Golfsmith’s Course of Action: Focus on Multichannel Commerce

From the moment you pull into the 40-acre Golfsmith campus in Austin, Texas, you know you’re in a golfers’ mecca. But as it turns out, the company’s on-site driving range and golf academy are just the beginning.

Inside the 92,000 square-foot corporate headquarters, there’s a putting green for employees, and a large retail store complete with indoor waterfall and Clubhouse Café. The clubmaking workshop not only crafts custom-made clubs, it also holds weeklong classes for those who want to learn the art. A research and development team is developing clubs and testing

vendor-sourced products. Enlarged pictures capturing golf imagery hang over the crisp green and yellow décor in the office area. The wide open but structured layout of the workstations and offices are reminiscent of an airy and well-designed golf course.

This place breathes the game.

Begun 37 years ago in the home of an engineer who saw a ripe opportunity to make and sell custom-fit golf clubs, Golfsmith is today a $257 million, multichannel merchant of golf equipment, apparel and clubmaking supplies and services. Those 2003 fiscal year revenues were up 18 percent from 2002, and its same-store sales were up 7.4 percent. And from 2002 to 2003, Golfsmith grew its 12-month housefile by a whopping 158 percent.

What’s fueling that growth is a combination of youthful energy, seasoned smarts and outside capital. The platform for this growth includes a multichannel-marketing strategy employed in the still-fragmented golf industry dominated by mom-and-pop shops. Oh, and then there’s the Tiger Woods effect. By all accounts, the star athlete has made golf cool, generating legions of young enthusiasts of the game.

All of these variables make Golfsmith look perfectly poised for growth. This story is about senior management’s vision, the multichannel strategy they’ve employed to achieve that vision, and the challenges they’ve already tackled and will face in the future.

The Mission

Golfsmith is attempting to position itself as the market leader that is top of mind for golf advocates. And it’s using three channels — catalog, e-commerce and retail — to make that happen.

Catalog: The company mails 27 catalog editions annually, including a 236-page annual clubmaking book with Canadian and European editions, 11 accessories books for golf enthusiasts, five catalogs selling golf components, eight Clubmaker magalogs and its newest baby, Drive, a women’s golf catalog.

The latter mailed its first edition, a 36-pager in July. The company also signed a one-year sponsorship agreement with Natalie Gulbis, an LPGA Tour professional who was featured in the first Drive catalog. Industry statistics show that 10 percent of avid golfers are women, but Jim Thompson, Golfsmith’s president, says that even that small percentage represents an “underserved market with vast potential.”

Additionally, Golfsmith was named the exclusive off-course retailer for the LPGA Collection, a new line of women’s golf apparel. And the company is sponsoring the Executive Women’s Golf Association, which funds recreational and educational events for members and encourages women to take up the sport.

Creative work for all of the Golfsmith catalogs is done in-house, says Bob Hermansen, director of catalogs and direct marketing, and the former art director for Chadwick’s of Boston catalog. Golfsmith has its own in-house digital studio, photographer and copywriter. “Only rarely do we reuse vendor-supplied art,” Hermansen says. “We shoot the products ourselves, which gives us more control of how the images are displayed and used. We even have an image specialist on staff who does color correction and clipping.”

Recently, the company has started telling its story more prominently within its catalog pages. For example, the opening spreads of one of its recent editions (see page 20) doesn’t sell product, but rather uses that space to promote specialized customer services such as its club trade-in program and Golfsmith credit card; a special gift section and its gift card offering; and three ways to shop. Additionally, because all three channels were promoting irons that month, the spread is heavily devoted to that product line.

Pages 4 and 5 of that same edition are devoted to educating consumers on iron design, materials and shafts, and offers an “Iron Guide” so customers can compare clubs made by different companies. Moreover, the first 13 pages of this 84-page edition are devoted to that one product line of irons.

This strategy of themed issues is carried over into the company’s other channels. Each week, key people within each sales channel meet to plan the creative threads that will spread across all Golfsmith sales outlets. Merchants buy for all three channels. And all channels are required to promote one another.

It was not always such a smooth process. A few years ago, the channels were developing independently of one another, and as such they were not conveying a single branding message. “We set out to dispel the ‘us vs. them’ mentality,” Hermansen recalls. “Now we work together, and we’re not fighting over creative anymore.”

This drive to tear down and hold down the walls that often surface in a burgeoning multichannel environment has enabled Golfsmith to create what it terms its “multichannel synergy.”

E-commerce: The company has four Web sites, all designed in-house: a golf store, a clubmaker site, a clearance outlet and a new women’s golf Web site. The sites recently were redesigned for easier search and navigation. Golfsmith uses a Web analytics service, which has helped it understand the strength of its multichannel marketing strategy. “For example, the store locator page consistently is one of our top 10 pages visited,” Hermansen notes.

