For the past two years the golf industry has been riding high with unprecedented equipment demand and sales soaring nearly 70 percent. Immediately following COVID-19 lockdown, rounds exploded as golf could be safely played outdoors while socially distanced. If not for tight component supply and manufacturing challenges, equipment sales would have been even higher. Even so, 2021 was a banner year for golf.
Recently however, we’ve all seen the headlines. A pandemic that continues to linger. Geopolitical unrest followed by war. Gas prices spiking to unprecedented levels. Food costs skyrocketing. The Fed raising interest rates, with more expected to come. The outcome of all these storylines created the environment for an insidious opponent: roaring inflation.
So, the scene has been set, a clash between the booming golf equipment business and the highest inflation in 40 years. Undoubtedly, rising costs will have an adverse impact, but by just how much?
When the cost of living spikes, consumer purchasing power takes a hit, and – perhaps even more importantly – creates a negative outlook for consumers. Instead of looking forward to better days when their lives improve, their moods darken. They spend less on discretionary items because traditional staples (food, gasoline, heat/electricity) eat up a larger portion of their monthly budget, leaving less for items they want but don’t necessarily need – such as a new driver or a new set of irons.
The last meaningful major run-up in inflation peaked in 1981, when the Consumer Price Index eclipsed 12 percent. In 2021, the CPI was 7.0 percent, and thus far in 2022, the pressure on prices continues. Most experts expect a tough battle with inflation over the rest of this year.
What does all of this mean to the golf equipment business? Depending upon how events play out on a macro basis, the outcomes could be very different.
There are two exogenous issues impacting any analysis of where the economy and inflation are headed, both likely to impact the golf market: Controlling the spread of COVID variants and a peaceful end to the war in Ukraine. We’ve all lived through the impacts of COVID and understand how socially and economically disastrous these disruptions can be, upending lives and damaging the ability of businesses to make and distribute products. Trying to predict the future of COVID has proved to be a fool’s errand, and doing so with a war is similar, so we’ll avoid going down the path of making any predictions, and just say we will hope for the best on things we cannot control.
Inflationary pressures on staples such as gas, food, rent and mortgages will cut into discretionary spending and undoubtedly reduce the amount golfers spend on their golf equipment in the upcoming year. Golf is lucky, in that – generally speaking – a large percentage of golfers are insulated from small setbacks to their incomes or asset values due to their employment or financial status. However, if inflation runs hot, equity values likely will decline, as will the value of real estate, and a contraction in expenditures is likely, even among some golfers with above-average incomes. When asset values such as stocks and real estate decline, as they do in a recession, it impacts attitudes and reduces the desire to spend on discretionary items, for virtually every level of financial status.
Golf equipment itself is not immune to the impact of rising prices. In fact, the cost of buying golf clubs increased substantially over the past year, even before inflation reared its ugly head and before war broke out. Based upon Golf Datatech retail sell-through data, the average price paid for a new driver in February 2022 was $450 – an all-time high – and 29 percent higher than it was a year ago. The combination of advanced product designs, complex materials, innovative technology, high demand and constrained supply chains has driven prices of new clubs significantly higher. The constant drumbeat of increased input costs are expected to continue for the rest of this year, which means 2023 products likely will be facing even higher prices.
To gain further insights to help golf brands understand the mindset of golfers, Golf Datatech conducts multiple research studies each year, to see how golfers are feeling about buying new equipment, as well as understanding their perceptions of their current economic status. The most recent data from this spring indicates they’re considerably less upbeat about where they stand financially than they were a year ago. And less upbeat consumers typically spend less.
Golf faces further headwinds if Americans return to their “normal” lives and dollars that have recently been spent on playing golf and new equipment shift back to family vacations, eating out, going to festivals or events – all of which might siphon off spending from new equipment.
At the end of the day, some categories such as consumables may see sales improvements versus last year, but the high-ticket items such as clubs will struggle unless the inflationary environment improves.
Guest contributor John Krzynowek is a co-founder and partner at Golf Datatech LLC, the leading independent market research firm in golf.
© 2022 Global Golf Post LLC
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