Golfsmith bankruptcy brings fresh woes to Under Armour, Nike

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The bankruptcy of Golfsmith International Holdings Inc. brings another round of suffering to the world’s biggest athletic brands, which are still reeling from the shutdown of Sports Authority Inc. earlier this year.

Nike Inc., Adidas AG and Under Armour Inc. all have a substantial business with Golfsmith, which filed for Chapter 11 bankruptcy on Wednesday. The chain has 109 stores in the U.S. and 55 in Canada, making it the largest dedicated golf retailer in North America.

Golfsmith operates one store in Indiana, at 8310 Castleton Corner Dr., near Castleton Square shopping center.

The chain’s bankruptcy is another symptom of golf’s decline, said  Chen Grazutis, an analyst at Bloomberg Intelligence. Participation in the sport has slipped since the Tiger Woods-fueled heyday of the early 2000s. Golfsmith also had specific problems that contributed to its downfall, he said.

“It’s the same story line as before—the game is still shrinking,” Grazutis said. “Plus, stores are too big and they are too close to each other.”

Under Armour is the chain’s biggest clothing supplier, according to Grazutis’s research. Nike, meanwhile, is a top vendor in shoes and apparel. Adidas’s TaylorMade and Adams brands supply clubs to the retailer, in addition to apparel. And Callaway Golf Co. dominates the equipment category at Golfsmith.

No buyer

Golfsmith entered bankruptcy after failing to find a buyer, increasing speculation that the chain will have to close a lot of stores to survive. That would hurt Under Armour more than its primary competitors because it’s a much smaller company than Nike and Adidas. Golfsmith represents a bigger portion of its revenue, Grazutis said.

There is an offer to buy the locations in Canada, which operate under the Golf Town brand, the company said. Golfsmith’s filing comes after Sports Authority, once the largest U.S. sporting-goods chain, moved to close down after failing to emerge from bankruptcy this year. Sports Chalet, a chain of about 50 locations, also liquidated this year.

Dick’s gain?

One winner in all this is likely to be Dick’s Sporting Goods Inc. If Golfsmith closes a lot of stores, that competitor has the best chance to win those customers, according to Grazutis. Dick’s also might benefit from buying some of Golfsmith’s locations, a strategy it took in the Sports Authority bankruptcy, he said.

In the short term, however, Golfsmith's closing locations and liquidating inventory will probably hurt sales at Dick’s because it won’t be able to compete with the discounts, Grazutis said. Dick’s operates big-box stores under its name and also owns the Golf Galaxy chain, which has about 70 stores in 29 states.

Callaway said late Wednesday in a filing that it expects to collect all the money Golfsmith owes it, either through bankruptcy court or insurance. Still, that won’t alleviate long-term concerns about losing a possible customer.

Shares of Callaway fell 2.2 percent on Wednesday, though they rebounded 1.2 percent Thursday morning. Nike and Under Armour both fell less than 1 percent on Wednesday, while Dick’s gained.

The number of U.S. golfers dropped to 24.1 million in 2015 from a peak of 30.6 million in 2003, according to the National Golf Foundation. The decline among young people is even more troubling: The participation rate has fallen 30 percent over the past two decades. Many of them are  turning away from the sport in favor of activities like paddle boarding. This slump led Nike to stop making golf clubs this year, focusing instead on apparel and footwear.

Supplier squeeze

Golfsmith spent about $307 million for merchandise last year, according to court documents. The company’s profitability is closely tied to good trade terms with its top suppliers. Those trade terms included rebates and the ability to buy goods below the costs of its competitors.

But when Golfsmith began having liquidity problems, those favorable terms began to vanish. That put pressure on the company and contributed to its bankruptcy filing, Chief Restructuring Officer Brian Cejka said in court papers. The situation echoes what happened to Sports Authority, which also was hamstrung by suppliers when it ran into trouble.

“Increasingly onerous trade terms have severely limited Golfsmith’s ability to purchase inventory essential to operating its stores,” Cejka said.

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