Monday, March 9, 2009

Less Volume - More Margin

No one wants to predict doom and gloom, however it is probably true that the typical shop this season should be projecting a decline in volume. Let’s take a worst case scenario of a 20% decrease for a theoretical shop doing $400,000/yr. Our hypothetical shop is now looking at $320,000 total revenue. Three things become immediately apparent:

· There is still 80% of the business to manage and the seeds need to be planted to grow it back to last year’s level and eventually increase it, perhaps dramatically.

· Doing business as usual can mean the downward spiral could continue to the point of being irretrievable.

· Assuming a 35% net margin on our shop of choice, increasing the margin 10% creates a better bottom line than last year. One of the sure ways to increase the margin in your shop is to sell more headwear which was the reason for and the subject of The Affordable Souvenir.

All of the above are just some of the reasons smart retailers and consumers are looking to the personalization and differentiation as well as the incredible value that is built into some of the new quality-oriented Private-Label efforts. One of the gurus in the golf industry who understands, preaches and executes this concept best is Mark Killeen of Pima Direct.

Mark – The first two pages of your catalog are quotes from some of the better merchandisers in the golf industry. Perhaps we could start our discussion of Pima Direct with some of these success stories.

We are proud and honored that we have so many success stories. Doing something different always brings some sense of apprehension. From the earliest stages of the company, we found a group of “Trendsetters” who were open to changing the way they do business. Matt Hall, Director of Golf at Turtle Bay and PGA District 11 President, immediately comes to mind. Matt saw the line in Las Vegas and thought the concept made sense. He gave us a small opening order and the product sold through at margins higher than he had previously realized. We are now his most profitable vendor. Last season we included quotes for the past two PGA National Merchandisers of the Year, Adam Carney and Brad Braden. The list goes on and on and what is most exciting is that the margin and volume successes are quite often greater than the buyers ever thought were possible.

There is a quote from you that resonates with me about your logo being the identifier of your Brand “so treat it like gold”. Without being negative about your major competition would you discuss ‘Brands’ and branding in general and where you think Private Label works best in the golf business.

Treat it like gold is correct! The club’s own brand will always be their best brand and the only brand they can totally manage. There is always room for the best branded products, but there should always be open-to-buy allocated to each clubs own brand. I learned this lesson from Nordstrom 20 years ago (we should all learn from the best!). At that time, Nordstrom was heavily weighted into inventory supplied by brands. They realized that the Nordstrom brand was as strong, if not stronger than the brands they carried. Nordy’s were strategically on the cutting edge by dramatically growing their own house brand and forging exclusive relationships with brands like Facconable that enabled them to manage pricing without the influence of their competition. This strategy, along with cutting edge customer service, has vaulted Nordstrom to be the retail darling of Wall Street. I believe that in today’s global retail market it is imperative for all retailers to control the pricing of some element of their inventory. With the evolution of the internet, consumers have so many more choices on where to direct their purchasing. The reality is almost every brand found in golf shops today can be found at discount prices outside the golf shop. The reasons for this are many, and perhaps grounds for another discussion, but with that being the case, sustainable profitability can only be managed by having product you can control. Again, learning from the best, every major retailer in the country will buy their house branded product BEFORE they place a penny with any brand. In knowing what they have already purchased with their own brand, they then go to the branded market and demand from their best brands the latest in fashion, fabric and color that does not directly duplicate the type of product they will carry in their house brand. This combination of custom house branded product and the best product from the brands is proven to be successful in all retail segments today. You will see this strategy employed by every major retailer from Neiman Marcus, to Saks, to Nordstrom all the way to Costco. McKinsey research has found the custom house brands to be by far the fastest growing category in all of retail; good, better and best. Golf is behind the curve but with our growth, we are helping them catch up.

The value of any product is only realized once it is purchased and used. What do you see as the key in a typical pro shop to getting the member/regular to try the new House Brand and what can Pima direct do to help the Pro Shop and its staff with that effort?

Great question and you have hit the key to success squarely. We as vendors are only successful when our products sell through the register and the consumer is satisfied with their purchase. We believe that if we can provide product with the best value to the retailer and the consumer, then the incentives are aligned for all to be satisfied. What I mean by that is we are focused on building product that offers our retailing partners the highest margins in the market on the finest quality products. If/when the retailer understands that this high margin /high value product can dramatically improve their profitability, they are incentivized to focus their efforts on selling it in their shops. As we have learned, consumers are always demanding more value, particularly today, and if/when our retailing partner realizes our products offer a tremendous value to their customer, then the retailer is confident in selling it. Today’s retail climate is the perfect time to introduce your own custom branded products in the shop as the consumer is demanding you do something different to provide more value. In every golf shop the value equation is: quality+price+service+brand equity = value. Research by McKinsey has shown that the first element of the value equation that consumers will value less in difficult times is brand equity so retailers must focus on the other three elements they can control to be successful. The more we all learn from the best, the better off we will be! Bottom line here is as Warren Buffett recently stated on CNBC, "Not only has the economy slowed down a lot, but people have really changed their habits like I haven't seen." Retailers must make adjustments directed toward understanding these changes in order to survive. Those who do not, run the risk of failure. Those who do make the adjustments have a chance not only to survive, but to thrive!

Golf retailers on an on-going basis need to improve the value of the product they provide. The best quality available at the best price, presented better than in the past, and coupled with empathetic service and salesmanship is a formula that needs constant attention. Rather than talk about Mark and his group and their commitment to service I thought more appropriate would be some quotes from some of the leaders of the industry.

Craig, happy to say something nice about this group....they did a wonderful job with us during the merchandising phase of hosting the 2007 US Open, product was great, pricing allowed us some extra margin and their service was spot on, I would highly recommend Mark and his team of professionals to all - BF

Bob Ford - Head Golf Professional

I have had the good fortune to have been working with Pima Direct since their very beginning. With a department store background, I recognized the value immediately in private label merchandise. It is the bread and butter of major retailer margins. Having the opportunity to introduce private label goods with such a small investment for the golf shops was an easy choice for me. Pima Direct is an absolute must-have for all of my resort accounts. It has had proven margins and sell-through in every situation. Speaking for the product, the quality and performance is outstanding, rivaling some of the best brands in our industry. It is also important to recognize that the Pima Direct team is easy to work with and they really listen to their customers, always ascertaining valuable feedback to improve their product.

Angelyn Horrell
President - Horrell Consulting

I have learned the following over my 51 years at Haggin Oaks.

“If our company continuously operates with progressive operational principles, quality business ethics and for the good of the game, we will always be a leader as the cycles of business and the game, come and go.”

It is important that you are aware that our company appreciates you and your team because you live and breathe this belief. By remaining consistent and on message by telling your story over and over and over, the cycles will come to you over time. What your company represents is needed and will become more needed as the golf industry realizes that passion for the game and the passion for the business of golf must be equal if they want to survive.


Ken Morton Sr.