Callaway Golf Company

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Callaway Golf Company

2285 Rutherford Road
Carlsbad, California 92008
U.S.A.
(619) 931-1771
Fax: (619) 929-8120

Public Company
Incorporated: 1982
Sales: $448.7 million
Employees: 1,071
Stock Exchanges: New York
SICs: Sporting & Athletic Goods, Not Elsewhere Classified

Callaway Golf Company is the premier manufacturer of golf clubs in the United States. The company sells more golf clubs than any other firm, and has the lion’s share of the $3 billion golf equipment industry, eclipsing the higher-profile brand names such as Wilson, Spalding, and MacGregor. Callaway’s most famous club, the “Big Bertha” Driver, is the most popular piece of equipment sold to golfers, and more professionals use Callaway Drivers than any other competing brand. In 1995 Callaway Drivers were the number one brand used on the PGA, Senior PGA, LPGA, NIKE, and European PGA golf tours. With the company’s products in such popular demand, it is not surprising that sales for 1995 rose a whopping 77 percent over the previous year, while profits increased 89 percent over the 1994 figures. The success of Callaway Golf Company can be solely attributed to one man: Ely Callaway.

Ely Reeves Callaway, Jr., was born in La Grange, Georgia, a small town about 60 miles southwest of Atlanta. Ely’s grandfather, a Baptist preacher, owned and operated a plantation with approximately 20 slaves. When the Union forces defeated the Confederacy in the American Civil War during the 1860s, the Callaways lost their entire fortune. Ely’s uncle, Fuller Callaway, was the primary force behind the family’s resurgence. He first went into farming, then into dry goods, later into banking, and finally into the cotton mill trade. Ely’s father worked for his uncle, but when the young Ely Reeves Jr. graduated from Emory University, his father advised him not to work for the family.

In June 1940 Ely was working as a runner in the factoring department of the Trust Company of Georgia, and decided to take an army reserve correspondence course. Commissioned six weeks later, Ely went to Philadelphia and began working in the apparel-procurement division of the quartermaster’s depot. Callaway was soon promoted to major, a significant achievement for a young man of 24, and was in charge of 70 civilians and two lawyers. During this time, he was buying approximately 70 percent of the total wartime production of the U.S. cotton apparel industry, and was dealing with companies like Levi Strauss, Hart, Schaffner & Marx, and the Arrow Shirt Company on a daily basis. When the war ended, Callaway decided to go to work for Deering, Milliken & Company in order to continue a career in the textile and apparel industry.

Callaway rose quickly in his chosen profession. In 1954, after he became involved in a disagreement with Roger Milliken’s brother-in-law, however, Milliken fired him unceremoniously. Undismayed, Callaway found a job at Textron Industries and, under the supervision of Royal Little, oversaw the merger of Robbins Mills and American Woolen, two large textile mills. When Textron sold Callaway’s division to Burlington Industries, Callaway was part of the package deal. By 1968, Callaway was appointed president of Burlington Industries.

Callaway’s appointment as president of the largest and most influential textile company in the world merely fueled his ambition. When he was passed over for the position of chairman in 1973, Callaway quit abruptly. Picking up his family, he moved from the East Coast to California in order to start a wine making company in the tiny town of Temecula. Although the land that Callaway had purchased was not prime grape growing country, nonetheless he persevered until his venture began to pay off. Callaway Vineyard & Winery was soon supplying its products to well-known restaurants such as the Four Seasons in New York City. He sold the operation to Hiram Walker in 1981 at a price of $14 million. In just a few short years, Callaway had posted a profit of over $9 million.

At the age of 60, Callaway thought it was time to relax, and, hearkening back to his youth and the years when he was a tournament champion, he began in earnest to resume his game of golf. One day on the golf course, he became acquainted with a hickory-shaft club that had a steel core. Callaway liked the golf club so much that he called up its manufacturers to tell them so. The golf club manufacturers, short of money and looking for someone to invest in their company, asked Callaway for help. Callaway immediately purchased the four-month-old enterprise at the bargain basement price of $2.5 million, and pinned his own name to the company.

Callaway Golf Company, under the direction of Callaway himself, immediately began to conceive of strategies to increase both its profile and its revenues in the highly competitive sports equipment market. Callaway decided the best way to achieve the above goals was to introduce new products, and within four years of acquiring the company he had his design staff come up with a new premium-priced item that did away with a large amount of the neck of the club, while extending the shaft through the clubhead. The response to Callaway’s new design was nothing less than phenomenal. Golfers responded to the heavier-weighted clubheads that included a lower center of gravity, and sales shot up dramatically, as did the profile and reputation of Callaway’s company. In 1988 company sales amounted to approximately $5 million. One year later, sales had doubled to $10.5 million. In 1990 sales doubled again, and by 1991, revenues skyrocketed to $54.7 million, an increase of nearly 150 percent.

