With growth as a mandate, $240 million golf equipment cataloger/retailer Golfsmith sold a majority stake to New York-based private equity firm First Atlantic Capital on Oct. 16. The sale price was undisclosed.
Austin, TX-based Golfsmith, whose management will retain a minority ownership position, plans to use the equity to expand its catalog, Website, and retail chain. “The new owners are focused on growth,” says vice president of marketing Barry Rinke. “But we’re still newlyweds and will have to see how the ‘marriage’ pans out and what First Atlantic’s expectations are.”
Adds First Atlantic spokesperson Jonathan Gasthalter: “We take an active role in growing companies with talented management structures already in place through strategic add-on acquisitions, improving performance, or changing the business strategy.”
Rinke says that First Atlantic will take a mostly hands-off approach to the company. Several management changes have already taken place, however. Golfsmith senior vice president of merchandising and retail operations Jim Thompson has been promoted to president/CEO. He succeeds cofounder Carl Paul, who with his brother Franklin retains a “substantial” ownership position. Carl Paul will focus on the company’s golf club component hobby business, which targets those who prefer to build their own golf clubs. Although the Pauls will remain on the board of directors, First Atlantic Capital managing director Charles Shaw has been named chairman of Golfsmith.
First Atlantic can look forward to growth in Golfsmith’s catalog/Internet division, which makes up 40% of overall sales, Thompson says. “We made a nice recovery from midyear. I expect growth this year and next.”
Cutting costly prospecting
For more than half of its 35-year existence, Golfsmith thrived by targeting hobbyists and pros who wanted to build their own clubs. In the early 1990s, however, the company expanded into a mainstream provider of ready-made golf clubs and equipment via its catalogs and in more than a dozen “superstores” nationwide.
And though by early 2000 Golfsmith was reaping $200 million in annual sales, including more than $100 million in catalog revenue, “we found that we weren’t getting the return on investment from our prospecting that a good business model would accept,” Thompson says. “We were below breakeven.” That was a result in part to the waning effectiveness of the golf magazine subscriber lists that Golfsmith had been using as its primary prospecting tools.
So during the past two years, Golfsmith cut its circulation 20% and stopped adding stores. Instead of prospecting heavily, the company concentrated on improving its reactivation strategy. “While recency is the key criterion,” Thompson explains, “we hadn’t put as much focus on types of product purchased, average dollar amount, and frequency” when determining which names to mail.
During the past few years, Golfsmith has also made sure that its marketing executives communicate more closely with its merchants. “Our catalog group may come up with a circulation plan balancing house file and prospecting mailings,” Thompson says. “But those numbers can be influenced by what name-brand golf equipment our merchandiser says will be available in the season ahead.” If equipment from better-known brands is available, for instance, Thompson says Golfsmith may want to increase the size of its mailing or add more prospects to the circulation mix.