 |
 |
 |
 |
 |
 |
 |
 |
Shopping Centers Today -> April 2004
 PRINT THIS STORY: |
  CHANGE TEXT SIZE: |
IMPROVING ITS GAME?
Despite fall-off in sport’s popularity Midwest’s Golf Galaxy to expand, with new stores in East, West
BY KAREN M. KROLL
This
could hardly be called an auspicious time to expand a chain of golf
retail stores. The number of rounds played in the U.S. last year
dropped 2.6 percent from the year before. The number of golfers,
meanwhile, has remained flat for a number of years, says Tom Stine,
co-founder of Golf Datatech, a Kissimee, Fla.-based research firm.
Nevertheless, expansion is exactly what Golf Galaxy has in mind. The chain, founded in 1997 in suburban Minneapolis, has grown into the third-largest golf retailers in the country, according to industry analysts, behind Austin, Texas-based Golfsmith International and Fort Walton Beach, Fla.-based Edwin Watts Golf Shops. In 2003 Golf Galaxy’s 24 stores posted about $100 million in sales. The chain plans to open 10 stores this year and an additional 12 to 15 annually in subsequent years, says Greg Maanum, the company’s COO and co-founder.
But given the stagnant market (the number of golfers has stayed at about 26 million over the past few years, says Golf Datatech), Golf Galaxy will be able to grow profitably only by taking customers from its competitors. “We anticipate modest growth in the overall sector,” says Maanum. “It’s a market share game.”
He and Randy Zanatta, the chain’s CEO and co-founder, say they plan to achieve their goal by concentrating on avid golfers who play at least 25 rounds a year. This group, which makes up just one-third of players, is responsible for 65 percent of purchases.
Golf Galaxy’s stores are located primarily in the Midwest and the Ohio Valley. As the chain expands, it will look steadily both to the east and the west, says Maanum. This year it will open stores in Philadelphia and Richmond, Va. Other areas of immediate interest include the Pacific Northwest and the Northeast.
Given
its upper-income customer base (over one-third earn upwards of $100,000
a year), Golf Galaxy stores are located in affluent suburbs, naturally.
About two-thirds of the stores are in power or strip centers; the
rest are free-standing units within shopping areas.
About
one-third of Golf Galaxy’s customers earn over $100,000.
Approximately two-thirds of its stores are in power or strip
centers.
Visibility, more than easy accessibility, is key to a successful location, says Maanum.
“Golfers are passionate, so they’ll get to you” as long as they can see you, he said. Case in point: Golf Galaxy’s Bloomington, Minn., store is highly visible from a major highway, but it’s also difficult to get to. Yet it’s the chain’s highest-performing store notwithstanding. (The company would not disclose the unit’s sales per square foot, but with its 24 stores averaging about 17,000 square feet, overall sales per square foot chainwide would be about $245.)
The team at Golf Galaxy is “very creative at working with existing space,” said Craig Wielansky, a leasing representative and president of L3 Corp., a St. Louis-based tenant representative firm. He points out that in Nashville, Tenn., the chain is turning two spaces of unequal depth into one store. “It’s something Golf Galaxy will work around in order to capture this excellent opportunity.” Golf Galaxy stores measure about 16,000 square feet on average.
Zanatta and Maanum gained their retail experience at consumer electronics giant Best Buy Co., where Zanatta was a senior vice president of marketing and Maanum was a vice president of visual merchandising. “I started with Best Buy when they had nine stores,” Maanum said. “When I left, they had over 300. We made every [retailing] mistake over the 14 years with Best Buy.”
If that is so, says Stine, then the men seem to have reaped the benefit of all those mistakes. “In the golf industry, they’re highly respected as a golf retailer,” he said.
One lesson the two have learned is the importance of focusing on brand names rather than private-label goods. Golf Galaxy does offer a private-label line of apparel, but the stores don’t carry private-label clubs, balls or other hard goods. “The avid golfer is interested in buying named, branded products,” said Maanum, citing such brands as Ping and Callaway.
This concentration on brand names gives the chain leverage with manufacturers, who know their products won’t have to compete with private-label pricing. “We get better support through programs and co-op advertising dollars,” Maanum says.
 |
About 5 percent of sales goes to advertising and marketing. “We are the No. 1 golf advertiser in every market we’re in,” said Maanum. He adds that Golf Galaxy is the major advertiser in the markets in which it competes, often accounting for between 65 and 90 percent of all media spending by golf retailers.
About 50 percent of the marketing budget goes to newspaper advertising; the rest is split between television ads during major golf tournaments and the Advantage Club, the company’s loyalty program. Launched in March 2003, the club now has about 220,000 members, says Maanum. Over the past three months, these customers have accounted for about 25 percent of sales, though in some stores they have been responsible for up to 50 percent. Members receive e-mail promotions several times a month, and they’ll also be getting a number of pieces of direct mail yearly.
The chain is also beefing up its Internet presence. Until recently, the Golf Galaxy Web site (www.golfgalaxy.com) only had information about store locations, but in March the company launched an e-commerce site. Management expects the site’s first-year sales to be about equal the revenue from one of its physical stores. (At the $100 million figure, divided by 24 units, that would come to about $4.2 million.)
So far, Golf Galaxy has been able to finance growth largely with cash flow and $34 million raised from venture capitalists. The executives are also considering an IPO. “Venture capitalists eventually want to be paid back,” Maanum said. The IPO could take place sometime within the next 18 months; the precise timing will depend on the state of the stock market.
To be sure, Golf Galaxy has been playing well, but the others in the market can’t be counted out. “Their competitors have been in the industry a lot longer, and they’re strong,” says Stine.
Since its beginnings as a catalog retailer 36 years ago, Golfsmith has added 35 stores in North America plus an e-commerce operation. According to its Web site, Golfsmith, with about $250 million in revenue annually, plans to double the number of its stores, though it gives no time frame.
Edwin Watts Golf Shops operates 49 stores in the Southeastern United States, as well as catalog and Internet operations. In December 2003 Edwin Watts, co-founder and co-CEO, sold a stake in the company to New York City investment firm Wellspring Capital Management to get money to expand.
About a third of all golf clubs are sold at sporting goods stores, and an additional 10 percent at discount stores, says Larry Weindruch, a spokesman for the National Sporting Goods Association, Mt. Prospect, Ill. The rest are sold at off-course golf stores, warehouse clubs and over the Internet or by catalog.
Down the road, Maanum says he expects Golf Galaxy to capitalize on the sector consolidation he foresees as golf retail moves out of the course shops and into chains like his. He compares the phenomenon to what happened in consumer electronics during the 1980s, when the top retailers, which started out with about 15 percent of the market, ended up grabbing about 70 percent. Similarly, the top 10 golf chains now control about 15 percent of their market. “I think we’ll see consolidation, so gaining share will be critical,” he said.
Finding enthusiastic employees who love golf will continue to be as important to the chain’s strategy as everything else, says Maanum. “The level of service of your people makes the difference in this business.”
 | Current Issue November 2008 |