Thirty-two years after it made its foray into the world of golf, Nike (NKE) is shuttering the golf-equipment segment of its Nike Golf division, the company said in a surprise announcement Wednesday. Nike plans to continue offering golfing apparel, however.
Rival equipment maker Callaway Golf (ELY) could be the main beneficiary of Nike's exit, with investors seeming to agree, as Callaway's stock finished the day up nearly 4% on Thursday.
Callaway saw year-over-year increases in three of its four golf equipment segments in 2015, with revenue from golf balls, putters, and irons rising from 2014. However, revenue from woods fell to $222.2 million last year from $269.5 million in 2014.
Also lagging was golf accessories, which made up about 22% of Callaway's revenue in 2015. That segment brought in $186.7 million in 2015, down from the $199.1 million the segment generated in 2014.
While Nike's golf business is contracting, Growth Seeker holding Under Armour (UA) is actively expanding its own golf segment. Earlier this year, the company introduced its first line of golf shoes. However, the company is in no rush to jump into equipment making, Ryan Kuehl, UA's vice president for sports marketing and sponsorships, said in a Business Insider interview this year.
"I wouldn't say [making golf equipment] is out of the question, but it is not anytime soon. We are very happy with where our product portfolio is right now," Kuehl said.
As for Nike, Trevor Edwards, president of Nike Brand, said, "We're committed to being the undisputed leader in golf footwear and apparel. We will achieve this by investing in performance innovation for athletes and delivering sustainable profitable growth for Nike Golf. We'll continue to ignite excitement with our athletes and deliver the best of Nike for the game."
Nike Golf made a big splash when it announced that Tiger Woods would be its athlete endorser after the neophyte amateur golfer turned pro in 1996. For a while, Woods was able to carry the brand on his own as he ascended to the top of the golf world.
Since turning pro, Tiger Woods has been golf's main attraction, garnering record-breaking TV ratings during majors in which he was either leading or in the hunt heading into Sunday. However, as the game and younger players such as Nike teammate Rory McIlroy and Under Armour endorser Jordan Speith have passed Woods by, golf has seen a dip in TV ratings.
Nike first started selling golf balls in 1999 and started making clubs in 2002. Woods played the U.S. Open at Pebble Beach that year, winning the tournament by 15 strokes.
Tiger's cult-like following is understandable. The future Hall of Famer has won 79 PGA Tour events, second all-time only to Sam Snead; 14 majors, second only to Jack Nicklaus; and owns the lowest career scoring average in PGA Tour history. But his following has been a double-edged sword for golf. It lifted the sport to new heights when Tiger was rolling. However, as Woods' play has declined, so has golf's popularity.
During this year's Masters tournament, ESPN drew a 1.7 rating, averaging about 2.4 million viewers, according to Nielsen. That was down significantly from the 2.2 rating and 3.2 million viewers that tuned in last year when Woods was in the field. Woods' absence in 2014 helped drive the Masters viewership down to its lowest level in 50 years.
Not surprisingly, data from the National Golf Foundation shows that the golf participation rate in the U.S., which comprises about half the world's golfers, fell to 24.1 million last year from about 30 million in 2000.
Earlier this year, German sports apparel maker Adidas put the majority of its golf unit up for sale after almost 20 years due to what it said was the unit's drag on profitability.
Nike's golf division has reported flat to negative annual sales the past two years. The division's sales fell 8.2% to $706 million in the just-concluded fiscal year, making it the company's worst-performing major category.
Outsize ambition may have doomed Nike's golf-equipment business in the long run, a mistake that Under Armour does not seem eager to repeat.