The sites also cross-sell and upsell on the product pages. Hermansen says he’d like to someday be able to do what Amazon offers: “You last bought x, you may want y.”

To help improve the “stickiness” of its e-commerce channel, Golfsmith established “Clearance on the Clock,” an online outlet in which product prices for clearance items are reduced every day. “It’s fun, gets a lot of repeat hits and is good for inventory clearance,” says Hermansen.

The company engages in some rudimentary affiliate marketing. It’s part of the sporting goods store on Amazon, but Hermansen says they’ve not yet been able to fully leverage that outlet. “Some of our OEMs did not want their products to be in such a competitive online environment,” he notes. “But we’re definitely seeing incremental sales from that channel.”

Additionally, Golfsmith sells products on eBay, including collectible golf merchandise, special power buys, and pre-owned clubs that came in via the in-store and catalog club trade-in program (customers can trade in their old clubs when buying new ones).

Retail: Golfsmith’s retail stores are worth a visit, even if you don’t golf. Some of their stores are veritable edutainment centers that could be B-school examples of how to establish an experiential retail environment. No kidding, they’re like golf playgrounds.

The company has signed partnerships with various golf-related services that have, in turn, set up shop within Golfsmith stores — as Starbucks has done in bookstores. One such service, Hot Stix Technologies, installed “fitting” bays in some Golfsmith stores. The bays use multiple cameras and launch monitors to record data from customers’ swings. Software then computes specific equipment and club-fitting recommendations for each customer.

A recent visit to one of Golfsmith’s Austin stores also revealed a waterfall and putting green in the middle of the shop. TVs suspended from the ceiling transmit the Golf Channel (all golf all the time). There’s even a small workshop in the back that repairs clubs or will teach customers how to do it themselves.

While the company is fixated on multichannel, its retail division in particular appears to be growing exponentially. To date, it has 42 stores, and plans to open three more in the near future. Last year, the company purchased Don Sherwood Golf & Tennis World, a San Francisco-based retail chain.

In keeping with its multichannel focus, there’s an in-store Internet kiosk for online ordering. And back-end technologies are set up so that orders from the direct channel can be shipped right from a store when the need arises. Mostly, however, direct orders are shipped out of the company’s massive 240,000-square-foot distribution center (DC) on its Austin campus.

Fulfillment

Golfsmith’s DC for its direct channel was a veritable beehive of activity during a recent tour of the facility. Double-decker conveyor belts transport color-coded and bar-coded plastic totes down the long picking aisles. Pickers read the paperwork inside, drop in products and push the totes back onto the correct conveyor to be either loaded for more merchandise elsewhere among the aisles or sent to the packing zone. Green totes get top priority since they represent expedited orders. Most DC personnel are full-time permanent employees, says Ken Brugh, vice president of operations.

Golfsmith’s retail stores are replenished out of an adjoining and cavernous DC that is reminiscent of that final scene from “Raiders of the Lost Ark.” Here they use technologies such as radio frequency and pick-to-light to gather, shrink-wrap and ship products to stores via parcels, LTLs or full trailers. The store-replenishment DC can service 80 to 100 stores, so it has plenty of capacity left to help the company grow.

A process-improvement period enabled the DC’s accuracy rate to reach 99.85 percent. Its inventory turns were 3.3 last year, and are expected to be 3.5 to 3.7 this year.

Expertise and Capital

If all of this sounds like textbook DC operations, there’s good reason: Jerry Dent, Golfsmith’s vice president of supply chain, previously worked for The Home Depot and Wal-Mart. And he’s not the only one to jump ship from venerable companies to set up shop at Golfsmith. Jim Loden, vice president of retail operations, previously had a similar role at CompUSA. CIO Kip Miles previously directed Office Depot’s information technology. Rod Kight, director of circulation and strategic planning, is the former circulation manager at The Sharper Image. And President Jim Thompson was lead merchant for home computing products at Circuit City.

No doubt the breadth and depth of retail knowledge in the management team was one of the reasons First Atlantic Capital bought a majority share of Golfsmith in 2002. Golfsmith founders Carl and Frank Paul have retained a substantial ownership position, remain on the board of directors and focus their attention on the company’s components division. Charles Shaw, managing director of First Atlantic, was named Golfsmith’s chairman.

First Atlantic is a New York-based private equity investment firm that specializes in U.S. middle-market companies. It invests primarily in companies that have strong expansion opportunities (either internal or through acquisitions), as well as sound business foundations.

Golfsmith is using First Atlantic capital to open new stores and expand its catalog and e-commerce operations. Noel Wilens, principal at First Atlantic, said, “With this investment, we acquired not only a leading company, but also an exceptionally experienced and talented management team that has been a pioneer in the golf equipment business.”

Thompson says he admires the management philosophy of First Atlantic. “They don’t infuse their people on the companies with which they partner. They keep mostly a hands-off approach, primarily because they are so diverse in their investments. And yet I can tap into their business, management and operational expertise if I need it. They have given us the financial gas we were looking for.”

