Their Own Words Golfsmith

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Editors note: Golfsmith is the nations leading multi-channel retailer of golf products. It has the largest geographic footprint of stores, an industry leading internet site, and one of the most successful catalog operations in the industry. While Golfsmith started as a club making company in 1967, today were really known as golfs leading retailer with $324,000,000 in sales last year. We are the number one or two buyer with every one of our golf equipment manufacturer partners. 2007 will be Golfsmiths 40th anniversary and that is something we are very proud of.
 
Jim Thompson has had a distinguished 20-year career in retail management. Working in consumer electronics, then in the computers sector, Jim moved to the golf industry almost eight years ago. His retail expertise and passion for the game of golf were a natural fit in Jim being named president and CEO of Golfsmith.

 
A Conversation with Jim Thompson, President & CEO, Golfsmith
 

Casey/Q:
So, Jim, all the golf manufacturers return your telephone calls promptly?
 
Jim/A:
(laughs) They do. I hope they continue to. Were working hard with them. And we all need to work hard in this industry, dont we?
 
Casey/Q:
For being such a big company, and your stores being large in terms of square footage, I notice you still give customers a very personal retail experience.
 
Jim/A:
We have built a successful foundation around what we call the Guest First platform. Our salespeople are referred to as caddies and their number one focus and priority is to serve golfers needs. Our in-store caddies receive extensive training and development to ensure that golfers of all skill levels are served optimally by our team. As a backdrop to that, weve built a store that you could consider to be a playground for golfers. Our stores are activity based. Many of our stores have large indoor driving ranges, for example.
 
Casey/Q:
Why the large driving range format versus just hitting bays with nets?
 
Jim/A:
Because what we know is that golfers want to try before they buy. And more than that, if at all possible, they actually want to see ball flight. So, were striving to offer an environment more sophisticated than simply hitting in to a net. A net and a launch monitor can give you great information. However, nothing satisfies a golfer more than seeing the actual ball flight. And the large indoor driving ranges that many of our stores now offer have become a big advantage for us in terms of attracting and keeping customers.
 
Casey/Q:
In this day and age, golf retail is about much more than just displaying the merchandise is an attractive way, isnt it?
 
Jim/A:
It really is. We have invested heavily in making sure we are a leader in technology in the stores. We have Golfsmith SmartFit which is our custom fitting methodology where we use Vector launch monitors to make sure our golf guests are able to take advantage of the all the different types of golf equipment offered by manufacturersso they are fit just right. And, our in-store caddies are carefully trained to interpret the data that the launch monitor collects.
 
Casey/Q:
What about demo clubs? Its not just six irons anymore.
 
Jim/A:
We have extremely large demo club assortments. Weve gotten away from the days of having to tape up the face of a club because we were afraid to get marks on it. Now our guests can come in and hit the latest technology even with different shaft choices. They can really get down to the nitty gritty of fine tuning the selection process so they know that when they leave the store theyre leaving with a club or set of clubs that really fits their game.
 
Casey/Q:
And, I notice these massive putting greens you have in many of your stores.
 
Jim/A:
Yeah, some of them are pretty big. The putting greens go along with a huge selection of putters. And you know, guests come in all the time and just putt and relax, talk to our caddies, look around and see all the new stuff. Its not a pressured environment. Its a welcoming environment.
 
Casey/Q:
Now, in the beginning, Golfsmith was a club repair and custom club making component business. You still have that, right?
 
Jim/A:
Certainly. The club making aspect of our business is really about much more than club making. Its about customization so that we can ensure golfers are using the right lofts and lies in their clubs. We can change out and upgrade shafts, we do repair, and we do re-gripping. Our in-store club makers are highly skilled, well trained and very guest-centric people that are absolutely the very best at facilitating any type of custom work that a golfer may need.
 
Casey/Q:
You mentioned that guests come in and relax and putt and just kind of hang out.
 
