Callaway Golf knew it could step on the gas, sales-numbers-wise, with online sales from its own website. But it wanted to be extra careful to not burn the traditional partners who have helped the company to be a perennial leader in the golf equipment race.
The biggest challenge is that all traditional solutions put the manufacturer and its loyal retailers in competition with each other, said Steve McCracken, Callaways senior executive vice president and chief administrative officer. Weve studied it for years, and thats always the problem that is staring you in the face.
The solution? Put the traditional, brick-and-mortar retailers in the passenger seat.
Callaway announced Wednesday that it will sell clubs directly from its own websites in the build-and-buy manner often found on automobile sites. Longtime retail partners will be fulfillment partners, shipping Callaway clubs, balls, accessories and apparel to consumers. Specialized e-commerce software will assign each order to the proper fulfillment partner based on factors such as geographical proximity and inventory levels. Fees will change hands to create an economic win-win for both Callaway and the brick-and-mortar retailer/fulfiller.
This model, which Callaway believes to be the first of its kind in the industry, was a long time in coming. The idea of fortifying brand awareness and loyalty by keeping enthusiasts on an original equipment manufacturers (OEM) site as long as possible is not new. But thorny problems of existing retailer relationships, and the fears that online sales might erode those bonds, took years of planning to solve.
Other OEM sites ' Nike, Cleveland Golf and Tour Edge are examples ' refer users to authorized online retailers, whose sites open in separate windows. The transaction continues on the selected retailers site.
On Callaways site, Shop.CallawayGolf.com (also accessible from the companys main site, CallawayGolf.com), the buyer stays within the Callaway web world until the transaction is over. Products from Callaway and all its related brands ' Odyssey, Top-Flite and Ben Hogan ' are available. And even though a retailer fills the order, Callaway accepts all risks, including failed credit card payments and liability for delivery problems. The site is available to United States customers only.
Callaway has operated a trade-in/trade-up site, CallawayGolfPreOwned.com, and that experience provided a foundation for the new venture. But the new-product site is much bigger, Callaway says.
More than 350 traditional retailers, some of whom already have mature online sales channels, signed up to participate in Shop.CallawayGolf.com on the first day, McCracken said. Dicks Sporting Goods, Golf Galaxy, and Golfsmith are among the big golf retail names that adopted early. Callaway hopes to swell that number from the ranks of 15,000 retail outlets that carry Callaway brands.
One of Callaways biggest jobs on the way to the new online paradigm was convincing itself. Internally, customer service and sales leaders had to be comfortable with the proposed new partnership with retailers, especially with the idea of calming retailers recurring fears about online sales.
Beyond that, there was the lack of a clear golf industry model.
We studied what others have done, and some have done it reasonably well. McCracken said. Sony is one of those. But until we just launched, nobody in any industry had found a way to bridge the connection between consumers and retailers, using manufacturers as the bridge. Its a story thats bigger than golf.
If a customer starts on the retailers website and buys a Callaway product, the economic flow is somewhat different between Callaway and its retailers than it would be for a Callaway-site-only sale under the program just announced. But Callaway is confident that it has developed a model that benefits both itself and the retailers who have helped bring it along since the first Big Bertha driver came out in 1991.
The new program has been launched in the golf equipment off-season to allow for the eradication of the inevitable e-commerce bugs, few though they may be, McCracken said. But most of the focus is on the upside potential, which Callaway believes to be substantial.
We think there is business to be had online, McCracken said. Nobody knows exactly how much, but everyone sees it increasing every year. One of the [consumer] fears of doing business online is that you may be dealing with an untrustworthy partner. Weve solved that: theyre doing business with Callaway Golf, plus a network of retailers Callaway trusts.
Its not going to replace sales through brick and mortar ' where the customer can see the product, get fitted, get advice. We figure that will continue to be the core of retail distribution. But those customers who want to shop online, they now have a place to go.
Callaway hopes the Shop. Callawaygolf.com program will be one driver of a sales turnaround. For the third quarter of 2006, net sales were $193.8 million, compared to $220.6 million for the same period in 2005. That yielded a loss per share of $0.18, versus a loss of $0.07 for the comparable period in 2005.
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