In Part 1 of this series, we took an in-depth look at TaylorMade's incredible, and unprecedented, rise from industry also-ran to undisputed leader. The key strategy used to fuel that growth was the concept of Cascading Technologies and Cascading Pricing, which shocked the industry and changed the way golf companies operate.
Today, you'll come to understand how a variety of factors conspired to create a perfect storm that threatened TaylorMade’s status as the golf equipment industry’s top dog, and how the very tactics that created its unprecedented rise led to its unprecedented fall.
Remember The Sorcerer’s Apprentice scene from the classic Disney movie Fantasia?
Mickey hates lugging buckets of water for the Sorcerer, so he swipes the Sorcerer’s hat and gets an enchanted broom to do it for him. So far, so good. But as Mickey takes a nap, the broom gets out of control and starts flooding the house with water. Mickey smashes the broom with an ax, but all the broken parts turn into more brooms bringing more water in and pretty soon he’s drowning in tidal waves.
What the hell does a Disney cartoon have to do with one of the most monumental collapses in the history of the golf equipment business?
Well, if you think about it, Mickey's self-created disaster is a darned good analogy for TaylorMade's self-created disaster. I just wish I could take credit for it.
Part of the credit, of course, goes to Walt Disney, but it was Robert Erb – TaylorMade’s former VP of Global Marketing – who put it into context.
“You’ve over produced and you’ve confused the market,” Erb told MyGolfSpy. “The problem is that if something fails within your launch cycle, and you overreact by double-launching or doubling up before you’ve liquidated through your mistake, then you’ve lost the conviction of your customer and, what’s worse, you’ve lost that sense of exclusivity in the marketplace.”
For many of you that sums up the entirety of TaylorMade's fall from grace: it was caused by rapid release cycles, with the latest and greatest drivers launched every 6 months. They’re always longer, straighter and better than the one you just bought.
It’s true. TaylorMade's decline is largely the result of self-inflicted wounds, but it’s an oversimplification to say that rapid release cycles are the cause of the company's decline. Dubious business practices that alienated retail partners, products that reeked of hubris, three major changes in leadership in just over a year and a declining golf market all combined to push TaylorMade's business off a cliff.
10 Years The King
TaylorMade rode into 2012 on a 10-year winning streak. It began the new century roughly half the size of Callaway, but by 2012 it was, in fact, twice the size of its rival.
The previous season TaylorMade had stunned the world once again. With the release of the R11 Driver, white was the new black, and consumers couldn’t get enough.
CEO Mark King told the Wall Street Journal that, in its wildest dreams, TaylorMade never imagined it would sell as many R11's as it did. In fact, TaylorMade had a plan in place to return to black if the Science of White went south. It didn’t.
52.4%
In 2012 TaylorMade reached its peak. The R11S driver was a solid, if unspectacular, follow-up to the R11, but what knocked the industry on its ass was RocketBallz.
And, as you know, it wasn’t the driver either. 2012 was powered by the RBZ fairway wood with its Speed Pocket and promise of 17 More Yards. Some purists were enraged, but RocketBallz grabbed the rank and file golfer's attention, not to mention his dollars, like nothing else before it.
The RBZ fairway was new, hot, and innovative, and TaylorMade’s competitors had absolutely no answer. They could do little but watch from the sidelines as TaylorMade dominated the metalwoods market. Seemingly overnight, TaylorMade was a decade ahead of everyone.
Largely on the strength of RBZ, TaylorMade's metalwood market share soared to a one-month peak of 52.4%. It is, by any measure, an insane number. In simple terms, over that one-month span, more than half of the metalwoods sold had a TaylorMade logo.
The master plan set in motion by the Stutts/King/Erb leadership had come to total fruition, and with it, market dominance. Golfers had been successfully conditioned to expect annual product releases, and TaylorMade’s best in class marketing team was effectively delivering the message that this year’s stuff is better than last’s, and you had to have it. The machine was in overdrive and, with sales hitting an otherworldly $1.7 billion, TaylorMade looked unstoppable.
The Adams Displacement
In August of that year, TaylorMade did something that could have made its market position virtually impregnable. Instead, it stands as one of the biggest missed opportunities of the last decade.
