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Golf Just Trying to Stay in Play

Sagging U.S. economy is weighing on the industry's ability to grow, and a playing slump has slashed demand for new equipment. But one retailer sees an opportunity to expand.

June 21, 2003|Hanah Cho | Times Staff Writer

When Bob Hutchinson is in the market for golf equipment, he shops around, comparing prices at every place that sells clubs, from the numerous merchants online to the many specialty retail stores in Los Angeles.

The 60-year-old avid golfer ended up purchasing his newest driver, a $399 Titleist, at a pro shop on the course in Griffith Park, where he frequently plays.

"I'm not a loyal customer of one place," Hutchinson said early one morning after a round at Harding/Wilson Municipal Golf Course.

That makes him exactly the type of customer Golfsmith International Inc. wants to lure as it tees off on a major expansion in Southern California, where the competition is as tough as a 500-yard par-five hole.

Golfsmith's move comes at a time when the $6-billion golf retail industry is barely growing, hurt by a soft economy, unusually wet golf seasons in recent years and waning interest in the sport by amateurs.

Nationwide, rounds of golf played last year fell 3% from 2001, continuing a downward trend that began in 2000. Through April of this year, rounds dropped 2% nationally, according to market research firm Golf Datatech, and 4.8% in Los Angeles County.

The playing slump has produced lackluster demand for new equipment. Last year, for instance, U.S. sales of club sets dropped 20% to $1.6 billion, the National Sporting Goods Assn. said, while golf ball sales were down 2.3% to $893 million. Likewise, combined sales of bags, gloves and shoes fell 5.8% to $952 million, according to the National Golf Foundation, an industry trade group.

These days, "we don't need new competitors," said Al Morris, president of Worldwide Golf Enterprises Inc., which operates nine Roger Dunn Golf Shops and has two franchise operations in the Southland.

"Business is tough as it is," Morris said. "Our business is good, but it's not like it was in the early to mid-'80s, where you just would have to open a store and you're successful."

Part of the problem for Roger Dunn and other specialty retailers: A sagging economy has cut consumers' desire to buy discretionary goods. Many are trading down, buying low-priced equipment.

"There's a lot of clubs you could get in Kmart," said Alexander Paris, an analyst with Barrington Research Associates. "When you talk about Titleist and Callaway, you're talking about $300 or more; it's big spending."

Golf retailers and manufacturers know the sluggish golf business all too well.

Pro Golf of America Inc., which supports 140 franchise stores in the U.S. and Canada, saw its April same-store sales slip 6% compared with the same period last year, despite a double-digit increase in revenue at its 11 California stores, President and Chief Operating Officer Joseph J. White said.

"We had an enormous amount of inclement weather east of the Mississippi," White said. "Golf is a game that's impacted by the weather."

Even club maker Callaway Golf Co., which posted a 38.4% jump in first-quarter earnings and a 5.8% increase in sales, cautioned that the start of the spring golf season may not provide the usual lift in revenue because of low consumer confidence caused by the war in Iraq and severe acute respiratory syndrome.

"We had a very good first quarter, but there might be factors at play that could change the dynamics," said Larry Dorman, the Carlsbad, Calif.-based company's spokesman. "One of them being weather, which is unpredictable and outside of our control. We projected a flat year."

Golfsmith International fared much worse. In the three months ended March 29, the Austin, Texas-based company had a net loss of $1.2 million as sales dropped 5.4% to $45.8 million, according to a recent Securities and Exchange Commission filing. The retailer is privately held but reports financial results because some of its debt is publicly traded.

Still, Golfsmith, with 28 stores in 11 states, sees greener fairways. The retailer is betting it can grab hold of the fragmented golf industry and establish itself as a national chain, in part by opening at least four new stores in Los Angeles and Orange counties within the next few years.

The strategy isn't completely off course, analysts say. Either retailers pull back and ride through difficult financial times, or "they see the downturn and tough time as an opportunity to capture more market share," said George Whalin, president of San Marcos, Calif.-based research firm Retail Management Consultants.

With stores already in Ontario, Woodland Hills and Pasadena, Golfsmith opened a 15,000-square-foot superstore in Santa Ana this month. A fifth store in El Segundo will open in July.

The company has found a site for a sixth store and is eyeing a seventh location somewhere in the Los Angeles market, said Golfsmith Chief Executive Jim Thompson.

Golfsmith began in 1967 as a company that sold custom-fit club components. It expanded into the catalog business selling golf accessories, and established its first retail store in 1992. Its online store came six years later.

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