Jim/A:
Well, weve done some nice things in terms of building a store in to a lifestyle format so the look and feel of the stores is special. Its an inviting place to be. As you well know, Casey, golf is more than just a game. Its a lifestyle. So, our new stores now have large apparel sections right in the middle of the store, brightly lighted, colors that are conducive to complimenting the themes that the apparel manufacturers are showcasing. The style and fashion of golf is at an all time high and we know that it is important to display clothing in as complimentary a way as possible.
 
Casey/Q:
Its the overall experience youre looking to satisfy.
 
Jim/A:
Very much so. We pride ourselves in not only being a leading retailer of hard goods, but also in providing a wonderfully full and satisfying golf guest experience whatever your golfing needs are. Think of our stores as a playground for the golf shopping experience. We want to develop a relationship with our golf guests, a long term relationship, not just go for the quick sale.
 
Casey/Q:
Lets talk about some of the other specific services offered in Golfsmith stores. For example, GolfTEC.
 
Jim/A:
We partnered with GolfTEC almost four years ago. They are really part of our Golfsmith family at this point. When we talked to customers years ago about the possibility of us providing in-store golf lessons, they told us they didnt want to take lessons out in the open in the store. They wanted privacy and they wanted to work with a certified PGA teaching professional. When we met GolfTEC we quickly saw the potential.
 
Casey/Q:
For people that dont know, theyre a significant player in the teaching arena, correct?
 
Jim/A:
They have a very significant presence in golf teaching world. They have unique, proprietary teaching software. Every one of their teachers is PGA certified. And they fit culturally with us quite well. Theyre as passionate about their business as we are and theyre as passionate about serving their guests as we are. So, we tested building their learning center inside of our store. It was kind of like putting a Starbucks in a Barnes & Noble bookstore but even better because its golf and golf. Its really a store within a store.
 
Casey/Q:
And the test was successful? The feedback from your guests was good?
 
Jim/A:
It instantly became a huge success because now Golfsmith could serve our guests not only with club customization and our expertise in equipment, but also we could offer the best lessons service in the industry. I think GolfTEC gave over 350,000 lessons last year so they dont really have a close competitor in that regard.
 
Casey/Q:
What about some of your other programs and services?
 
Jim/A:
Weve done other things that differentiate us like, we have a trade-in program. A golfer can trade in a previous model Callaway driver for the newest Callaway driver. We have what we refer to as a Ninety/Ninety program. I think were the only nationwide retailer that offers this. If you play a driver or a set of irons for 90 days and youre not satisfied, you can bring the clubs back for a 90 percent credit towards any other product in the store. We have our own Golfsmith credit card. Weve done that with Wells Fargo and thats innovative in golf retail. We have a Player Rewards program where our golf guests receive exclusive offers and discounts, an additional 10 percent trade-in bonus, exclusive notice of VIP events, things like this. You name itfrom trial, to fitting, to lessons, to innovative programs like trade-ins, a 115% price guarantee; Golfsmith really has our golf guests covered. You know, golf clubs arent cheap these days. So, if a guest of ours finds a club for less were going to give them 115% of the price difference.
 
Casey/Q:
Youre able to cater to golfers of all ability levels?
 
Jim/A:
There is nothing a golfer cant get from Golfsmith whether they are a beginning golfer or a scratch golfer in terms of the experience they have in our stores. Weve tried be really innovative and differentiate ourselves from our competitors by having a better environment, having a superior overall guest experience, better in-store caddies, and then really differentiating in terms of all of the things put together culminating in an experience they really cant get anywhere else.
 
Casey/Q:
You refer to customers and potential customers as guests. Where does that come from?
 
Jim/A:
I became really disenchanted when I was in the computer retail business. I felt that so many retailers had left the customer behind and they were just that ' customers. If they bought something great, if they didnt they were just wasting a salespersons time. So, when I came to Golfsmith, I really wanted to make a difference for people who came in to our stores and the first way we do that is by referring to people as guests. This is deeply instituted in to the Golfsmith culture at this point. Our customers are guests in our stores in the truest sense of the word.
 
