Canadian retail chain Golf Town is buying Golfsmith (NASDAQ: GOLF), the off course and Internet retailer, instantly making Golf Town a big player in the U.S. golf retail business. Owned by OMERS Private Equity, fund manager for Ontario public-sector employees, Golf Town has 54 stores in Canada and seven in the Boston area. The deal is worth $96.5 million and includes all 85 Golfsmith locations.
Thinking through this news brought me to a couple of conclusions.
First and obviously, the consolidation of a financially troubled industry continues.
In this case it’s the retail segment but equipment manufacturers and course operators are undergoing ownership changes as well. Additionally, the big golf-centric retailers seem to all have the same business plan: open large brick and mortar stores, boast about your discount pricing and club fitting, tout it with lots of advertising plus aggressively sell on the Internet.
Dick’s Sporting Goods (DKS.N), which has 486 outlets plus 81 Golf Galaxy stores from purchase of that chain in 2007, is expanding (plans are for 40 new stores this year) and just reported higher than anticipated earnings. However a large portion the positive numbers resulted from the frenetic pace of expansion, dozens of new stores have been added annually. The success of retailers is usually judged by comparing same store sales, which of course doesn’t mean Dick’s is not a success and won’t continue to succeed, but a question remains whether frenetic growth will work.
Golf retailing is also populated with privately held companies some national in scope such as Edwin Watts Golf not to mention several big Internet-only sellers. Then there are smaller retailers who may dominate their local market and we all know every golf course shop sells equipment.
So it’s a crowded field, each competing for sales in a segment that at best is stagnant since the number of golfers is not growing or, depending on the numbers you believe, is in fact declining.
Bottom line, look for more consolidation throughout the golf industry.
Golfers though could see a bright side. With fewer and larger retailers there will be pricing pressure on club makers. This probably will not make for more discounts on the best selling top of the line clubs but for models in the second tier of popularity there will be additional discounting for sure. We may see steeper discounts earlier in the golf season which could mean significant savings as retailers and manufacturers strive for market share.