Nike Golf's new direction

Tiger and Rory have decisions to make

It's safe to say no one saw Nike's exit from the golf equipment industry coming. When news broke out on Nike's intention to refocus its efforts on golf apparel and footwear, it sent shock waves across the golf industry. Its equipment sales fell 8% during the last year to $70 million.

Although the company has given no clear explanation of its decision to exit the equipment industry, the fact that it contributes 1/10th of what Callaway and Taylormade contribute to the equipment industry begins to shed light on what might have caused the world's most valuable sports brand to exit the hard goods industry.

According to a Nike spokeswoman, “We have set a new vision to accelerate innovation in our golf footwear and apparel business. We’ve committed to being the undisputed leader in footwear and apparel—to serve more of the world’s best athletes and drive growth for the category.”

“This evolved strategy will leverage the power of the Nike brand—allowing us to invest in the areas of our business that drive the greatest return. We will accelerate performance and design innovation for athletes and we will deliver sustainable profitable growth for Nike Golf.”

The company has always clung to its idea of producing equipment to support their apparel and shoe businesses. It continued to de-emphasize clubs this year and its presence at the PGA Merchandise show was minimal. In 2016, Nike has signalled at the standpoint it operates from, i.e. clubs and balls play a supportive role and not a featured role. Perhaps, the departure was predictable and shouldn't come as too much of a surprise.

Nike first entered the golf arena back in 1996 when it signed a young Tiger Woods and started investing heavily in its advertising campaigns. In 1999, it first started selling golf balls after which Tiger Woods switched to the new solid-core Nike Tour Accuracy ball from his old wound Balata ball.

Thereafter, Tiger enjoyed a 15 shot-margin victory at the 2000 US Open at Pebble Beach and his endorsement of Nike was followed by 4.5 million new customers according to a study by the Carnegie Melon University.

Nike has never been able to truly dominate the equipment industry and has never come out with that one elusive product capable of driving the business. The advent of Titleist's ProV1 golf ball quashed Nike's efforts of having a breakthrough product in the form of its Tour Accuracy Ball.

Nike’s exit from equipment definitely presents itself in the form of a good opportunity for the “core four” of Acushnet, TaylorMade, Callaway, and Ping. Companies like Wilson Golf and PXG that have been secondary competitors in the market so far can make use of this situation to employ new marketing strategies that will, in turn, lead to a rise in revenue and sales.

The largest effect will be on tour endorsement contracts of its current portfolio of more than 40 players. The company will continue to provide all services to its contracted players through the end of the season as the players continue considering equipment and apparel changes entering the new season.

Nike Golf's state of the art club research and development facility, “The Oven”, will “remain open during this transition while we continue to evaluate future business needs,” a Nike spokesperson said.

Big names like the aforementioned Woods, Rory McIlroy, and Michelle Wie have the freedom to try out new equipment as they are no longer contractually bound to play using Nike clubs.

“Tiger and I have had multiple conversations about what we'd do, and we have an organized plan in place,” his manager, Mark Steinberg said. “The plan is continued rest and rehabilitation and we'll sort out the equipment thing in due course. I'll be in the process of doing that, effective immediately.”

Steinberg declined to reveal which clubmaker he'd first approach, but added, "He's been a longtime icon of Nike golf and that's not going to change one ounce. He'll remain a loyal and enthusiastic icon of Nike."

The pros can also take advantage of Taylormade ownership rights being relinquished by Adidas. There can be a potential association in the works as Taylormade players will no longer be tied to Adidas footwear or apparel.

Titleist players continue to have an obligation of sporting FootJoy footwear and apparel so a tie-up between Titleist and Nike is tough to envision at this moment. With Callaway having a flexible interpretation of what's required of their equipment contracted players, Nike staffers are free to try out Callaway equipment.

Companies like PXG and Wilson Golf have registered an interest in Nike's outgoing players. Wilson president, Tim Clarke referred to similar arrangements in the sport of tennis with Roger Federer and Serena Williams. The two aces wear Nike apparel and game Wilson racquets.

“We would be interested in the right kind of brand ambassadors for us in golf, somebody who fits the personality of what our brand is about,” Clarke said. “It'll be interesting to see how it shakes out the future of endorsements. Nike certainly accelerated the endorsement dollars in golf, and it’s probably natural to start to see a correction.”

PXG president, Bob Parsons also hinted at Nike being a potential ally moving forward and made it clear that he never competed with Nike in the equipment business.

Two years after signing Rory McIlroy on a bumper endorsement contract worth $20 million a year, President Cindy Davis got replaced by Daric Ashford, a Nike veteran with no experience in golf's hard goods side. In retrospection, this move was the beginning of the end of Nike Golf's journey in the equipment business.

The not so keen golfers can now buy Nike golf equipment at slashed rates until the year's end as Nike racks up its attempts to sell out all remaining stocks. Nike's counterparts in the biz will be at a clear disadvantage until Nike freezes its equipment sales.

However, the business has held steady over the years in the $4 – $4.5 billion range and there are brighter days in sight. Nike Golf accounts for 5% of the equipment industry and will not leave behind a void which could signal the end of the business.

While it is not clear if Nike Golf will ever return back to producing golf clubs and balls, they are definitely trying to retain the ability to function as a brand. The company has committed to following a practical approach to investment in the sport of Golf and will try to be numero uno in golf apparel and footwear.

“We're committed to being the undisputed leader in golf footwear and apparel,” says Trevor Edwards, Nike brand president. “We will achieve this by investing in performance innovation for athletes and delivering sustainable profitable growth for Nike Golf.”