Mark up on clubs?

[JezzE]

You're probably right Jezz that golf is similar to other areas of retail. My experience of working in golf retail for a few years was a real eye-opener though. I have no objection to profit, far from it, but I do object to the way that profit is distributed. Perhaps I'm just naive. In fact I probably am

I think I know what you're saying, but from my experience the golf retailer is certainly not the one making much money out of high-end golf gear (unless it's on close-out of old stock which the manufacturers want to offload) which I guess is what you're referring to when you talk about fairness of profit distribution.

I think what concerns me is that many of us work in business of some sort, and are therefore reliant on profit being made to pay wage bills, keep the company in a healthy position and so on. But too much knowledge of raw costs/trade prices etc has left some people querying why they're being asked to pay so much more than what the product has cost in raw terms.

This was brought home to me many years ago when we invited a couple of acquaintances round for the evening and suggested we went to the local Pizzeria. They didn't want to go because the pizzas were £8 there and they could get 2 for £3 at Tesco. Missed the whole point of the restaurant experience - ambience, atmosphere, someone else doing all the hard work - because they 'knew' how much pizzas cost at retail. They'd have been even more horrified if they'd know the raw cost price I guess. We never invited them round again!

 

[Oddsocks]

Im guessing like most industries, retail markups are between 30-40%, this is all well and good but take into account the last time you paid full rrp for something and work from there.

Case example, the R11 when it was launched was £329, DG had it online at £299, which was effectively 10% off, then during their march madness discount it buy another 20% making it £239. When i said to my pro that i paid £240, he laughed and said, that within £5.00 of my cost. this tells me that as a small shop hes working on roughly a 30% margin as cost at 30% would be £231.00, so not far out.

unfortunately the bigger shops will get wholesale/bulk/preorder discounts, but as a rule of thumb 30% from RRP will be most peoples cost or there abouts in the retail sector, some things more, some things less, but as an average its about right.

 

[Hobbit]

Why would there be a serious economic debate to be had specifically for golf gear over and above any other retail product - the business model is pretty much the same as many other industries I suspect?

I think the problem is that we as a nation have gone off the idea of anyone actually being able to make money because we know or want to know how much everything costs, and then don't really want to factor in all the other associated costs with getting that item from the production line to the consumer's house.

Just my opinion, but I don't think everyone knowing the raw cost or trade price of everything is particularly beneficial to business as a whole - not just the golf industry.

At the end of any given week a typical club pro needs to nett a living wage. Now if you assume you're 'happy' for him to make the national average then he needs to be taking a wage of £2,250 a month before tax and NI. So at a half decent club he needs to nett his wage and his assistants wage... call it £850 a week. He also needs to make enough gross profit to be able to replenish the stock that is used each week.

Personally, I don't care what his margin is providing he's there to sell me what I want to play the game. After that, market forces will determine pricing which means anyone pricing their product at stupid levels wouldn't be able to sell anyway.

 

[MadAdey]

Thing is it does not cost that much to manufacture golf clubs due to modern manufacturing techniques. Take a look at companies like MD Golf and Benross. They both produce some very good quality kit for the price. Difference being it is older technology. Take TM for instance. They spend a fortune on research and development each year to give players the latest technologies and the edge on other companies. People like MD look at what technology has been used over the last couple of years then introduce it into their clubs, so they do not have the research and development costs that the top makers do.

Lets put it another way. If TM bring out the R12 next year. To make the clubhead buy the shaft from fujikura and a grip from golf pride then put it all together maybe costs £100. Put it out at £200 to the trade so they can then make a 25-35% mark up. So great TM has now made £100 from the driver. But hold on a minute they have spent £1M say on research and development for this club. So they need to sell 10,000 units to just cover the research that went into making making the club. So for instance they sell 20,000 units they have actually only make £50 per club on the first 20000 units. Just something to throw into the mixer when talking about golf kit prices.

 

[RichardC]

Thing is it does not cost that much to manufacture golf clubs due to modern manufacturing techniques. Take a look at companies like MD Golf and Benross. They both produce some very good quality kit for the price. Difference being it is older technology. Take TM for instance. They spend a fortune on research and development each year to give players the latest technologies and the edge on other companies. People like MD look at what technology has been used over the last couple of years then introduce it into their clubs, so they do not have the research and development costs that the top makers do.

