SWOOSH AND IT’S GONE
Last August, Nike stopped making golf equipment. So why couldn’t the world’s most ruthlessly successful sports company convince us to buy their clubs and balls? The answer, as Richard Gillis reveals, tells us as much about the business of golf as it does
Why couldn’t the world’s most ruthlessly successful sports company convince us to buy their clubs and balls?
The Nike Swoosh began to appear on golf courses in the 1980s on the arms and feet of Curtis Strange and Seve Ballesteros but it was a long time before the world’s biggest sports brand entered the equipment market. Tiger Woods won the 2000 US Open with the Nike Tour Accuracy ball and David Duval won the 2001 Open at Lytham using Nike forged irons. Of course, there have been highlights along the way, but after a 15-year journey Nike is back to where it started in golf – making apparel and footwear. With the promise of attracting a whole new audience, Nike backed up their commitment to golf with a massive marketing outlay. However, the brand never snared more than a 10% market share in clubs or balls. Golf contributed $706 million to Nike revenues in the last financial year; small fry compared to the $27.2 billion generated by the whole company over the same accounting period. What’s more, golf was Nike’s worst-performing category in its last fiscal year, as sales fell eight percent. Golf as a whole was also the only segment to lose sales on a constant currency basis and has become Nike’s smallest revenue contributor. While these figures help explain the decision to leave, an obvious question hangs in the air. Given that Nike is the most successful business in sports, why did it find golf such a hard nut to crack?
the tiger woods disconnect Why Nike could never leverage the World No.1
Nike’s golf story was inspired by the global fame and charisma of Tiger Woods. From the start, it was clear that the relationship between the player and the Oregon-based company was far more ambitious and complex than just another golf endorsement deal: Brand Tiger would help define the link between business and sport celebrity. The first time we saw Woods on television he was pitching for the brand. “Hello World” he said, echoing a Nike slogan just a few days after signing his first multi-million dollar deal as a 19-year-old Stanford graduate in 1996.
Woods’ role in the Nike story highlights the basic problem of marketing: cause and eect. The eect is very easy to spot – sales rise or fall – but getting to the cause is where expensive mistakes are made as success or failure is attributed to the wrong thing.
‘Half the money I spend on advertising is wasted,’ goes the industry cliché. ‘I just don’t know which half’.
When applied to golf, the major golf equipment brands spend enormous sums of money on tour player endorsements, in the hope this will encourage regular golfers to buy their equipment. Things are rarely that simple, however. Player endorsements can certainly help make a brand famous, but just knowing of their existence is not enough to persuade us to shell out on a new set of irons or the latest driver. The ambassadorial role of Tiger and, several years later, Rory McIlroy who signed a $200 million contract in 2012, was at odds with how golf clubs are traditionally bought and sold.
“Nike did produce some excellent products, but their marketing centred on what Tiger or Rory were using rather than how the product actually helped the average golfer,” says Paul Hedges, CEO of Foremost, the UK’s largest golf retail group, which boasts a membership of over 950 club professionals and is responsible for 25 percent of all UK golf sales.
“With an educated and discerning buyer that was not enough,” Hedges continues. “Without fully embracing custom-fit technology to demonstrate playing benefits, they allowed other brands to be seen as a better choice.”
There was always a flaw at the heart of Nike’s Tiger strategy, Hedges asserts. Put simply, most of the people who idolised and were most influenced by Tiger were not the ones buying the clubs. “Golf’s demographic skew means that with the higher average age of participants the hero worship of iconic players was never as powerful as it was reported to be.
“In short, wealthier, more mature golfers never really warmed to a brand that was perceived as being heavily aligned with teenagers,” says Hedges. “It is a mistake to think that a young demographic will simply stay with a brand as they grow older. As we get older, our brand values change and we are influenced by other things.”
a ROUND BALL in a SQUARE HOLE The retail conundrum Nike never solved
Other than figuring out how to best leverage Tiger Woods, Nike’s most challenging issue was the structure of the retail golf business, which hindered the company’s ability to reach potential customers.
“Fundamentally, golf is still a relatively small business which does not lend itself to a mass-market distribution model,” says Hedges. “With less than seven percent of the adult population playing the sport and some 50 percent of golf equipment sold through professionals’ shops, golf equipment brands cannot sustain a prime high street retail position. Across the world, even the largest golf retailers are in secondary locations because sales just cannot support prime locations and the associated costs.”
This created a problem for a massive company like Nike, which usually reaches its customers on the high street or via its own online stores. “Successful golf brands have to work with a very large number of small retailers,” says Hedges, “whereas Nike is more geared to mass distribution.”