Casey/Q:
How is this manifested?
 
Jim/A:
We treat people with the focus in mind of building a relationship not just making a sale. If they dont purchase anything or if they come in to buy balls on sale or a small accessory item, if they buy a driver or a full set of clubs, its really about servicing the needs of our guests no matter what they need or even if they dont need anything. Even if they just want to come in and hang out. Above and beyond the golf landscape, I want Golfsmith to be known as a world class retailer. Thats our real mission. And a retailers brand is defined by the guest experience. Thats why we look so closely at making sure that with every opportunity we are servicing our guests well.
 
Casey/Q:
Does that extend beyond the stores to include your Internet and catalog business?
 
Jim/A:
There is no question about that. Every day we try and build our business from the guest experience working backwards. Its a daily, rhythmic pounding of the drum through management and through your core values as a company. You know, you cant say, OK, on such and such a date were going to be a great retailer. Its a processan evolving process and something that you work towards every day. Weve been on a three year mission to reinvent this great brand, Golfsmith. It was already a great brand, but, I want it to be THE leader as a guest-centric retail company and THE absolute leader in the golf retail industry.
 
Casey/Q:
I think people have come to expect a good Internet experience from top retailers today. But, lets not forget about your catalog business.
 
Jim/A:
I like to say that if you were starting a retail business from scratch today youd want to start with your roots in the catalog business - and that is where Golfsmith started. The Golfsmith infrastructure was originally built to service the catalog business and it was an infrastructure very much ahead of its time. We look at the catalog as our number one brand extender because nothing can be more personal in terms of building a relationship with a customer or potential customer than getting our catalog in the mail. While it is still a significant commerce channel for us, its become much more than that. Its a vehicle by which our guests can study in an intimate setting the different products we have in our stores or that we offer on-line. We think of our catalog as a very personal tool that we use to educate our guests and to stay in touch with our guests. Our catalog business is vibrant, were extremely proud of it, it is a heritage piece of the business for us and it is something that we will continue to invest in and something that we will continue to rely heavily on as a major part of the multi-channel Golfsmith experience.
 
Casey/Q:
Tell us about the Harvey Penick Golf Academy.
 

 
Jim/A:
We have a 45-acre campus here in Austin, Texas and it houses 220,000 square feet of warehousing and distribution that replenishes our stores and also fulfills all of our Internet and catalog sales. In the middle of this big campus there is a large driving range. The range has always been an integral part of our home flagship showroom store. Frank Paul, one of the companys founders, has always been a huge fan of Harvey Penick. When Harvey retired from Austin Country Club, Frank asked him if he would help start a Harvey Penick Golf Academy ' an academy that stayed true to the Harvey Penick teaching methodology and culture. Harvey took to the idea and the academy was opened in 1993.
 
Casey/Q:
Is the school well attended?
 
Jim/A:
To date I believe the academy has served over 19,000 golf guests without a single dissatisfied guest. We offer a complete money back guarantee on the academys services and to date we havent had anyone ask for their money back. Our Penick pros are as passionate today about keeping up with Harveys teaching standards as when Harvey was still alive. And if you know anything about Harvey Penick, it wasnt just his golf instruction that made him a great teacher. It was his life lessons that he imparted to students. And that quality of teaching is still alive and well at the Harvey Penick Golf Academy here in Austin.
 
Casey/Q:
Youre kind of in the cat birds seat in terms of a view from on high of the golf industry. How do things look to you?
 
Jim/A:
Wow. Well, if were going to get in to it, lets really get in to it. Heres my macroeconomic view of the golf industry. We have an industry that by definition people will say is between five and six billion in commerce annually. Depending on who you speak with and if they do or dont include certain apparel in certain distribution channels. So, lets call it a six billion dollar industry and lets draw a circle around that figure. Now take rounds played. Rounds played have been flat to slightly down to slightly up, so essentially you can say rounds have been flat for four or five years running. Now, what we have outside the circle of six billion is excess capacity. We have excess retail square footage. In other words, retailers have been trying to grow businesses in a market that is actually flat to slightly declining. We also have an over-capacity of golf manufacturers. So, you have a high degree of competition as a result of excess capacity serving what is basically flat demand. Thats kind of the here and now picture.
 