In 1991 Callaway created the “Big Bertha” Driver, an oversized driver named for the huge gun used by the Germans during World War I to drop shells on Paris from six miles away. The principle behind Callaway’s creation of the metal wood driver was that it put more weight around the perimeter of the head of the club, resulting in a thinner face. According to Callaway, this gave the golfer a greater “feel” at the time of impact with the ball. Moreover, the golfer didn’t have to hit the ball precisely on the button to obtain directional control and good distance. Soon golfers were swearing by them, and sales surpassed all the other brands of golf clubs made in America.

With the company growing rapidly, Callaway decided to take it public in February 1992. With 2.6 million shares of stock offered on the New York Exchange at $20 per share, the stock had jumped to $36 per share by the end of the day. The capital provided by the stock offering enabled Callaway to expand his manufacturing capacity. The demand for the company’s golf club was rising at unexpected rates, and management at the firm needed more cash to take advantage of what has always been regarded as a notoriously faddish market in the golf equipment industry. By the end of 1992, sales had reached $132 million. At the end of April 1993, the price per share of Callaway Golf Company stock had increased to an impressive $54. In 1993, when sales were reported at $255 million, the company had surpassed the better-known names in the sporting goods industry such as Wilson, Spalding, and MacGregor to become the revenue leader in the field. As sales and stock price continued to climb, Callaway’s personal share rose to a hefty $86 million.

In 1994 Callaway Golf Company introduced a innovative design for irons that would accompany the highly successful “Big Bertha” Metal Wood Drivers. The new irons, created with the same principles in mind as Calloway’s “Big Berthas,” were an immediate hit on the golf course. Priced at $125, the steel-shafted irons were approximately 20 percent more costly than conventional premium clubs. For $175, a golfer could purchase the new design with a graphite shaft. Since nearly all the company’s clubs relied on a new development in casting technology, supplies of the new clubs were limited and helped keep the price per iron high. A total set of nine irons and three woods purchased from Callaway Golf Company at the suggested retail price amounted to the small fortune of $2,325. Yet golfing enthusiasts, both amateur and professional, happily bought the company’s wares. By the end of fiscal 1994, sales had risen to $449 million.

At the beginning of 1995, there were only three major companies in the golf equipment industry, including Callaway Golf, Cobra Golf, and Taylor Made, a division of Salomon, which was a prominent manufacturer of skis in France. These three firms were clobbering the remaining competition. Revenues at Callaway Golf in 1994 had increased substantially over the previous year, while revenues at Cobra Gold shot up an astounding 121 percent during the same period. There seemed to be no end to the prospects for these three companies. Nearly 400 golf courses were opened in the United States in 1994, with approximately 800 more under construction. The baby-boomer generation was approaching its golfing years, and the sport was gaining in popularity all over the world, especially in the countries of the Pacific Rim.

Yet trouble loomed on the horizon as increased competition among the three major companies and a gathering group of both new and old golf equipment firms threatened to cut into profit margins. Companies like Wilson and Spalding saw an opportunity to secure a share of the market with new products made from aerospace grade materials and composites. When a golfer swings a club, the wrists rotate, and the head and shaft of the club twist, creating a centrifugal force that tends to pull the club from the golfer’s hands. When the golfer then hits the ball, for every millimeter the ball is hit off the center of the club’s head, there is a corresponding penalty in distance. When Callaway’s designers created “Big Bertha,” they revolutionized the industry by taking advantage of a major technological innovation, namely, investment casting. This process is an improved technique for making metal club heads and enabled designers to shift the weight of the club around with greater precision than ever before. With other innovations, Callaway’s people designed a club that allowed a golfer to actually control more of the centrifugal force of a swing directly onto the ball.

One company, Goldwin Golf, began to use 7075-T6 aluminum, an aerospace grade material, in its manufacture of golf clubs. Management at Goldwin guarded their production process as carefully as a national secret. Another development by the same company resulted in the design of a club head that used a mere 140 grams, approximately 30 percent less than the average weight. GolfGear, yet another firm on the cutting edge of golfing technology, began using an aluminum-vanadium alloy. Only three firms in the industry could forge the new metal. Some companies also began using titanium, which is lighter and denser than steel, resulting in a longer driving range. In Japan, over 60 percent of all drivers used are made of titanium, and the seemingly prohibitive cost of $700 for a club is not an insurmountable deterrent.

In spite of the competition, however, Callaway Golf Company continues as the leader in the golf equipment industry. The company has recently built a $9 million research, development, and test facility for the purpose of staying ahead of the game. The facility is a state-of-the-art complex, including a 260-yard driving range, which is peppered with hundreds of testing sensors, four kinds of bunkers, and three types of grass in order to simulate the golfing conditions at any course around the world. Ely Callaway expects the highly sophisticated setup to yield innovative golf club designs. Since the development of new technologies for designing and new material for manufacturing golf clubs has become so essential to keeping abreast of the industry, the inability to introduce a new product for even two or three years could spell disaster for any golf equipment company.

Callaway Golf Company is in an enviable position within the golf equipment industry. The company not only employs some of the brightest and most committed design engineers in the sport of golf, but has one of the world’s most talented entrepreneurs, Ely Callaway. As long as Callaway continues to combine the results of new golfing technology with an uncanny ability to market products, his company will be assured of a bright and promising future.