Lets put it another way. If TM bring out the R12 next year. To make the clubhead buy the shaft from fujikura and a grip from golf pride then put it all together maybe costs £100. Put it out at £200 to the trade so they can then make a 25-35% mark up. So great TM has now made £100 from the driver. But hold on a minute they have spent £1M say on research and development for this club. So they need to sell 10,000 units to just cover the research that went into making making the club. So for instance they sell 20,000 units they have actually only make £50 per club on the first 20000 units. Just something to throw into the mixer when talking about golf kit prices.

Exactly.

People seem to forget the work that is involved by said companies and the work that pro's etc put in before the club is released on the market.

 

[bluewolf]

I think that the problem now is that the cost of golf clubs (and everything else) has been kept low (as was stated earlier, prices have gone up at nowhere near the rate of inflation). This has been achieved by keeping the costs of the raw materials and the manufacture low. Wages in the countries that nake our products are incredibly low, coupled with huge tax breaks to the factories that manufacture our products.
The profit margin on each item has got steadily lower for the manufacturer, which has been offset by the drive for increased sales. The consumer has then become more sophisticated and has learned how and where to buy so as to reduce the cost. This has meant that our local pro has been squeezed even more.
Now the worrying part is that wages in the countries that make our products are rising, raw materials are going through the roof and taxes are going up. This means that manufacturers can either put up prices, or sell even more "new" products. Eventually this is going to lead to the retailers being squeezed to the point that pro shops will fail, leaving us with the option of buying from AG, DG or Tesco..
Moral, either accept the fact that golf clubs will cost considerably more in a few years, or continually buy the new offerings from each manufacturer to keep the prices down.

Ps, Im a printer, not an economist so all of the above could be ridiculous bull twaddle....

 

[JustOne]

They didn't want to go because the pizzas were £8 there and they could get 2 for £3 at Tesco.

Did they mention clubcard points? :ears:

 

[JezzE]

Did they mention clubcard points? :ears:

No - might even have been pre-Clubcard days...

 

[MadAdey]

My mate Neil Curtis that I went to school with and played golf together as a kid told me about making money in a Pro shop. He is head Pro at Melton Golf Club and sells Ping. He said if he sells a full set of irons and woods to someone he will make about £250 from it (9 irons and 3 woods). So not much really considering how often he will sell a full set. He said the money is made from selling cans of coke and chocolate bars out of his fridge. Also the extra bits and bobs that you can't be arsed to drive to the discount centre for like tees, gloves and balls.

 

[Swiper]

I'd love to know how much it costs the manufacturers to make clubs per unit, as it's not the retailers who are making the profit.

There is a really serious economic debate to be had about the cost of golf gear and business models, but it would be modded into oblivion, as GM is also dependent on a harmonious relationship with the manufacturers, just as the retailers are. Shame really.

When Clarkson trashed Vauxhall's (or was it Ford's?) sales went up. But I know what you mean. What gets me, is when you have a review that does not even give a score, I understand there will be differing scores, but is it not possible to give some kind of guide without offending the suppliers?

Have to say though; it does seem to be the big names who take the cash, not the manufacturer or the retailer. No wonder the top couple of hundred golfers are on good money.

 

[jimjoachim]

My mate Neil Curtis that I went to school with and played golf together as a kid told me about making money in a Pro shop. He is head Pro at Melton Golf Club and sells Ping. He said if he sells a full set of irons and woods to someone he will make about £250 from it (9 irons and 3 woods). So not much really considering how often he will sell a full set. He said the money is made from selling cans of coke and chocolate bars out of his fridge. Also the extra bits and bobs that you can't be arsed to drive to the discount centre for like tees, gloves and balls.

Following on from this im guessing that the pros dont have a set margin for each item in store. Some may be sold at cost or below to get people through the door and then make their real money from the high margin items when there. As said above sweets, drinks, balls, tees and gloves will be high margin. Umbrellas (if its raining) the same and im sure they do okay off the gear with the club badge!! and then theres the 2s competitions lol.....

