The athleticwear giant said Wednesday that it will stop producing golf clubs, balls and bags. Instead it will take a page out of the likely more profitable model used by rival Under Armour (UA) - Get Report -- simply hawk golf apparel and footwear.
Nike's announcement shouldn't come as a shocker to anyone holding a business degree. But the real question is what the heck took Nike so long to swallow its pride and change direction on a failing business?
Nike's sales at its golf business plunged 8% to $706 million for the fiscal year ended May 31. Excluding the impact of the strong U.S. dollar, sales dropped 6% from the prior year. It was the worst-performing business for Nike in terms of sales last fiscal year.
Weak sales for Nike golf -- which represents about 3% of total sales for the apparel and footwear giant -- had become a recurring theme in recent years. The injury-prone Woods has been spotted less in riveting final rounds of PGA Tour events (he has not played a PGA tournament this year, and won't). And other Nike product endorser Rory Mcllroy lacks the star-power of Woods.
Sales for the Nike golf division fell 2% to $771 million for the fiscal year ended May 31, 2015. Excluding the impact of the strong U.S. dollar, sales were unchanged from the prior year. Nike golf didn't light up it up on the sales line the year before, either. Nike's golf division saw sales relatively unchanged at $792 million for the fiscal year ended May 31, 2014. Excluding the impact of the strong U.S. dollar, sales rose a meager 1%.
A real slap in the face to Nike is that it's exiting golf businesses just as people are back out playing more rounds of golf, which is spurring sales of new drivers, shoes and irons. Earlier this year the National Golf Foundation reported that, for the first time since 2012, the number of golf rounds played in the United States increased in 2015.
Helped by a warmer-than-average winter, golf rounds played increased 5.5% in the first three months of 2016, according to Golf Datatech. In March alone, rounds played boomed by 13.2%.
Rory Mcllroy won't get to test new Nike golf clubs anymore.
"Some brands came out with some really great product that captured the imagination of the golfer," said Dick's Sporting Goods (DKS) - Get Report CEO Ed Stack on a May 19 call with analysts. Stack praised all of the big names in golf product manufacturing but Nike for their latest innovations. "TaylorMade with the M1 and the M2 [drivers and irons], Callaway (ELY) - Get Report with the Great Big Bertha [driver], and there has been some new shoe designs out from FootJoy -- so, there has been some good products out there."
Same-store sales for Dick's Golf Galaxy chain rose 1.7% in the first quarter, while the golf business inside of Dick's stores did slightly better, according to the company.
Two brands in particular may have sunk Nike golf: Adidas and Callaway. According to Adidas, its TaylorMade equipment brand returned to growth in the first quarter with sales up 6% from the prior year. Adidas credited momentum behind metal woods and irons. In addition, Adidas said sales for its broader golf business also increased during the quarter, driven by high-single-digit growth in footwear.
Adidas golf apparel and TaylorMade equipment is used by the No. 2 ranked golfer and this year's U.S. Open champ Dustin Johnson and No. 1 ranked golfer in the world Jason Day. Meanwhile, Callaway is fresh off a solid second quarter thanks to a burst of new products. Sales increased on all product categories for Callaway during the quarter, led by a 14.9% surge in golf balls.
It's interesting that Nike made the announcement before the Olympics opening ceremony on Friday. Golf is returning to the summer games for the first time since 1904. Then again maybe it's not a surprise -- Mcllroy has decided to skip the Olympic Games in Rio de Janeiro due to concerns about the Zika virus, while Woods sits at home in his mansion pondering a 2017 comeback.