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Retail Newsline: Golf Retail Mulligans; Economy Hits Hole in One

By Garrick Brown, Vice President of Retail Research, Americas

golfball-on-teeThe big retail news for today would be the bankruptcy of Golfsmith, though it probably shouldn’t be. Golfsmith had been looking to sell and had announced last month that it received letters of intent from multiple parties interested in acquiring the company… but no deal ever transpired. And so, the chain filed for Chapter 11 protection today. Golfsmith operates 109 stores in the U.S. and an additional 55 locations in Canada under the Golf Town banner. That being said, in their filing, Golfsmith announced that it has entered into a purchase agreement for the sale of Golf Town Canada to an entity to be controlled by a purchaser group led by Fairfax Financial Holdings Limited and Signature Global Asset Management, a division of CI Investments Inc. The Company also announced that it has entered into a support agreement with Fairfax and CI (which collectively, through funds or other entities managed or controlled by them, hold more than 40% of the Company’s second lien secured notes due 2018) with respect to a recapitalization and restructuring transaction of their U.S. based business.

These factors make it highly likely that Golfsmith; unlike so many other recent retailers to seek bankruptcy protection (like Sports Authority) will likely eventually emerge from bankruptcy. What remains to be seen, however, is how many stores will likely be closing on both sides of the border. I would suspect that underperforming locations for either banner on either side of the border will be in play as the restructured company looks to get out of many of those leases.

But before I get on to what the big news should be (and that news is actually immensely positive), let’s get down to brass tacks when it comes to golf.

Bloomberg’s article this morning, Golfsmith Files for Bankruptcy with Sport’s Popularity Fading, sums it up… as does this one from about a year ago that appeared in Men’s Journal (The Death of Golf). Golf’s slide in popularity among millennials and Generation Z isn’t exactly new news.

Nike has said that it will no longer sell equipment for the sport and Adidas AG has been trying to offload most of its golf brands.

According to data from the National Golf Foundation (NGF), the sport reached its zenith with roughly 30.6 million players in 2003 but those numbers had declined to 24.1 million by 2015. The rise and fall of Tiger Woods has consistently been cited as one of the root causes of the sport’s decline. Golf’s popularity climbed with the meteoric rise of Woods—it rose with all age groups and racial demographics. But as his career has faded, so too has the sports’ draw for many—particularly those outside of golf’s traditional demographic. But beyond the urgent need for a new hero (and the sport is unlikely to find anyone to fill Mr. Woods’ shoes anytime soon), it is that issue of demographics that is the big culprit.

According to the NGF, since 2011, the number of seniors (65+) playing golf has actually increased from 3.1 to 3.3 million regular players. But the good news ends there. Empty nesters (50 – 64 years old) accounted for 5.9 million regular players in 2011, but those numbers were down to 5.3 million players by last year. The fall in popularity among middle-aged (35 – 49 years old) players has been more pronounced; they accounted for 7.1 million regular players in 2011 but now account for 6.2 million. Young adults (18 – 34 year olds) saw a similar decline; their numbers fell from 7.2 to 6.3 million regular players during the same time period.

Certainly, while strong arguments could be made about the cost prohibitive nature of the game and the lack of a marketable star (these would cleanly explain the decline of interest across three of the four demographic segments the NGF tracks), I would suggest that there is an additional element at play when it comes to golf’s demographic issue and that is the trend of urbanization that we have seen since the recession.

Here is where I would love to give a plug to one of the best demographic studies I have ever come across that tackles this topic of urbanization as well as a number of other major shifts. John Burns and Chris Porter of Burns Real Estate Consulting are in the process of releasing “Big Shifts Ahead: Demographic Clarity for Business.” Burns is based in San Diego but does national consulting work focusing primarily on the residential real estate market. He and his Chief Demographer and research head Chris Potter were kind enough to share a copy with me a few weeks ago and I was blown away. You can check this work out here; it is well worth the investment, this is a must read for anyone in residential (single or multifamily) or retail.

Basically since 2010, the growth of America’s urban core has exploded. It has accounted for 21% of all household growth. This is double what has been the historic norm. Currently about 15% of all Americans live in urban environments, 21% live rurally and the remaining 64% of us live out in the burbs. But there are two demographic groups that have driven this move to the cities; young adults (20 – 29 years) which include much of the Millennial demographic and empty nesters (55 – 64 years). Over the last decade, young adults have added 4.7 million to our urban populations while empty nesters accounted for a boost of 10.3 million people.