It bought Adams.
Conventional wisdom says a 52.4% market share is unsustainable. With the acquisition of Adams, the adidas golf family had a shot.
It blew it.
“Historically, no one’s been able to do it [sustain 50+% market share], largely because of brand fatigue,” says Erb. “Your success, in fact, becomes the death of the brand. What you need is a multi-brand strategy, ultimately, and a multi-technology platform, because you need to be credibly telling different stories.”
With the Adams acquisition, TaylorMade had a golden opportunity to develop two high-end brands: TaylorMade as the moveable weight technology/hot metal woods brand and Adams as the fairway wood/hybrid/power slot brand. Ideally, the talent and intellectual property of the two brands would merge to the benefit of each, while the branding and technology would remain independent.
“It immediately became the robbing of Adams to benefit TaylorMade,” says Erb. “That got you Rocketballz (Stage 2), but it destroyed Adams. The immediate return was there, but at the total and absolute destruction of a great Texas brand. You could see the same thing with Callaway and the Hogan brand.”
Two brands under one house can work, but very few companies do it well. Each brand needs its own identity and the new brand can't be a price/value alternative. That's a recipe for failure. A second brand needs its own identity and technology, which it can grow on its own at the expense of a targeted competitor.
Ultimately, Adams Golf was gutted for the short-term benefit of the TaylorMade brand and today is virtually worthless.
2013 – The Perfect Storm
When you're the undisputed top dog, if you’re not careful, a we can do no wrong mindset can become organizationally endemic. From there it's a short leap to an organizational arrogance that fosters the belief that you can get away with absolutely anything. No matter how absurd the product, the paint, or the packaging, the consumer is going to love it. There are no limits.
That kind of thinking leads to Jump the Shark moments, and TaylorMade had a series of them in 2013. White drivers are one thing, but white drivers with racing stripes and angular, multi-colored graphics proved to be quite another. RocketBallz worked, but taking the rocket theme one step further; calling the next fairway RBZ Stage 2, telling the consumer it was RocketBallz-IER, while promising another 10 yards? In hindsight it’s ludicrous. Toss in a golf ball named Lethal with packaging more suited to a Metallica album, and even the most loyal TaylorMade insiders were starting to wonder if the Kool-Aid might be poisoned.
Did R1, RBZ Stage 2 and Lethal perform? Sure they did, but TaylorMade's metalwood market share still dropped by double digits.
Three key factors explain why.
Firstly, winter overstayed its welcome, with snow falling into May in much of the country. Nothing kills golf club sales like snow.
Secondly, the other guys weren’t just sitting on their hands anymore. The Nike Covert, the Cobra Amp Cell and the Callaway XHot all debuted that year, each to more buzz than was brand-usual. None would outsell the comparable TaylorMade offerings, but golfers were starting to pay attention to alternatives, the technology gap was closing, and TaylorMade’s new lineup wasn’t resonating as strongly as what came before it had.
The third factor? Erb calls it The Perfect Storm.
"It's a mature market, arguably a declining market," says Erb. "Golf is not the fair-haired lad of sport anymore. It's not getting the TV viewership and participation it once did, and corporate America isn't taking Friday off anymore. And the technologies aren't as meaningful as they once were. The innovation that had its day 10 years prior wasn't there anymore."
All these factors combined led to an unusually slow start to 2013. Management, as you'd expect in any business, felt the need to respond to meet sales targets and reverse the trend.
What did TaylorMade do? Let's look at the timeline:
R1 and RBZ 2 hit the snowy streets in February, but by mid-April (just two and a half months later) with sales lagging far behind expectations, TaylorMade slashed RBZ 2 prices. In June, TaylorMade released R1 Black, and soon after the R1 (white) was discounted by $100.
By mid-summer TaylorMade was growing desperate. SLDR was rushed to market in August and JetSpeed followed in December. That's 3 major driver releases (4 if you count R1 in black) in a single year.
SLDR, in particular, put TaylorMade’s 2014 success in jeopardy. SLDR was supposed to be a major flagship release; a milestone driver to mark the 10th anniversary of TaylorMade's first adjustable driver. A huge marketing campaign focusing on SLDR’s signature sliding weights was in the works, but with sales lagging, TaylorMade’s January milestone became August’s sloppy desperation play.