 

[GB72]

I think that the golf gear industry shoots itself in the foot when it comes to public perception. Lets say club X costs £300. 3 months later it is £250. 6 Months later it is £180 and a year or so later it is £99. Whilst it is not an accurate interpretation of the truth, the public assume that the club is being sold at cost or with a small profit at £99 and that there was originally a £200 mark up on it.

As I said, it does not reflect the true situation but that is how many percieve it. As with any shop sale, they assume a profit is being made on any sale item and so assume that there were huge profits on pre-sale prices.

 

[USER1999]

Did you know that at Homebase, when they do their %10 off every thing in store every bank holiday, they make the same amount of money as they would normally do on every sale?

They do this by passing all the costs back to the supplier, who often makes a loss.

We pulled out of supplying HB for this very reason last year. It was getting impossible to make any money. They were making a killing though.

 

[MadAdey]

I think that the golf gear industry shoots itself in the foot when it comes to public perception. Lets say club X costs £300. 3 months later it is £250. 6 Months later it is £180 and a year or so later it is £99. Whilst it is not an accurate interpretation of the truth, the public assume that the club is being sold at cost or with a small profit at £99 and that there was originally a £200 mark up on it.

As I said, it does not reflect the true situation but that is how many percieve it. As with any shop sale, they assume a profit is being made on any sale item and so assume that there were huge profits on pre-sale prices.

The reason stuff gets knocked so cheap a couple of years later is to just clear it from the warehouses. Take TM and the R9 driver. Since that was released you have had the R9 Supertri and Superdeep and now the R11. Any R9s knocking around have just got to be shifted as people will always want the newer version. At the end of the day it is business. If you have a product that you could get £200 for 3 years ago and it costs £100 to make you have made money from it already. If you still have some knocking around and all you can do is ship them out for is £80 each yes you have taken a £20 loss but it is better than the £100 it is costing you to keep it. That is why you see the old technology golf kit being sold off for a fraction of the price it would have cost you when it was the newest shiny thing on the market.

 

[Phil2511]

Also don't forget 7 figure sponsorship deals to the tour pros, costs in relation to tour trucks attending each event. Each company may own a few trucks. Then think how many big name(big cost) pros each of the big companies have. Then who on the tour plays MD? I personally don't have sky and very rarely watch any golf on TV so now the only name I know associated with MD is Seve. So not just R&D but also this shows why a MD Seve driver is about 40% that of some of the big names.
Also look at who is the most famous( receives most publicity). The price of the equipment they play seems to escalate as their fame (publicity) does, because the costs of the sponsorship deals escalates as well. Plus win bonuses.
An example is Darren Clarke will likely have in his contract that he gets a bonus for a win due to the added publicity/sales it will generate for him winning the British Open. Come 2012 when people see he has the newest driver in his bag they will want it too. So his bonus is really great advertising and those costs are reflected in the price of the product price.
Also I'm sure that like in every industry there are products that have very high design/R&D costs but Joe Public will never pay high price for them, so more percentage profit may come from say a Driver than from a Wedge but quite a few of the other costs may be just as much in creating both items.
Like a loss leader at the supermarket. They sell stuff cheap but hike up the price of other items so they still make the same overall profits.

 

[MadAdey]

I think that the golf gear industry shoots itself in the foot when it comes to public perception. Lets say club X costs £300. 3 months later it is £250. 6 Months later it is £180 and a year or so later it is £99. Whilst it is not an accurate interpretation of the truth, the public assume that the club is being sold at cost or with a small profit at £99 and that there was originally a £200 mark up on it.

As I said, it does not reflect the true situation but that is how many percieve it. As with any shop sale, they assume a profit is being made on any sale item and so assume that there were huge profits on pre-sale prices.

Ask Angus I am sure he will tell you he makes bugger all from selling clubs nowadays. I would love to know how much he made though when I bought a set of Titleist irons from him 20 years ago for £500.

 

[GB72]

I totally agree that there is not much to me made on a set of clubs. My point was about perception and not reality. People see big discounts so assume that the club was initially sold at a big profit.

If you ever fancy a trip back to Stoke for a round MadAdey then just let me know.