Casey/Q:
Sounds like a lot of other industries as well.
 
Jim/A:
Youre correct. This is not unique to golf. It is a set of circumstances that has existed in several other industries as well. Take consumer electronics. At one time, the same paradigm existed. Too many products, too many retailers and flat sales and a highly competitive business environment. All of a sudden, people looked around and there were two winners in that business sector - Best Buy and Circuit City. It happened in the book business as wellthere were two winners - Borders and Barnes & Noble. In home improvement you have Home Depot and Lowes. I think if you look historically at retail landscapes there is initially a highly fragmented landscape and then it gets highly competitive and then ultimately it consolidates so that the level of capacity falls in line with sales.
 
Casey/Q:
So, where are we in golf?
 
Jim/A:
Right now in golf we are still in the highly competitive, excess environment. There are a lot of good competitors out there that we face every day. But, I think Golfsmith has an advantage because we have the largest national reach. And what I mean by that, is, were in Florida, were in New York, were in San Francisco, were in Los Angeles, were in Dallas, were in Chicagowe are in major metropolitan areas where avid golfers live. All of these retail dynamics are highly competitive and yet we continue to lead and compete very well. I think at the end of this year well find that rounds played are actually up about .7 %. So my guess is that by the end of the year well be one or two points up as an industry or one to two points down or just flat. My sense is that next year we may face the same situation. That means that in the near term retailers as well as manufacturers as well as course owners will face a high degree of competition in an environment of excess capacity and relatively flat business.
 
Casey/Q:
And the result is consolidation?
 
Jim/A:
Not everyone can survive indefinitely in this type of climate. As the business gets more and more challenging inevitably there will come consolidation. Not every company - retailer or manufacturer, golf course or country club ' can survive. It simply doesnt work that way. My opinion is that this current golf business environment, the excess capacity in a flat market, is actually good for Golfsmith and its good for other retailers and companies that run guest first business models and also highly profitable economic engines. Those companies that remain after this inevitable consolidation occurs will take disproportionate share and win in the long term.
 
Casey/Q:
So, youre looking at the Best Buy and Circuit City scenario?
 
Jim/A:
I think that will certainly be the case. We will see the Best Buy, Circuit City parallel in golf retail. Well see it on the manufacturing side as well. There are fewer manufacturers today than there were three or four years ago and I think in the next year or two or three there will be a continuing consolidation there as well. Youll see a settling in of significant brands that probably will end up with a broader portfolio of other brands that they buy and manage.
 
Casey/Q:
But you are optimistic about the future, arent you?
 
Jim/A:
I am extremely optimistic and heres why. For the long term, what really excites me are the baby boomers. The National Golf Foundation put a great study out on this. Today there are 35 million Americans that are 65 years old or older. I think by 2014 or 2015 there will by 75 million Americans that are 65 years old or older. And this year the first baby boomer turned 60 years old. And what do retired people do? They play golf. So, as I look at the next five to ten years out, I think there is a level of organic growth that can be achieved within the golf landscape. The game is popular. We are blessed to have the number one athlete on the planet play our gameTiger Woods. I think everything that he does and how he conducts himself is helping us grow the interest in the game. I think Michelle Wie and Paula Creamer and Morgan Pressel and so many other great young female golfers are going to lead to an explosion of interest in the LPGA Tour and that means that thousands, if not tens of thousands, if not hundreds of thousands of young girls are going to become interested in golf for the first time. So the game will grow in area that we really havent seen it grow substantively before.
 
Casey/Q:
Getting back to the boomers, people live longer these days as well.
 