Multiple sources confirmed that TaylorMade hadn't fully realized the effects of low/forward CG when SLDR was released. SLDR’s signature Loft Up message wasn’t part of the original plan. It was the rapid response to unexpected performance implications. Having failed to do the homework on its own product, TaylorMade was left with little choice but to abandon the campaign built around the sliding weights, and with it, any mention of the 10-year anniversary of adjustability.
The 2013 launch schedule shows a series of reactionary moves in a game of catch-up amid a series of missed revenue targets and declining market share. R1 Black, SLDR, and JetSpeed were business decisions, not golf decisions. The success of each released hedged on consumer willingness to buy something new and pay full price for it.
Nothing worked.
“What you’re competing against is the liquidation of the spring product line or the previous year’s product line," says Erb. "You’re really up against a $300 club that’s been discounted to $199. People are whining about too frequent product introductions and retailers are stuffed with too much product and golfers are frustrated."
JetSpeed, Hack Golf & Dick's
Despite leading off 2014 with SLDR and JetSpeed, and then in no short order adding SLDR S, SLDR Mini, a white SLDR, an SLDR TP and an SLDR 430 to the mix, market share dropped another 14%.
JetSpeed is particularly emblematic of TaylorMade's faceplant. Sources told MyGolfSpy that like SLDR, JetSpeed was rushed to market without sufficient player testing. The finished product didn’t look the part of a TaylorMade driver. Graphics, paint, basically everything in the aesthetics lacked the polish consumers expected from TaylorMade.
To cut costs, TaylorMade didn’t ship wrenches with JetSpeed products. The decision was justified with arguments along the lines of “everyone already owns a TaylorMade wrench.” With sales in decline, arrogance remained in abundance.
Adding insult to injury for the both the company and the consumer, the puppet-driven Speed Police marketing campaign was an embarrassing failure.
Compounding its issues, TaylorMade's strong-handed sales approach had systematically alienated its retail partners for years. Unbelievably it was about to get worse. With retailers grumbling about the frequency of releases (and price drops), a team of TaylorMade executives took to the road in an attempt to boost sell-through by reassuring major accounts that JetSpeed was, in fact, its next big thing. Less than 6 months later, JetSpeed was dead, and with it, any remaining trust on the part of retailers.
While none of this looks particularly good for TaylorMade, it’s only part of the story. Multiple sources, both inside TaylorMade and on the retail side, have confirmed that as TaylorMade struggled to hit its revenue targets, retailers began receiving unexpected shipments of product that they hadn’t actually ordered. TaylorMade was doing everything it possibly could to reduce its inventory, and by any measure some of it was shady, and people inside the company knew it.
One former TaylorMade staffer told MyGolfSpy, “It was crazy. I’m hearing about this and I’m wondering if it’s even legal… I don’t want to go to jail”.
2014 also brought the multi-million-dollar money pit that was "Hack Golf," a Mark King brainchild that dedicated $5 Million to fund initiatives to grow the game. But soon after King was promoted to CEO of adidas North America, Hack Golf lost whatever steam it had, which is to say, not much.
Some of the money reportedly went to web development and some funded an 18" cup initiative. A women's golf league in LA and a golf reality show in Minnesota each received $25,000.
Desperate for better results, adidas spun the CEO roulette wheel. King was replaced by Ben Sharpe, who previously ran the adidas Golf side of the business.
Sharpe's tenure as CEO lasted well less than a year. The official record of events says he left for the oft-referenced personal reasons.
Though he largely delivered on projections, his disciplined approach to restoring financial health and brand integrity didn’t result in any sort of overnight turnaround. adidas’ publicly-stated expectations were lofty and likely unattainable, but it was Sharpe's refusal to "play the Mark King game" - insisting that King stay at arm's reach or further from all things TaylorMade - that hastened his departure.
King's exit had driven a wedge through TaylorMade-adidas Golf. Segments of the company were divided between Mark’s people and Ben’s people. Sharpe restructured his executive team, while a handful of influential members from Team Mark chose to leave.
adidas spun the wheel again, and it landed on David Abeles.
