It was September 2006 and members of the National Golf Buyers Association (NGBA) were meeting in Texas at their annual trade show. The NGBA was formed to protect the interests of independent golf retail members and the Houston trade show was an ideal forum for store owners to exchange ideas and discuss the state of the industry. Included in this group were a selected number of Canadian members. Walking the floor and perusing the booths of vendors and their American distributors, I could not help but notice the gap between Canadian and American wholesale prices.
Supply chains had adapted slowly to the emergence of a new form of retail. Back in 2006, most golf companies had separate distribution systems for the Canadian and American markets. The internet was becoming a serious threat to brick and mortar stores in the smaller Canadian market. Economies of scale, restrictive government duties and a strengthening Cdn dollar hedged for lower values resulted in glaring discrepancies between Canadian and American wholesale prices. This translated into higher Canadian retail prices. Contractual agreements with our suppliers limited our abilities to source merchandise out of the less expensive American market. Arbitrage opportunities existed for Cdn consumers shopping online at US retail websites. Years later, the decline of traditional brick and mortar retail would give rise to terms such as show rooming to describe consumer preferences for trying out the good before going online to get the lowest price.
While smaller retailers focused on providing superior service and specialized in the fitting & customization of golf equipment to meet the consumers needs, it was all too apparent that for most consumers the best service meant getting the best price. In later years, our premonitions about the future of retail would come true. As early as 2002, the consolidation of North American supply chains and retail operations seemed an inevitable reality. Compounding the problem was the decline of golf as a sport. In later years, USGA rules on equipment would limit the benefits of innovation driving prices down as vendors competed for market share. By 2010, equipment retail prices had fallen by over 50%. It was an extremely difficult operating environment.
Recently the cross border consolidation of the retail operations of Golf Town and Golf Smith has created a mega retailer large enough in size to have significant influence over their suppliers. Even the biggest manufacturers of golf equipment could see over 25% of their sales going to this massive account. Manufacturers such as Callaway have shuttered both their American and Canadian distribution warehouses in favor of a single low cost venue located in Mexico.
Even today the trend continues to manifest itself as consolidated brick and mortar operations face stiff competition from online retailers that threaten their survival. The plight of high profile retailers such a Best Buy have drawn awareness to the new dynamics of retail. Attempts by brick and mortar stores to create neurological connections with consumers and preemptively distribute products have met with limited success. As with the sale of any commoditized product, it is the low cost provider that ultimately seems to win the majority of a customer's business.
It's slowly becoming apparent that more power now lies in the hands of manufacturers. In order to control the whole value chain and shopping experience, companies including Apple have set up their own retail operations. Control of retail operations allows manufacturers determine the type of neurological connection they create with their consumers. Using social media as an effective marketing tool allows manufacturer to preemptively distribute their products by involving themselves in the lives of their consumers. Creative advertising from companies such as Old Spice have gone viral increasing company market share. Rather than taking on the risk of carrying inventory, a new generation of retailers hopes to act as brokers that offer a venue for consumers to purchase directly from the manufacturer.
Full value chain control, creating a strong neurological connection with consumers and preemptively distributing product have become the new rules of retail.
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