Jim/A:
They sure do. A guy retires at 65 years old and starts playing a lot of golfwell, that guy is playing golf until hes 80 or 85 or 90 years old. That represents a lot of growth potential for the industry. Rounds played in the future could increase by as much as middle to high single digits. The baby boomers are golfs annuity for future growth and prosperity as well as are the junior golfersjuniors today that become life long avid golfers in the future. I mean, lets face it. When I was growing up it was football, baseball, basketball or hockey. Even with Jack Nicklaus being as prominent as he was, in the news, on the cover of Sports Illustrated, etc., I dont know how much he really inspired juniors to take up the game of golf. Some, sure, but not on the level of Tiger Woods. Today, golf is at the forefront of media attention and public attention because people are mesmerized by what Tiger Woods has done and continues to do. His importance to the game of golf and to the golf industry can not be underestimated. As a matter of fact, I hate to think of where golf would be without him.
 
Casey/Q:
And women are a bright spot in the game of golf, arent they?
 
Jim/A:
Women are indeed a quickly growing segment of the golf industry. In fact, its really the only segment right now that is on a significant up-tick. Weve seen our womens business grow substantially. Were very proud to have a womens only catalog called Drive. It is a catalog committed to exclusively serving the needs of women golfers. Its supported with its own web site, also called Drive, found on the home page of the Golfsmith web site. Click on Drive for Women and it will take you directly to the site. So, we have catalog, we have Internet, and then within our stores were branding Drive to show women they are properly supported. Because, in reality, women have been very underserved by golf retailers for the longest time. Were excited about the prospect of growing our womens business.
 
Casey/Q:
You speak of over capacity in retail and manufacturing. Can the same be said about golf courses?
 
Jim/A:
We know we have a lot of great golf courses out there. One could argue there is an oversupply of golf courses. And golf courses will be under the same pressures as retailers and manufacturers. Pure economics over supply means pricing probably will not be an issue. I think near term, highly competitive, consolidating space, not an environment for the weak or the meek. Let it be tough for a while. I think its good for retailers that run businesses that better serve guests. Each retailer has to serve their guests better, each one of us has to run disciplined economic business models and then ultimately there will be pretty significant share gain winners and I think as the consolidation unfolds over the next 12 to 24 months, I think that will then be followed by a period of growth mainly driven by the boomers.
 
Casey/Q:
As a modern day golf retailer, you deal with a much more frequent product lifecycle than in the past. Is that tough to keep up with?
 
Jim/A:
We try to work as closely as we can with our brand partners. And, it has become an issuethe high rate of product introductions and the shortening of the product lifecycle. What we dont want to see happen in the golf industry is for the products that we sell to become commodities. Every retail landscape Ive ever been in where the core product that is sold to the end consumer ' the product lifecycles get shorter and shorter ' what you get from that is a sideline mentality. People stand on the sidelines because they dont want to participate in buying something they know is going to obsolete within a 90 day to six month period.
 
Casey/Q:
But, new technologies are coming forth all the time from golf manufacturers. They have to innovate to compete.
 
Jim/A:
That is certainly true. We have been very impressed with the levels of technology and the beautiful cosmetics and the playability of many of the products that have come out. I think the manufacturers by-and-large have done some incredible work and come out with some really exciting stuff that well see here soon for 2007. That being said, the disciplines of managing distribution choices - who you sell your product to ' how long you allow a product to stay on the shelf - is critically important. You know, look, its easy to point the finger but retailers in reality are always looking for something new to help generate sales.
 
Casey/Q:
Having a new story to tell?
 
Jim/A:
Yes. In fact, we largely are the ones who have put pressure on the manufacturers to shorten the product lifecycle to some degree by our behavior. So, yes, we need to forward plan, we need to look at the choices in great technology that we have and make sure that very special product that takes this incredible engineering and manufacturing to produce as well as a lot of advertising spend to get the message out doesnt have short lifecycles. Those products should be on the shelf for a while and they should enjoy really robust sales so the educated consumer ' our core buyer ' doesnt sit on the sideline and wait for the next best thing to come out. The problem with people waiting to buy things is that they tend to continue to wait. They become reluctant to buy things because they are afraid the technology will become obsolete. So, if you were to ask about the things that keep me up at night as a retailer, thats one of them. Making sure that manufacturers and retailers work together to deliver great product and great brand stories without cutting short our ability to capture the consumers attention for as long a period of time around a particular product and not commoditize the great products that our industry has.
 