This explains why the golf industry remains the realm of golf-only brands such as Ping, Mizuno, Callaway, Titleist and the adidas-owned TaylorMade, which is currently being sold by the German giant and major Nike competitor. Hedges believes the complexity of the buying process in golf means that the influence of the PGA golf professional holds more weight than an endorsement by a wellknown tournament professional – a fact that is evidenced by the still high percentage of total on-course sales.
“The unique facility of having the coach, custom-fitting options and retailing being at the point of purchase means club pros have a huge influence. Our research has shown that a PGA club professional’s personal endorsement is eight times more powerful than that of the top tournament professionals. Golf brands recognise this and use that pyramid of influence by ensuring that the club professional is supported. Massive brands such as Nike tried to engineer their preferred supply chain and business model into a market that could not and would not follow it.”
THE PROBLEM WITH HEROES How Nike were blinded by their brightest star
Nike is in the hero business. Since its inception as a running shoe company, it has used its marketing budgets to turn athletes into idols. Tiger Woods and Rory McIlroy are part of a long-standing tradition that includes Michael Jordan, Lance Armstrong, Andre Agassi and Cristiano Ronaldo. But there are two problems with heroes. First, they sometimes fail. And in the case of Armstrong and Woods particularly, the fallout can be spectacular, revealing the gap between the human being and the marketing myth. The second problem is that heroes can be so compelling that they encourage even the most hard-nosed business brains to fall under their spell. In Nike’s case, the incredible global popularity of Tiger Woods was a catalyst for the brand to venture in to a sector in which they had no experience or expertise.
Nike is the world leader in sports clothing and shoes, but it has found that golf is not the only hardware business not to its liking. The company entered the ice hockey business by buying incumbent brand Bauer and then attempted to build a position in the nascent market for wearable trackers by making its
own FuelBand device. Both ventures, like its golf equipment business, failed.
The reason for these high-profile failures is that the link between sports equipment hardware and clothing/shoes is tenuous at best. Just because we wear a Nike polo shirt does not mean we’ll buy
their clubs. If you look around a pro shop, you’ll see a divide between the major clothing brands and those selling equipment. Under Armour, Adidas, Puma, and Oakley have all built large golf clothing, shoe and accessory businesses without going to the enormous expense of selling clubs under the same brands.
“Nike has a history of entering a new sport and then withdrawing,” says Tim Crow, an expert in sport sponsorship and chief executive of the Synergy Sponsorship agency. “Not that long ago Nike had a major presence in rugby, with the license to make and sell the England and France rugby team shirts. They exited that market and now have no deal with any of the major rugby nations.”
In addition to this lack of growth, Crow points to factors outside of golf that have impacted on Nike’s business decisions. Significantly, they are fighting expensive battles in other sports, particularly football and the major league sports in the US. “They have bigger fish to fry elsewhere,” says Crow, who points to “escalating prices for the big contracts in those sectors”.
He’s not kidding. Nike recently agreed to pay Chelsea FC £900million over the next 15 years to design, make and sell the west London football team’s kit. This was on the heels of a similarly huge contract renewal with Spanish club FC Barcelona.
According to Sports Business Journal, Nike’s financial obligations to sports teams, leagues, associations, colleges and athletes reached nearly $6.2 billion last year, up a whopping 32 percent over the same time a year before. This spike in spending on sponsorship was due to the pressure from Under Armour and adidas. Between 2013 and 2015, Nike’s spending rose an incredible 72 percent, or nearly $2.6 billion. “The reality is you see a bit of a jump because they can,” said Jay Sole, a research analyst for Morgan Stanley. “The business is performing very well; the profits are continuing to grow.” In direct contrast, even with Tiger at his peak Nike never had more than a single-digit market share of the golf equipment business.
In the end, the decision to leave was brutally quick, with even contracted players caught unawares and left seeking new deals with other clubmakers. With Nike’s marketing spend reduced, the going rate for golf endorsements will fall, and the other manufacturers, such as Callaway, Titleist and TaylorMade will seek to soak up market share.
“It just goes to show how tough the golf market is,” said Tom Stine, co-founder of Golf Datatech, which tracks industry sales. “It’s a steady market.
It isn’t going anywhere, but if there’s one less competitor, then there are more dollars to go to the other companies.”
Paul Hedges agrees. “Any brand that wants to succeed in golf has to really understand the market. I think Nike had been pushing water uphill from day one; and after many years and significant investment, they have clearly decided that it was just not worth the eort.”
A PGA CLUB PRO IS EIGHT TIMES MORE INFLUENTIAL THAN A TOP TOUR PRO