Having come from Adams Golf to take over at Callaway in 2012, Chip Brewer has turned their fortunes round, culminating this year in the successful launch of the Epic driver. I met with Chip at the 2017 BMW PGA Championship to find out how the masterplan is going.
Hi Chip. Epic seems to be doing quite well. Has it surprised you how well it has gone?
The Epic driver has exceeded our expectations. It has been the most successful driver launch that I have ever been part of. Now Callaway has had some pretty successful driver launches in its time, but in my experience, and I have been at Callaway 5 years, and in the industry for 19, the Epic is hotter and with a higher volume than anything we have ever seen.
But we knew it was going to be really good. We had a new technology so we could tell we had something with great potential. If you look at it on a global basis, we are number one in drivers and the woods category in Japan, in the US, Korea and Europe, so those are pretty good markets to be leading in.
What in particular do you think has driven that? Is it the technology or is it the story or is it the buzz?
It’s the technology first and foremost, but you know for business my analogy is a symphony where you have to have all aspects of it right and Callaway has been fortunate over the last several years to be doing a lot of things I think trending in the right direction and our market shares have reacted accordingly. We have grown 50% in market share over the last five years and that was prior to Epic and we have a great brand, we have strong resources.
Epic is a new technology. We put this Jailbreak in it, it creates more ball speed, it has a wonderful look to it I think and the overall package has kind of wowed people.
You don’t get that opportunity every day where you really come with a transformational technology. Sometimes they are incremental and sometimes they take a great leap forward and we were able to do that with Jailbreak in the Epic.
You talk about transformational technology and I think the other one I saw when I was at the launch was the Microhinges on the new Odyssey O-Works putters. Has that had the same effect in that category?
It has done fine, but Epic has been incredible. Epic has taken the market by storm and you can’t go places now without people talking about it. We are really focussed on the next stuff now, but it has been an incredible run and it is obviously a great driver that consumers love.
How important are player sponsorships in the success of a brand?
It is a critical part of the equation. We spend a lot on Tour and it has been a key focus for us. But again it is all part of a symphony of things you know, but product performance is fundamental and it has to be the keystone of the strategy and you have got to have an edge in that. Then after that it is the marketing, it is the Tour, it is the distribution, it is the brand strength that all goes into it and the Tour is a nice and important part of that, but it is just one part of a total mix.
With the Nike 'free agents' in the marketplace, is it better when a player chooses to use your product without being contracted?
I think when a player chooses your product in an open market, they are actually exchanging money for the product and therefore that performance has to be more than comfortable for them. When players are sponsored it still means something, but when they are choosing it and they are not being sponsored then yes I think that means a lot. It sends a good message.
What did you think about Rory moving to TaylorMade? Did you have a chance to sign him?
You know we were really flattered by him playing the product starting in January 2017 and all the success that he had with it and we respect his decision to take the sponsorship money from TaylorMade. You know I get it and it was nice that he chose our product and did so well with it.
TaylorMade seem to major quite heavily on sponsoring players?
They have a very strong Tour staff, as do we, but their Tour staff right now is extremely strong.
Is that just that an ebb and flow thing where they happen to have players who are ranked highly at the moment?
It is key to their strategy right now. It is difficult for me as you can imagine to talk about other competitors' strategies and I have respect for all of our competitors, but we keep score in this business, so if you check the scoreboard you can draw your own opinions on who is winning and who is not. I do very much tip my hat to their strong player portfolio.
So which scoreboard are you talking about then?
Well, I think market share and financial results and brand strength are pretty good ones. If this business was all about who paid the most players and had the most people on Tour then Nike would have owned the equipment space, wouldn’t they?
Obviously it is a part of the mix, but in terms of market share performance and delighting consumers and also running a large sustainable business, not having any long term debt, making continual investments in R&D, they are the critical things for the long run. We have a structural advantage and you can get lost in certain aspects of the business if you let that happen.
You mentioned revenue and profit and Callaway's revenue was up by $35 million in the first quarter of 2017, so has that led to a profit too and if so, how easy is it to make a profit in the current market?
Well, we’ve been profitable since I got here in 2012, we are making money and we are investing aggressively back in the business and we are growing the business and our market share is up. We are also investing aggressively on Tour, you're going to see a tremendous amount of young talented players moving into the Callaway brand.
Again it is that symphony approach, but we have had a lot of momentum and been on a roll I guess recently so I am pretty pleased with where we are headed right now from a trend perspective and I like the fact we have the ability to keep investing in the business.
Our R&D investment, at a time when the rest of the industry is struggling, I think that it is a wonderful time if you have the capability to reinvest back for the long run. We put another $2 million dollars of investment in our golf ball R&D last year. It won’t pay off this year, it won’t pay off next year, but in 2019 or in 2020 I honestly believe that it will pay off.