Casey/Q:
The holiday season is comingwell, in fact, I guess its here already. Is there a lot of pressure on you as a retailer in the holiday season?
 
Jim/A:
The best way to build confidence going in to the pressure packed holiday selling season is to have good forward planning. Its making sure we know what our theme is, making sure we know what were trying to tell our guests in terms of the story. What are the products that are going to be important? How do we want to creatively present those products to our guests in our catalogs? We have three catalogs that go out over the holidays, and then also, how do we integrate the Internet in to that? How do we ultimately integrate the visual experience and how do we get all of our caddies in our stores to correctly communicate our message and theme to our guests?
 
Casey/Q:
Sounds like a lot to keep track of.
 
Jim/A:
Well, it is, but, we prepare well in advance. So, the first key to building confidence going in to a holiday season is making sure that you are prepared on the front end. This comes from close communication with all of our brand partners, developing strategies for what messages we want to conveyand this happens starting six months in advance. Then, Ill finalize the plans and we work through the year closing in on the holiday season and adjusting the plan as need be up to 90 days before the plan is implemented.
 
Casey/Q:
And Golfsmith has been doing if for quite a long time, right?
 
Jim/A:
Golfsmith at this point in our history, we know who we are and what we want to be during the holiday season. My confidence comes in that weve prepared well. In terms of the macroeconomics of consumer behavior and where consumers ultimately choose to make their purchases, if we as a retailer differentiate ourselves more clearly and execute better than the next guywere going to get our disproportionate share. And we hope that we do that each and every year. What we cant predict is what the exact consumer spending levels are going to be on golf products. We cant control that anyway. So, the long and the short of it is, we have more confidence this year than last year, we had more confidence last year than the year beforeand that comes from the experience we have and the forward planning we do.
 
Casey/Q:
What makes Golfsmith special in your mind?
 
Jim/A:
One of the things that has really resonated with me during my tenure at Golfsmith ' and my great fortune and one of the reasons I pinch myself everyday ' is the strength of the Golfsmith brand. You and I could probably spend an hour just talking about what brands are greatthe brand of a product like a BMW or the brand of a great company like Apple computers. And I cant begin to tell you how proud I am of the Golfsmith brand and also of the great people we have who work for Golfsmith. They do so many things everyday to help foster and enhance our brand. And its really not because of me. Its because of the original founders - Carl and Frank and Barbara Paul before me ' and because of all the great people who are part of the Golfsmith family.
 
Casey/Q:
But, retail is tricky, right? I mean, youre really only as good as the last experience our customer had.
 
Jim/A:
Retail is a great business but its a business where you have to repeat the great work everyday. I always tell our caddies its not about having a great Tuesday, its about having a great Tuesday followed by a great Wednesday, followed by Thursday and so on, and so on, and so on. Its about repeating great execution every day and doing so with a great attitude. And in retail, your brand is ultimately defined by the experience that your guests have and the interaction that your guests have with the employees on the floor of your retail space. And that is unique to retail. BMW makes a great product. If the salesperson at the dealership that shows you the car is off his game, it doesnt detract from the quality of the BMW product. The end product is whats most important. But, in retail, and specifically in the case of Golfsmith, our end product that defines our brand is our people. And whether youre talking about golf or even outside of golf, how many retailers have been successfully occupying a space for 39 years? Not too many. So, Im very excited about our future because I believe in the Golfsmith brand and the people at Golfsmith who take pride in continuing to build that brand.
 
Casey/Q:
Well, Jim, good luck this holiday season. As always, it was a distinct pleasure talking with you.
 
Jim/A:
Casey, likewise. Take care and I hope we see you in Austin soon.
 
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