Golfsmith’s Challenges: Past and Future

Technologies: When asked what technologies are being used to tie together Golfsmith’s multichannel operation, all parties roll their eyes remembering the formidable hurdle of setting up such a system. Rather than buying an off-the-shelf solution, Golfsmith executives decided to build their own — no small feat, they admit now.

They constructed a proprietary Enterprise Resource Planning system on an Oracle platform. “Implementation was painful,” Thompson recalls. “But now it works great, especially for store replenishment.”

Repeat orders: Future challenges for Golfsmith include keeping customers loyal. Thompson admires the system put in place by other retailers such as Chico’s, and hopes to emulate appropriate portions of those programs.

Applying appropriate levels of human capital: Says Thompson, “Growing a company requires that you have great talent in place. But that’s risky, too. You can’t over-extend those terrific individuals, because you’ll burn them out.”

In-the-mail costs: Hermansen is particularly critical of the U.S. Postal Service. “They don’t seem to adequately understand how much its rate increases hurt business in this country,” he says, his voice elevating a bit in frustration. “When they raise rates, we mailers have no recourse but to pull back our mailings, which doesn’t help us or USPS.”

E-commerce: Hermansen and his staff plan to improve their affiliate marketing and search engine marketing programs in the near future.

Contact strategy: A final challenge is one heard by all multichannel marketers: How to plan a contact strategy during a period of rapid channel-shifting. Says Thompson, “We may stop mailing to a woman who uses the catalog to pre-shop in a Golfsmith store but has never bought from the catalog itself. How do we track that? This is hard stuff for multichannel merchants. The industry needs more great circulation people.”

No doubt the energy, intelligence and resources now housed at Golfsmith will help at least this merchant meet those challenges head on.

Golfsmith at a Glance
Headquarters: Austin, Texas
Merchandise: golf-related products and services
Channels: retail 65 percent; direct (catalog and e-commerce) 35 percent
Annual catalog circulation: 16 million
# of retail stores: 42
Average annual comp store sales gains: 7.4 percent
Corporate goal: to be the No. 1 off-course retailer in golf
Average order value: $125
# of SKUs: 12,000
# of employees: 1,325
Ranking on the most recent Catalog Success Top 200 list (as measured by housefile-growth rate): 6
Majority shareholder: First Atlantic Capital Ltd.
Printer: Quebecor World

Golfsmith’s Chronology

1967 - Carl Paul, an engineer with the Environmental Protection Agency, starts a business distributing his custom-made golf club components to club repair shops. He and his wife, Barbara, convert their suburban New Jersey home into a makeshift R&D center. Paul trades in his wife’s green stamps for an electric drill, his first clubmaking tool. They collect telephone directories from around the country, circle all club repair shops, and thus devise a mailing list for their first business-to-business catalog, which includes Carl’s hand-drawn pictures of merchandise.

1973 - The Pauls, joined by Carl’s brother Frank, move Golfsmith to Austin, Texas. They open a components showroom in an unused army barracks, continuing to design and distribute golf club components to clubmakers worldwide.

1975 - The first consumer catalog mails.

1976 - The company grosses more than $1 million.

1980 - Golfsmith establishes the Golf Clubmakers Association (GCA), an organization that supports and guides clubmakers worldwide.

1988 - Golfsmith hosts the first annual GCA conference.

1992 - The Pauls move the company to its present-day 40-acre campus in Austin, and they open the first retail store there.

1993 - Golfsmith teams up with Harvey Penick, a renowned golf instructor, to develop the Harvey Penick Golf Academy on the Austin campus. To date, the Academy has instructed more than 17,000 golfers.

1995 - Superstores are opened in Houston, Denver and Dallas.

1998 - Golfsmith moves into the proprietary-products arena, and acquires golf-equipment brands Lynx Golf, Black Rock Golf Corp. and Snake Eyes Golf Club. Its Internet site at www.golfsmith.com is launched.

2002 - Golfsmith turns to New York-based First Atlantic Capital, a private-equity investment firm, for help expanding the merchant’s multichannel retail strategy. First Atlantic Capital acquires majority share in the company, leaving Carl and Frank Paul with a substantial ownership position. Jim Thompson, senior vice president of retail operations and merchandising, is promoted to president and CEO. The company has 26 superstores nationwide.

2003 - Golfsmith acquires Zevo Golf, a club and accessories manufacturer, and Don Sherwood Golf & Tennis World, a San Francisco-based retail chain. By year end, the company has 38 superstores.

2004 - The company reports fiscal 2003 net revenues of $257.7 million, up 18 percent from 2002. Golfsmith unveils its first women’s golf catalog.

The Golfsmith List:
12-month housefile: 251,999
Average customer age: 52
Average annual income: $90,000
Base list rental: $95/M
Contact: American List Counsel, (609) 580-2800