Golf’s declining appeal takes toll on Nike, Golfsmith

Bloomberg

Nike Inc.’s decision to stop selling golf equipment and a possible bankruptcy filing by the Golfsmith retail chain are raising concerns that the declining popularity of the sport is taking a toll on the companies that thrive on it.
Millennials, the key to the sport’s future, are shunning the expensive and time-consuming game in favor of more instantly gratifying pursuits like Pokemon Go and Netflix binges.
That’s bad news for companies
like Nike and Adidas AG, which said in May that it was starting talks with potential buyers for bulk of its golf unit, TaylorMade, which generates about $1 billion in annual sales. “In any sport, you’ve got to get young participation to drive long-term growth,” said Brian Yarbrough, an analyst at Edward Jones & Co. who covers Nike. “You’ve got to have a crop of younger people coming in at 20, 25 years old who will play game 20, 40 years.”
The number of U.S. golfers dropped to 24.1 million in 2015 from a peak of 30.6 million in 2003, during the height of Tiger Woods mania, according to the National Golf Foundation. The decline among young people is even more troubling: The participation rate has fallen 30 percent over the past two decades. In the U.K., where modern golf originated, the average age of once-a-week players jumped to 63 in 2014 from 48 in 2009.
Woods, who has won 14 major championships, helped ignite interest in golf in the late 1990s and early 2000s. But the popularity of the sport waned after he took a break following a car accident outside his Florida home in 2009 that led to an admission of marital infidelity. He never regained his earlier dominance, and younger champions like Jordan Spieth and Rory McIlroy have been unable to match his level of stardom. Consumer spending on golf equipment in the U.S. has been largely flat over the past eight years. In an already weak retail environment where companies have to increase promotions to drum up sales, sportswear companies are being forced to give up areas with lower margins that don’t drive enough revenue.
“Golf equipment is an expensive business that comes with an
R&D component because there’s surprising amount of technology built into that,” said Simeon Siegel, an analyst at Nomura Holdings Inc. who covers Nike. “If you can’t plot out meaningful industry growth, it makes sense to look internally and rethink your strategy.”