The cornerstones of the component business and the emergence of the cottage industry known as component clubmaking was based upon the average person’s ability to get not only affordable clubs, but also good quality golf clubs as well. There was a huge void at the time between the price and quality of name brand clubs compared to those available in the discount sector. Plus the local clubmaker could service the needs of their local area on a more personal and in many cases a more knowledgeable level. We have the following families to thank for this: Paul’s, Maltby’s, Altomonte’s and Lin’s. You can consider them to be our founding fathers of the component clubmaking industry.
What was a fledging industry in the early 1980’s, component clubmaking quickly grew. This was largely due to the price differential between golf components and assembled OEM clubs. A clubmaker could easily put together a set of custom built components, sell it at half the price of OEM clubs, and still make money!
Year Average OEM Retail Price
For set of 8 irons*
For a clubmaker, the cost of the components in the mid 1980’s for a steel-shafted set of 8 investment cast irons was less than $120 including the cost of supplies. The most expensive item was the iron golf club head which the clubmaker could purchase for roughly $9.00 per head. Maybe surprisingly to some, as the foundries increased efficiency at every stage of production, not to mention fierce competition, prices have held steady even to this day, while only the cost of the shafts and grips have risen.
But for clubmakers to put together the components and make a profit is becoming less and less true today. Why? As many component manufacturers matured, they began offering more innovative products, becoming OEMs themselves. Undoubtedly, performance and quality improved, but the pricing has increased exponentially. When you begin to factor in the price compression amongst the OEMs reducing their costs to become more competitive, there is less of a differential in price as there once was.
Consumers need to fairly understand the costs associated with an OEM golf club. About 2/3rd of this cost is marketing and distribution. Marketing costs refer to all the print ads, TV commercials, player endorsements, product giveaways, etc. Distribution costs refer to the cost associated with getting the product to the retailer. Just think about distribution – the more hands a product touches, the higher the price. In the case of many OEMs, there are costs associated with paying sales representatives, distributors and possibly even getting the product onto the retail shelves. Brand name companies typically offer drivers starting in the $299 range. Taking out the marketing and distribution costs, a driver will price out at about $99.
Now let’s look at some component costs. As competitors start releasing their 2008 catalog or publishing their new prices on their internet sites, one can very well see how the pricing by some component companies do not allow the clubmaker to make a profit and compete versus an OEM. Let’s take the driver as an example. One very large component supplier’s average priced titanium driver for 2008 is $99.28. Some boutique component distributors sell their drivers for many times more. In one example, we’ve seen one company offer the clubhead itself for $299, while many others are in the $100 to $199 range.
We also need to include the cost of the other components. OEMs typically put in their own branded shafts, which can vary greatly in quality and price. For the sake of argument, let’s say the OEM shaft is equivalent to a $30 shaft, which should easily cover the majority of OEM stock shafts. And OEMs typically use their own branded grips, but again, for the sake of argument, let’s say they use the equivalent of a $5 grip.
So when you add up a $100 component driver, a $30 shaft and $5 grip the hobbyist or do-it-yourselfer is going to spend $135 for the just the components to make a driver (more with a premium shaft). If a clubmaker sells this club at $199, he or she would make $64 gross profit at 32% margin. Keep in mind, however, he is now competing with a closeout OEM model that might also sell for $199. Alternatively, if the clubmaker tried to sell the club at $150, his profit margin drops substantially to 10% and his profit is now only a mere $15! By the time labor and other overhead is added in, the clubmaker would most likely have lost money.
So are there still values out there that allow the clubmaker to make a profit? Yes, take a look at Hireko’s average component head price for each product category for 2008.
$ 51.95 $ 12.99 $ 12.95 $ 9.06 $ 8.74 $ 16.19
Hireko’s average priced titanium driver head is in the $52 range. Couple this with the same $30 shaft and $5 grip, and the cost is roughly $87. If the clubmaker sold at $199, he would make an incredible 56% margin and a profit of $112. Even if the clubmaker were to sell at $150, he would be making 42% margin and a profit of $63. The clubmaker could even sell at $125 and still make over 30% margin! Alternatively, if clubmaker upgraded to a premium shaft which costs say $60, his cost is now $117, which is still nearly $20 lower than the competing $135 with a mid-end shaft.
While this is but one example, when you compare Hireko’s pricing to our competitors across the board, you will see proportional savings in each category. Your hard earned dollars will go further with a component company that is looking after the best interest of the average golfer.
With gas pricing rising along with food, electricity, health insurance, your child’s education and just about ever other conceivable product or service, we at Hireko are here to carry on the fundamentals of what the component industry was based upon; affordable pricing and good quality you can count on. Of course, each company has its own prerogative to set their own prices as they see fit, but at Hireko, we firmly believe that by keeping prices fair, our customers have the best opportunities to thrive.