Canadian specialty retailer Golf Town is snapping up one of its U.S. rivals for almost $100-million (U.S.) as consolidation sweeps through the sector.
On Monday, Golf Town of Toronto said it's accelerating its expansion south of the border by striking a deal to buy Golfsmith International Holdings Inc. of Austin, Tex. for $6.10 a share as the U.S. retailer struggles to make gains.
The move comes as retailers race to change their business model amid a falloff in the number of consumers picking up the sport. The time-consuming game is falling victim to a shaky economy as well as pressured consumers who have fewer hours in their day.
Golf Town, Canada's largest golf retailer, took a swing at the highly competitive U.S. market last year, with seven stores now in the Boston area and 54 in Canada. But its plan to acquire Golfsmith underlines the need to move faster as retailers look for ways to improve their results.
"It's still a pretty tough marketplace," said Tom Quinn, former president of sporting goods chain Forzani Group Ltd. who now works as a consultant since Forzani was bought by Canadian Tire Corp. "There's pressure on margins."
Golf sales are just starting to recover, helped by more favourable weather and price increases, after a downward spiral south of the border which saw recession-squeezed consumers shy away from such discretionary purchases as golf clubs and bags. To ease the pain, larger retailers have bought smaller specialty chains, and Sport Chek in Canada, which is owned by Canadian Tire Corp., is converting specialist Nevada Bob's into boutiques within the larger sporting goods stores.
Last year, total U.S. national rounds played dropped 2.5 per cent, according to market researcher Golf Datatech. Sales of golf hard goods, such as clubs and balls, rose 1.3 per cent to $2.41-billion in 2011 after dropping 2 per cent in 2010 and 11.6 per cent the previous year.
A mild winter helped bolster the latest data. For the first three months of 2012, U.S. national rounds played jumped 22 per cent, the research found.
Golfsmith has suffered from the rocky golf retail landscape. It will report its latest quarterly results on Tuesday, but in its fourth quarter, its same-store sales – a key measure in the sector – fell 4.7 per cent. The retailer lost $5-million compared with a $4.6-million loss a year earlier. In fiscal 2011, it posted a profit of $900,000 compared with a loss of $5.5-million in the previous year.
"We were disappointed, obviously," chief executive officer Martin Hanaka told a conference call in March.
Golfsmith is facing tougher competition on its home turf: rival Golf Galaxy, which was swallowed by specialty giant Dick's Sporting Goods, has sharpened its game by closing money-losing stores. Golfsmith also suffered some missteps, including killing a direct marketing event last fall.
Still, despite the tight market, Golfsmith's market share gained 11.5 per cent in 2011, Sue Gove, the chain's chief operating officer, said on the call.
Jack Steckel, a founder of Golf Town and now a partner in investment bank Capital Canada, said Golfsmith has struggled for years. Its takeover by Golf Town is similar to U.S. discounter Target Corp. moving into Canada by buying rival Zellers for the store locations (although the $1.8-billion Target deal was strictly a real estate agreement.) Mr. Steckel, who plans to re-launch a fitness chain in the U.S., said Golf Town's move to acquire Golfsmith gives the Canadian retailer "the ability to expand much more quickly in the U.S."
Golf Town, which is owned by OMERS Private Equity and has 54 stores in Canada and seven in the Boston area, would not comment on Monday, nor would Golfsmith executives.