We made a similar investment back in 2013 into advanced research on the club side and you know you can see some of the fruits of that investment coming out now with Epic and we have some more technologies coming. We’ve got a very strong product platform right now with a lot of interesting and new technologies coming.
You talk about investment and I see you have recently bought Ogio golf bags. Can you tell me the reasons behind that?
Yes it is new growth and we are in a strong financial position. We look at areas that we can continue to grow the business and one of those is through acquisitions.
Ogio is a great brand. It is a golf bag and also accessories and back packs. In fact it only has 35% of its revenues in golf but it has a unique brand position, unique products and we think we can add value to the business, there are some synergies there, and also the opportunity to create growth, both in golf and outside.
The bags will stay as Ogio, they will not be branded Callaway, the will have their own identity but it will also give us some opportunity to grow outside golf which is an interesting business proposition for us as well.
So will you also continue to have Callaway branded bags as well?
Yes, we’ll do both.
You mentioned the market and that some people were finding it quite hard. How do you see the market in both the UK and US going in the next year or so?
Well I think you had to start your question do you guys make money and yes we do and I think we are supposed to aren’t we? At some point it is supposed to have a profit and we do. But the industry overall has been going through a tough times, it has been re-sizing.
This year is much stronger in Europe and the UK, off to an excellent start – our business is through the roof here. But I think the market in total is also strong here. You guys do Brexit and who would know, it seems the market is perfect, so perhaps it was part of a plan and Theresa May has got it all figured out?!
The market in the US is soft overall but we are doing quite well and as our public figures demonstrate we are growing.
Do you think that is anything to do with the game of golf or do you think it is due to the wider economic situation?
I think in the US it is just channel specific. We had a big bankruptcy last year with retailers Golfsmith and Golf Town and they were huge part of that and as that is retrenching the market is shrinking a little bit as it goes through that.
I actually think the game and the industry is in a much healthier position than it has been in some time and that it will be more stable with modest growth potential going forward but we are currently in this transition period. There are becoming less OEM’s (Original Equipment Manufacturers) and it is a consolidating space.
A huge percentage of the business now is around three or four companies and given the investments and the scale required in this business. We spend $35 million a year on R&D, millions of dollars a year on patent strategies, the investments on Tour are significant, the ability to have the sales force and distribution as well as the marketing range means it is increasingly helpful to have the scale that the Callaway’s and others have to take advantage of that. It is well over 80% of the market that is just 3 or 4 companies now.
That seems to be the logical direction for the market to go.
As you may know, I ran a small equipment company prior to Callaway and I really had a great time doing it, the camaraderie of building that small brand and growing with it was great, but even then you could see the challenges.
I wouldn’t say the writing is on the wall because there will probably still be some little companies that will fight through if they have enough of a distinctive technology or position, but it is becoming harder and harder. You still have some brands out here with trucks at Tour events that are more niche so it still exists.
So for those brands for whom a move up to the top 3 or 4 would be a huge leap, do you think there will be more consolidation?
I would be surprised if there was not more consolidation.
Do you think that will happen by brands buying each other or will the smaller companies just disappear quietly?
Acquisitions of equipment companies and co-branding doesn’t have a great track record. You know the company I used to run, Adams Golf, was a $100 million business when it was absorbed by Adidas/TaylorMade and I think it is substantially less than now.
If I give you one wish for golf or for Callaway for the rest of this year, what would it be?
You know what is good for the golf industry, is good for Callaway and what is good for Callaway, I want to be good for the golf industry. So let’s keep growing the business, let’s create more interest in the game and build he excitement around it. We need a healthy industry for all of us and I think it is very much trending that way. That is one thing that we are very committed to at Callaway.
We are committed to succeeding and we are going to hopefully continue to grow our market share and we are going to continue to run a profitable business, but we are going to do it in a way that is good for the industry as well. You’ve seen us lengthen product life-cycles, you have seen us introduce less product and manufacture less.
We make premium equipment that is distinctive and 'wow’s' the consumer, we don’t make too much of it and we don’t make it too often but we think we bring energy to the market place and that is good for your business, it is good for our trading partners business and it is good for our business as well.
You mentioned excitement and innovation, so do you like what the Tours are doing now?
Yes, don’t you love what they are all talking about now, with Keith Pelley at the European Tour and Jay Monahan at the PGA Tour, talking about growing the game and creating interest around it and that didn’t used to happen. Even the USGA talks about it.
I am not as familiar with the R&A to know if they are on that bandwagon yet or not, but that is very reassuring, we are all in this together now and even our competitors, as much as we may fight tooth and nail for every market share point we are also in this space together. So I hope that continues and I would love to see growth in the game and with that I think Callaway will be in a pretty good spot.
Thank you Chip
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