Callaway Golf Company

The Industry

Callaway Golf Company is one of the leading designer and manufacturers of golf balls and golf clubs (irons, wedges, putters, fairway woods, and drivers) located is the sporting goods industry. Callaway also sells accessories including golf towels, umbrellas, golf bags, headwear, golf gloves, timepieces, footwear and apparel. The company's golf club and putter sectors are its main sources of revenue. The goal of the company is to create new equipment that is an improvement upon previous as well as competitor's products. The company sells it products to golf retailers, sporting goods retailers and also licenses its trademarks to third parties for royalty fees.

Callaway is a horizontally integrated company. They achieve this through acquisitions of companies, which helps increase the products they offer. Callaway has the following wholly-owned subsidiaries: Callaway Golf Sales Company, Callaway Golf Korea, Callaway Golf Europe, Callaway Golf Canada, Callaway Golf South Pacific and The Top-Flite Golf Company. Callaway also has many brands through which it distributes products including: Callaway, Ben Hogan, Odyssey, and Top-Flite.

Callaway Golf is the leader in the market for US retail golf market but faces very strong competition in a mature market. Because this is a mature market there are many well established companies with well known brand names. Some of the key competitors of Callaway include: Acushnet Company, SHC, Adams Golf, Adidas-Salomon AG, and Nike (Callaway Golf Company, Nov 2004). The golf club market is highly competitive. Looking at the metal irons and woods, Callaway's competitors include: Adidas-Salomon AG (Taylor Made) and Acushnet (Titlelist, Cobra). Along with the golf club market the golf ball market is also highly competitive. Some of the competitors include Acushnet (Titlelist and Pinnacle), Adidas-Salomon AG (TaylorMade), and Nike. The competitors have established a superior share in the golf ball business, with Acushnet's Titlelist and Pinnacle branded golf balls accounting for a 50 percent market share.

Financial Performance

Located in Appendix A are the company's financial performance statements for the past 3 years (Quotes and Info, n.d.). Many major corporations which are in direct competition with Callaway have various subsidiaries in which many of the financial statement will be consolidated. The only unconsolidated statements are seen in Appendix A with Adams Golf. Over the past year Callaway has seen their net income become negative. This is because their selling and administrative expenses have gone up proportionally to past years and also because their cost of revenue (which includes direct materials, direct labor, and overhead) has gone up as well.

Looking at Appendix B, you can see that their current revenues are 516.69M more than the industry average. This looks good until you look at their cost of revenue. In 2004, Callaway's cost of revenue went up 46.47% while their revenue only went up 14.8%. The cost of manufacturing their new products and the R&D expenses of creating them seem to be outweighing the return they receive from them. Callaway also lost market share in their drivers and woods (Quotes and Info, n.d.). Appendix C shows the 2004 revenue distributions for Callaway. As you can see much of their revenue comes from the sales of woods and irons.

Another indicator of financial performance would be its stock price. From 2001 to 2003 Callaway outperformed the industry, with positive percent changes in their price. Only in 2004, did Callaway drop below the industry average. Now in 2005 Callaway is back above the industry making positive gains.

Non-Financial Performance

Even though Callaway has seen a decline in its income over the past couple of years they have been the leader in the US retail golf market for the last seven years. Callaway has been known for the innovation that they bring to the golfing industry. Every year the company spends upwards of 30 million on developing new technologies so even novice golfers can hit the ball 200 plus yards down the fairway.

The company offers great customer service. If you call the customer service department at Callaway you will get to talk to a live person that has complete knowledge of their products. Callaway's employees are very committed to their company. For the past 4 years, Training Magazine listed Callaway as one of the top 100 training organization in North America (Corporate, n.d.). Callaway has some of the most innovative minds working for them and much is attributed to the training they receive.

Callaway has an ethical responsibility to adhere to the rules of golf when making their equipment. Over the past couple years the people who make up the rules of golf (USGA), have been very vague to what is conforming and not conforming. The USGA has also forced limits on new technology which has hurt Callaway's sales as well. Their driver, the ERC II was banned by the USGA saying that it gave the driver an extra advantage.

Professional usage of products on the Professional Golfers Association Tour is very important. Callaway does a good job at this. They have some of the top professional golfers on the men's and women's tours use their products. A decline in the future of this could result in adverse affects on company sales (Callaway Golf Company, Nov 2004).

Strengths

Reviewing Callaway's business, through internal and external analysis I identified the companies Strengths, Weaknesses, Opportunities, and Threats. Appendix D shows a SWOT analysis chart. Looking at the companies strengths, it is the market leader in the retail golf market. In 2003 it continued to lead the woods market in both units sold (18% share) and revenues (24% share). In the irons it had a 17.2% of units sold, and a 26.1% share in revenues. Callaway's putters whose brand in Odyssey had a 42% share in units and a 49.4% share of revenues which lead the putter sales in both categories (Corporate, n.d.). With the acquisition of Top-Flite, Callaway is now the number two in production of golf balls worldwide.

Because Callaway is in a mature market it has some brand loyalty with its products. Brand Loyalty along with the mature market makes the threat of entry by potential competitors very low. Callaway also has a wide range of offerings that cover all different prices. The products it offers can be used by professionals as well as amateurs. This is something that not a lot of golf companies succeed in. The clubs that Callaway makes for PGA professionals can be used for the average golfer as well. Irons that they make