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The New Callaway Golf – Ready For 2012

The Ely Callaway Performance Center, Carlsbad, California

It is no secret that the golf equipment industry is currently having some struggles.  A sagging economy coupled with a drop in golf participation rates means that the sale of new golf products has taken a good size bump downward of late.

No golf company is exempt from the trials of the situation, even the giants of the game.

In 2007 Callaway Golf reached the peak of its history, revenue wise, when their revenues hit over $1.124B.  Despite that the company was not exactly insulated from the perfect storm of turmoil it would face in the years to follow.

Adding to the economic woes was a CEO in George Fellows who had a limited knowledge of the game, aggressive competition, and the earthquake tragedy in Japan where the company does almost 18% of their sales, according to a company official.  In short, although Callaway was continuing to turn out credible products it was an uphill battle to get them flowing through at the retail level.

In the last two fiscal years sales have dropped to under a billion dollars and for the first time in many years profits ran into the red.  The writing was on the wall – things had to change at Callaway Golf.  And they did.

The company said goodbye to George Fellows and Tony Thornley stepped in as the Interim CEO this past June.  Thornley, a board member since 2004, has a long history of success with various companies and he immediately began to take the steps to help Callaway deal with the new realities of the golf industry.

By many accounts it was a painful but necessary adjustment for a company that had only known the upside of a growing business.

Cuts were made in many corners, both in personnel and assets, in an effort to establish $50M in savings that will help the company return to profitability.  At the same time there has been a refocus on relationships with all customers, something that brought the company to the height of its success.

Products, of course, have not been forgotten.   More than ever they are keying in on innovation, price points, and equipment that has relevance and appeal to all levels of golfers, from the tour pro to the average club golfer.

I was able to see the evidence of that earlier this week.  Over a period of three days in Carlsbad, California, a contingent of media  made their way around a couple golf courses with a wide selection of new Callaway Golf products slated for retail in 2012, and spent time at the Ely Callaway Performance Center learning critical details about what makes them tick.

In time I will be able to reveal more technical details on those products (look for some stories in early January), embargoes exist that currently prevents that, but I can say that in general it is an impressive array of new gear, from the golf balls (HEX Black Tour, HEX Chrome) through to the drivers (I hit the RAZR FIT and RAZR X Black), fairway woods (I tried RAZR FIT and RAZR X Black), irons (I swatted the RAZR XF and HL models), and wedges (new Callaway forged models), as well as the putters in their Odyssey Golf family (I experimented with a ProType milled model).  It is exactly what the Callaway needs to compete in the new playing field.

The RAZR XF iron, which was recently introduced at retail, is a great example of where the company is heading.  Targeted at the average player, the set features a mix of traditional irons and hybrids with a few tweaks that make them really stand out.  They have a design that is ideal for the average player in that it aids them in achieving a high ball flight while helping to eliminate a slice.  The hybrids include a reduced roll design on the face that even helps shots hit thinly to get in the air.  At the same time, the sleek black, PVD finish of all the clubs gives them a “cool” look that makes even less than successful golfers proud of their clubs.  When you can make a higher handicapper not look like one, both in their ball flight and the appearance of their clubs, you know you have done something right.

That will be a theme for them in 2012, from what I have seen.  Across the categories of woods, irons, wedges, putters, balls, shoes, and hybrids they have the products in place that should go nicely hand-in-hand with the new company structure. Along with that the company says they have plans to invest an increased amount of funds in marketing their new lines. “We under-invested in marketing to support our developed markets — the U.S, Japan and Europe, particularly the United Kingdom,” said Thornley in a recent conference call. “Our plan in 2012 is to invest the $25 million we’re talking about (in) those markets. We think that our marketing and advertising campaigns this coming year will indeed be very different, and we’re investing a lot more dollars in them.

“We believe the actions we are taking to reduce costs and strengthen our brand are critical steps toward our return to profitability,” said Mr. Thornley. “And while our full recovery will take more than just one year, we are taking actions in 2011 to ensure that our operating results will be profitable in 2012.

Added Thornley, who was gracious enough to take the time out of his busy schedule to meet our media group on Wednesday,  “Furthermore, as we look forward to next year, we are encouraged by the continued strength of our brands in the marketplace; we are very excited about the new technology embedded in our 2012 products; we look forward to the benefits from the increased efficiency in our supply and distribution operations following the completion of our global operations strategy initiatives this year; and we expect to begin realizing benefits in 2012 from additional investment in our brand and demand creation initiatives. We believe that all these factors together should result in a much improved 2012 for our business.”

Although it is hard to imagine any golf company returning to or reaching the revenue numbers that once existed, Callaway Golf’s new direction should provide them the opportunity of success on a scale that matches the current size of the world golf market.

It’s been an interesting road for one of the biggest brands in the golf industry and after a few rough years it seems counting them out as being anything but that would be highly premature.

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