When Abeles (who was hired during Sharpe’s tenure) was given the helm, the company hadn’t yet found its bottom. Revenues continued to lag, but the new playbook developed during Sharpe’s brief tenure - one built around restrained releases and inventory control - was starting to show results. By most accounts, Abeles is well-liked, particularly by the sales team, and that has had a stabilizing effect on whatever lingering strife remained after the King to Sharpe transition.
The final dagger in TaylorMade's abysmal 2014 came mid-summer when Dick's Sporting Goods announced a massive downsizing of its golf business. More than 500 PGA professionals lost their jobs, and TaylorMade saw its single biggest customer cash in most of its chips. Bloomberg reported at the time that sub-par golf sales at Dick's and at Dick's-owned Golf Galaxy dragged profits down by over 17%.
House of Cards
Sales, while still strong, were declining, and along with them market share and, more importantly, margins. TaylorMade kept the new product coming and continued its cascaded pricing model on what was now same year product. The strategy that was successful a decade earlier wasn't having the same impact – cascading was happening too quickly and there was simply too much product to liquidate.
The strategy implemented during the Stutts/King/Erb years - and perfected during Mark King’s tenure as CEO – is a thing of beauty. It's highly suited to rapid growth, but, as TaylorMade learned, it’s not particularly effective when the challenge is reversing declines in sales and profitability.
“The machine will work so long as you understand that the cascading of product has to be an inverted pyramid,” says Erb. “That means as new product comes in, the product that’s being discounted has to be downsized, the number of SKU’s in different sizes, shapes, and colors has to get correspondingly smaller.”
“As you’re effectively liquidating and closing something out, demands will be high as you’ve dropped the price. But you can’t be tricked by that and think that demand is real and forever."
In simple terms, TaylorMade's market share was built in part on its highly-regarded new products. But a significant portion of that market share was built on sales of discounted offerings from previous, and even current, launch cycles. Unit sales were impressive so the market share looked stable, but at one point old drivers were outselling new ones by a healthy amount.
If products sold at discount are dominating your market share, two things happen and neither is particularly good. First, your brand image suffers and stops being viewed as premium or elite. Price makes a statement – selling successfully at full price means buyers perceive your product as being worth that kind of money, which means your brand is worth that kind of money. But if a large percentage of your sales comes from the discounted offering, well…
Second, and much more harmful to the health of a business, is diminishing margins. Your selling price drops but your overall cost of goods sold remains the same. That cuts into your margins, which ultimately cuts into your profits. Good Business 101 says never sacrifice margin for market share.
“You can go back to the Harvard Business Review and find plenty of people who would argue you should worry about market share first and profitability second,” says Erb. “That might work with telecommunications, but it's harder to do when you’re talking about equipment because molds are really expensive and technology development is really expensive. It takes longer to amortize that over the lifespan of the product.”
Let’s say your full price offering earns a 50% gross profit margin and you cut the price 25% to move product. Simple math says you’ll need to sell twice as many units just to make the same amount of money. There are two problems with this approach. The first is that if sales at full price are dragging because the product was ill-conceived or if the market is conditioned to wait for a discount, the only thing you can do is discount it. Your expected margins are sliced and profitability takes a hit.
The other problem is that to sell twice as much product, you need to have twice as much product on the shelves to sell. You also have to scare up twice as many people to actually buy your product, and that means more advertising and marketing, which costs even more, so in reality, your cost of goods sold goes up and your margins get even smaller.
A privately held company can, in theory, ride ups and downs since there are no shareholders to answer to. A publicly traded company doesn’t have that luxury. The folks running TaylorMade answer to the folks running adidas. The folks running adidas answer to shareholders, and they have a fiduciary responsibility to those shareholders.
In September of 2014, the Wall Street Journal reported that adidas Group CEO Herbert Hainer was blasted by shareholders, saying he should have reacted faster to TaylorMade's slide. Overall, adidas stock prices dropped 40% in 2014, and profits dropped by 37%, and TaylorMade was a big part of the problem.
The handwriting was on the wall.
