a full line of golf equipment, from shoes and shirts to drivers and putters and balls, under the same brand name — which also happens to market basketball shoes and cutting-edge casual clothing, running shoes, hiking boots, soccer balls, baseball gloves and more. Nike’s competitors have gone the consolidation route, too, but with distinct brands, such as Acushnet’s Titleist balls and clubs, Cobra clubs, FootJoy shoes, Scotty Cameron putters and more.
Most of all, Nike hasn’t had a club that set the golf world on fire. Its first marketed club was a set of blade irons made to Woods’ specs that appealed to purists and scratch golfers and made a statement about the company’s bona fides but never was going to be a big seller. To some marketers, it was a letdown. The retail version of the 300cc driver that Woods ditched in 2003 wasn’t satisfactory, retailers said. “It literally wasn’t as forgiving as some others on the marketplace,” said Mick McCormick, CMO of the Golf Galaxy chain, which does a brisk Nike business now, he added.
“Nobody from inside Nike came out and said we were going to change the world and dominate,” said Mike Kelly, Nike Golf’s club category global director. “But we made a mistake in not telling the trade and the consumer this early on, and many got frustrated with us. We needed to tell our story more about our early emphasis on catering to elite athletes, which has always been Nike’s tradition.”
But Nike’s Slingshot irons have now caught consumers’ eyes, lifting the company to a 4 percent U.S. market share in irons, up from 1.4 percent last year, according to industry research firm Golf Datatech. At the same time, woods have stayed steady at 4.2 percent of the market, wedges are up a hair at 2.9 percent, balls are steady at just more than 8 percent — second only to Titleist in some months — and shoes are up to 18.6 percent from 14.5 percent.
“In hard goods, their products are comparable [to the competition’s],” said McCormick, “but it will just take time for them to gain credibility.”
“We’re doing exceptionally well in some categories and pretty good in others, and that’s as bad as it gets,” said Chris Mike, director of marketing for Nike Golf.
Nike’s larger dynamics make Nike Golf an unusual company. One-third of the company’s revenue is in apparel, and 10 percent in shoes. The profits help float the hard-goods side as it develops. Meanwhile, having Woods in the swoosh burnishes the Nike brand across all sports segments.
But these built-in advantages can foster the perception that Nike Golf is a dilettantish endeavor where the prestige products like clubs and balls are concerned. “It’s not really a golf play. It’s a branding play,” said Bob Toomey, managing director of investment firm RBC Dain Rauscher and an analyst who covers Nike. “[The golf marketplace] is just too diluted by the strength of the much larger companies. I doubt golf is contributing much to [Nike’s overall] earnings, once you take the marketing expenses out of it.”
But then he reconsiders. “It’s more than just a branding play. It’s a market where they think they can grow long term, a market with a strong demographic trend. Over time golf can become a larger part of their revenues [at $12.3 billion in fiscal 2004]. Nike’s got a ton of free cash flow.”
That may be the key, because cash buys time. “There will be a time when people will play who never knew there wasn’t a Nike,” Mike said. “Maybe that’s 20 years from now, but the golf industry moves in decades. It’s a very slow-moving monster. We realize this is a marathon, not a sprint.”