It is easy to say that golf has a demographic issue and then assume that all that is needed is a new spokesman to attract certain demographic groups. Unfortunately, the challenge may be a little greater than that if we are talking about it being about both demographics and location. The reality is that there are simply fewer opportunities to golf in an urban environment. Additionally keep in mind that urban dwellers typically also have less space (if you’re an avid player you need a place to keep your gear) and one could also easily argue that, especially in the case of our most expensive cities, that the high cost of living is also a factor that is hurting the game’s popularity.

Yet, even as golf-themed stores may be facing challenges (and clearly are entering into consolidation mode), the same cannot be said of golf entertainment concepts… which are white hot and, more often than not, operating in these very urban environments. This could lend credence to the idea that there is nothing inherent in the sport itself that is causing this dip in popularity, but that these challenges have been caused more by a combination of factors driven by demographics, logistics (renewed urbanism) and the aforementioned issue of relatable and accessible sports heroes.

My argument centers around the continued success of golf/entertainment concepts like TopGolf. This concept usually takes between 50,000 and 70,000 square feet of space. Their Atlanta location, for example, is 65,000 square feet with 3,000 square feet of private event space. In addition to a rooftop terrace with a stage for live musical performances, TopGolf Atlanta has 102 climate controlled hitting bays on three floors, 250 HDTVs, a lower level lounge with pool tables, shuffleboard and Xbox Kinect in addition to a number of full service restaurants and bars.

In fact, yesterday TopGolf announced it has landed $275 million in additional funding as it ramps up expansion. The Dallas-based concept currently has 29 venues nationally (it has opened five in the past year) and has another eight locations slated to open in the next year or so. This includes units just outside of New York City and Philadelphia (in Edison and Mount Laurel, NJ), as well as in Jacksonville, Charlotte, Orlando, Nashville, Fort Worth and in the Indianapolis suburbs (Fishers, IN). Meanwhile, there are a number of other new concepts looking to compete and grow in this space as well. So while golf retailers may be in consolidation mode, golf entertainment concepts are exploding. So the news is not universally dreary for golf fans…

Moving on, here is what the big news of the week should be… According to a report released yesterday by the Census Bureau, the median household income in the US rose by a whopping 5.2%… this was the biggest one-year gain in 49 years. This report sliced the numbers a little differently than the ones from the Fed that I used last week when I was talking about how strong wage growth was occurring, though it had been—until arguably now—largely overlooked by the mainstream media and by most of the general public.

Obviously, I feel vindicated in the timing of the Census Bureau report. Since I spoke about this at length last week, I am not going to go into too much depth here. Consumer expenditures have actually remained quite strong for the past year or so and what remains to be seen is if this translates into sharper gains both in consumer confidence and spending. All indicators were already pointing to a stronger holiday sales performance this year, so the question now is whether this will help seal the deal. I can’t emphasize enough the negative impact on psychology that the Great Recession had on consumers. As I had mentioned last week, in my informal polling of well-informed industry types the consensus view on wage growth had been much weaker than what it really was. The view from laypeople was far worse and you can see this in the continued sluggish improvement in consumer confidence levels we have seen this year, despite plenty of positive economic indicators. Regardless, assuming retailers have goods on the shelf this year (I’ll get into the Hanjin bankruptcy and its impact on the supply chain next week); the case is strong for retailer relief in the months ahead. That being said, this doesn’t change the fact that we are essentially an over-retailed nation, nor does it change the fact that eCommerce is going to be a disruptive force for at least another decade or more. But it could have a positive impact on the trend of frugality that has actually been just as big a challenge, if not an even bigger one, than any of those I just mentioned. One thing I think is certain and that is that in the flood of bad news and challenges that the retail sector has faced this year, overlooking or diminishing this data would be a big mistake. It’s easily the best news that the retail sector has received this year or in the past few years.

By the way, if you haven’t seen our recent report on the Cool Streets of North America, click here

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This post is commentary from the latest weekly edition of our Cushman & Wakefield Retail Newsline, which you can subscribe to for free by e-mailing garrick.brown@cushwake.com.

garrick-brownGarrick serves as Vice President of Retail Research for the Americas. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.

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