The fate of Golf Town, the country's largest golf chain, is in question as its troubled U.S. parent, Golfsmith International, looks to revamp operations and potentially find a buyer amid reports it is considering filing for bankruptcy.
With 56 megastores in Canada, Golf Town, owned by the private equity division of the Ontario Municipal Employees Retirement System, made the bold move in 2012 of acquiring Golfsmith, which has 109 outlets south of the border.
But the $100-million (U.S.) purchase went awry as the struggling Golfsmith took over management of Golf Town, running the Canadian chain from its head office in Austin, Tex., industry observers say.
Golfsmith acknowledged in an e-mailed statement that "the last few years have been challenging for golf retailers, as a whole, and this includes Golfsmith."
Still, the privately held company said it has made changes to its Golf Town team and approach – bringing management back from Austin to the operations here and responding better to domestic consumer demand – resulting in "strong momentum" at Golf Town. It said it has enjoyed year-to-date sales growth at outlets open a year or more – a critical retail measure – and "material increases in online revenue and strong profit improvement."
Rising uncertainty about the future of Golf Town and its parent comes as the golf sector grapples with stagnant sales and budget-conscious consumers who are thinking twice before snapping up pricey golf clubs.
Golfing is a time-consuming sport that can be expensive to take up and highly weather-dependent, said Tom Stine, partner at market researcher Golf Datatech LLC in St. Cloud, Fla.
U.S. golf-equipment sales at specialty stores fell about 5 per cent to roughly $2.6-billion (U.S.) in the six months ended June 30, compared with the previous year, according to Golf Datatech. Still, in 2015, sales picked up 2 per cent from a year earlier, its data show. Rounds played rose 2.7 per cent in the six months ended June 30 over a year earlier, it found.
"It's up and down and it's not growing – I wish I could tell you it was," Mr. Stine said of the business. "But it's not dying either."
As a signal of the soft golf market, Nike Inc. last week announced plans to stop selling golf equipment after sales in its golf division – its worst-performing major category – dropped 8.2 per cent to $706-million (U.S.) in the past fiscal year.
Other retailers haven't had an easy time in golf. Dick's Sporting Goods Inc., the largest in the U.S. sector, closed some of its Golf Galaxy stores as it grappled with sagging sales, although it has recently started to see a turnaround.
"The golf business had been difficult," Ed Stack, chief executive officer of Dick's, told a conference this year. "We feel that that business has stabilized … So we are cautiously optimistic about the golf business going forward."
Golfsmith, for its part, has hired financial advisers to explore "strategic options," it said. That could include looking for investors or a buyer. It hired investment bank Jefferies LLC as well as Alvarez & Marsal, the latter to help it restructure, sources said.
Golfsmith said in its e-mail despite "challenges in terms of our capital structure," it's confident Golf Town "will remain a leading specialty retail brand in Canada." It said it "currently has the necessary liquidity to pay the company's financial obligations as they become due."
OMERS officials did not comment. Industry sources said OMERS had pushed for a new CEO at Golfsmith. David Roussy, who took the top job last year, is a former executive of Toronto-based Canadian Tire Corp. and has a better feel for this domestic market, sources said. He has moved managers back to Canada. Golf Town has sharpened product and marketing strategies "to better reflect Canadian consumer demand" by, for instance, focusing more on fashion and lower prices, the company said.
Canadian Tire may be interested in picking up Golf Town and even Golfsmith, suggested Jack Steckel, a founder of Golf Town and now a partner in investment bank Capital Canada. (In 2011, Canadian Tire acquired what was once called Forzani Group Ltd., the country's largest sporting goods retailer, including the Sport Chek chain, which carries golf products.)
Mr. Steckel said Canadian Tire has looked at buying Golf Town in the past. But he wasn't sure Canadian Tire would want to operate in the United States, given the company's poor track record in the past with U.S. acquisitions.
Stephen Wetmore, new CEO of Canadian Tire, suggested last week the company would be interested in making the kind of acquisition it has made in the past of a chain or brand. Another would-be Golfsmith suitor could be Dick's, which already runs Golf Galaxy, observers said.
Mr. Steckel said Golf Town gained an edge under the leadership of Stephen Bebis, who launched the chain in 1999 and left 12 years later, just before the Golfsmith takeover. He drew customers to the superstores with golf simulators, pro-shop services, indoor driving nets, computerized swing analyzers, artificial bent grass, on-site custom club fitting and television monitors that displayed golf and other sports events.
Mr. Steckel said when he went to a Golf Town store recently, he noticed shelves didn't have enough merchandise – just the opposite of the original Golf Town strategy of offering a broad range of goods. "For me, personally, it's very sad."
Keith Keindel, executive director of the Canadian Golf Industry Association, which represents suppliers, said Golf Town has bolstered its array of private-label goods, which can increase profit margins while lowering consumer prices. But many customers look for the prominent brands, he said.
Amid the changes, golf – a $14.3-billion industry here – is still the top sport that Canadians participate in, despite fewer young people playing and declining membership in private clubs, said Scott Simmons, CEO of Golf Canada.
Golf rounds played in Canada rose 10.6 per cent in 2015 from a year earlier, a trend that is continuing this year, said Jeff Calderwood, CEO of National Golf Course Owners Association Canada. "Compared to Canadian golf's peak years right before the recession, we aren't yet matching those exceptionally high numbers but the positive trend is encouraging."
And the return of golf to this month's Olympics could be a boon to the sport if Team Canada performs well, he said. "We have a strong team and a gold medal is not unrealistic at all."