The Inverted Rectangle
In only 3 years TaylorMade tumbled from the $1.7 Billion mountaintop to the discount For Sale bin. TaylorMade’s rapid release and rapid discounting model has been assigned blame because it’s the most outwardly visible manifestation of some fundamental business missteps.
Earlier, Robert Erb said cascading products and pricing should be viewed as an inverted pyramid. As new product comes in and the old product is discounted, the old product has to eventually be phased out. As it becomes scarce, demand goes up and you can liquidate it quickly. That's critical in protecting the value of the new, higher-priced, higher-margin product.
“If you view that inverted pyramid as a rectangle, you create a bottleneck,” says Erb. “As you’re cascading in price downward from $399 to $299 to $199 and you still have a supply of that product, you find yourself in a rectangle where your next cascade won’t work because there’s product that hasn’t liquidated. It starts to slow down your ability to keep the product pipeline clean. If others are doing the same thing, you can absolutely collapse the market.”
That’s exactly what happened.
Ultra-rapid product launches went into overdrive in 2013, and really didn't stop until M1/M2; neither of which has yet to been discounted or replaced as of this writing.
Did TaylorMade go too far with crown graphics? Did arrogance displace common sense? Did years of price dropping, which lowers the value of a retailer's inventory, poison relationships with retail partners? Those are all fair questions and the answer to each is a resounding yes.
But the bottom line is always the bottom line: Prices were cut and new products were rushed out to save quarterly numbers. That’s where TaylorMade lost control.
These aren’t problems you can market your way out of.
“If your issue is brand fatigue,” says Erb, “then actually you’re making matters worse. At some point, the consumer is saying ‘shut the hell up and let ME figure this out.’ I mean, if the guy on the tee is hitting it 6 yards further than you, you don’t need to be told.”
From a diagnostic standpoint, TaylorMade's rotating leadership at the time never quite understood the root of the problem. To paraphrase a medical analogy from a former TaylorMade insider; symptomatically, TaylorMade believed it had a broken arm. It treated accordingly… a splint, some medical tape, and a cast. But in reality, TaylorMade had a mental illness. Bandaging the arm did nothing and the root cause of the problem only got worse.
I asked Erb if the problem was really just one of business discipline and overreacting to sales goals that weren’t met. He said that was a little simplistic, especially when discussing a publicly traded company.
“Sometimes there are other factors at work. Hypothetically, if you’re Callaway and you’re missing your 3rd Quarter number and you’re publicly held, going to the marketplace and saying ‘hey, don’t worry about it, we’re going to invoke a little marketing discipline here,’ well, that just isn’t going to work. The market doesn’t want to hear you’ve made a mistake, so there are some realities that have to be traded off.
TaylorMade’s downfall, when viewed through a broader lens, is easy to understand. During its incredible rise, TaylorMade was playing a completely new game, one for which it wrote the rulebook. The new game left competitors flat-footed and bewildered. By the time the competition caught up – meaning it adapted to the new world order created by TaylorMade – TaylorMade’s sleeve was empty. Out of tricks, TaylorMade doubled down on crazy, and when that didn’t work, it doubled down on crazy again.
The golf equipment landscape had changed significantly since 2002. Competitors were actually competitive, and the retail environment, with its online options and bigbox storefronts, was dramatically different... and totally flooded with inventory.
USGA limits on COR put a serious clamp on rapid product innovation, so any new product is usually only incrementally better than the previous one. Paint and a good story can only overcome so much.
The Next Chapter
TaylorMade isn’t what it was at its peak, but it’s far from dead. The company remains a major force in metalwoods, where its market share is still above 30%. Whoever the new owner is will be buying a valuable brand name at a relative bargain. However, the impending split from adidas will remove high-margin apparel and footwear from the TaylorMade catalog, and that could significantly impact R&D and Marketing budgets, Tour Staff, and other areas where TaylorMade has traditionally been a force.
Where new ownership ultimately takes TaylorMade remains to be seen, but one thing is for certain: the halcyon days of 2001 thru 2012 for TaylorMade and the true product innovation, amazing growth, and lasting impact on the game that came with glory are gone, and it’s doubtful we’ll ever see anything quite like it again.
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