Chip Brewer has been the president and CEO of Callaway Golf since 2012, overseeing the second-largest equipment company in the golf industry. Callaway reported net sales of more than $1.24 billion in 2018, up 19% from the previous year, a robust figure that included $717 million worth of golf clubs.
Callaway has expanded its size and its scope during Brewer’s tenure, with a significant investment in golf-entertainment leader Topgolf, acquisitions of the TravisMathew and OGIO brands in 2017 and the more recent purchase of the premium outdoor apparel company Jack Wolfskin for about $476 million.
Brewer credits Callaway’s recent success with a popular product line, continued brand momentum and favorable industry and macroeconomic conditions. A member of the NGF’s Board of Directors, Brewer recently chatted with The Q about the future for golf clubs, the importance of marketing, Callaway’s diversification and the escalation of pricing in the premium equipment market.
With the new Epic Flash driver, Callaway was an early adopter in using artificial intelligence in the research and development process. How will AI feature in the evolution of golf club design and what do you foresee in the future?
That’s going to change the entire design process to the point where if you’re not using that you’re not going to be competitive. So, you’ve seen step changes in technology and processes throughout time. And those have had fundamental shifts in the performance of product, from thin wall casting which allowed the Big Bertha driver and then computer automated design which allowed us to precisely locate CGs. And determine exactly how the walls and it led to other changes such as vertical thickness and face, which lead to COR and launch monitors. If you didn’t use those technologies and get onto those bandwagons within reasonable time, you were left in the dust. AI is like that. The engineers now have to integrate software and super computers and algorithms with their previous design skills. And you’re going to have integrate aerodynamicists and metallurgists and all of these other approaches with software that can therefore do calculations at a rate and then essentially learn from it themselves. And the first iteration in the physical product is this Epic Flash driver, but it’s going to permeate. We’re investing aggressively in it. It’s a big boy game and others I’m sure are going to have to follow in that if they’re going to keep pace, and I’m sure they desire to do that.
We’ve seen significant technological advances in the equipment market in recent years, and there’s also the element of having a story to marry with that technology. This seems to especially be true as we see the consumer more and more drawn to the experiential component and asking, ‘What can these products do for me?’ Today, there has to be the tech, but there also has to be a story behind the product as well, doesn’t there?
Those go together. The marketing side of golf is an interesting element, a fun element of it. There’s obviously the technical side of, ‘How does the product perform?’ I say consistently: product trumps everything in the golf industry. So, it’s all about product, but it’s not exclusively about product. By that, I mean if the product isn’t what we call pleasingly different and demonstrably superior, it will not resonate. You can’t save it by good marketing or clever campaigns. It has to perform. But given that you deliver a product that has the true performance capabilities, and then you have a story behind it, a strong tour staff, a strong experiential component at retail at demo days, content marketing — all of that is incredibly important and part of the fun of the business. It’s part of what makes the consumer excited. The product goes longer, yes, but it’s also that they got a brand new toy. They understand it, it’s got a new technology in it, it’s the start of the season. It’s a fun mix there.
Callaway has taken a very engaging approach to marketing, really connecting directly with the consumer, whether that’s through traditional means, digital or social media. Can you talk about the brand’s presence?
That’s just the way marketing is now. Like we talked about with AI, 20 years ago marketing was running some ads in print or TV if you had that reach, you did a little bit of PR and that was marketing. Well, marketing has evolved. Marketing now is content creation, it’s social media, it’s real time and constantly flowing. It’s engaging with the consumer and building a relationship directly, not always through different partners, whether that be trade or media. Different assets and jobs that used to exist in media companies now exist in marketing efforts at consumer products companies. We have our own video creation capabilities and producers and editors and such. So, it all kind of merges. It’s all pretty exciting, but again if you’re not doing that type of thing, whether you’re an equipment company or a golf pro — in terms of creating content and engaging with your membership on a daily basis — you’re missing the boat and probably being left behind a little bit.
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If you talk with everyday golfers about Callaway, they’re going to first and foremost talk about the golf clubs. But beyond premium golf equipment, Callaway is now positioned as an active lifestyle company. Can you speak to that evolution, that strategy and the continued diversification?
We’re really excited about that, but we’re not trying to blur the message to the consumer. That’s incredibly important because we are a premium golf equipment company. That is, for many if not most of the employee base in the U.S., the reason they go to work every day and what their passion and focus is exclusively. We think we’re innovative, we think we’re leading in those categories, and we’re committed to sustaining that. If you look at our total business last year, we had a little over $300 million in soft goods business on a global basis. It’s been double-digit growth. We have strong brands and strong positions there as well. We see further opportunity and so we’re growing in that space as well. There will be some shared resources, but mostly behind the scenes, not from a consumer perspective. We’re not going to co-brand Callaway and OGIO and TravisMathew and Jack Wolfskin. Those are separate brands from a consumer perspective. But there will be some nice synergies from a business perspective. It certainly augments and adds to the overall scale of our business and its growth potential.
With the technological advances in club making, there’s going to be an associated cost. At what point do prices for equipment get too high in the premium equipment market?
We’ve been able to deliver innovation that the consumer has valued up to this point. So, you can’t raise price unless you deliver a benefit that the consumer gets excited about. But as we put Jail Break in the driver and use Artificial Intelligence, we had to invest aggressively in our business to do that. We deliver product that we think has an edge in the market and the consumer has been willing to pay a slightly higher price for higher performance. Will that taper off? I think it’s a cost benefit, to a degree. If you don’t deliver enough performance, you probably can’t raise the price. If you do, you probably have some opportunity there. We’re continuing to invest back into the business, into the R&D to be able to deliver product that sets itself apart and then we worry about what the price might be at that stage. But the product leads it.
When it comes to how consumers are buying golf products, can you talk about the evolution we’re seeing there? Beyond the traditional retailers, there’s a growing online component and now growing niche of club fitters there as well.
What you’re seeing really is just a continual push, over the last few years, to more premium, enthusiast-based product and more and more fitting, and candidly, better fitting as almost all of the avenues have really incorporated technology and expertise into that. Of course, we love that because it fits with building product that we think has an edge. Therefore, we love the thorough comparisons that fitters do. But that business is growing probably four to five times faster than the market overall and really gaining share.