Talking ShopMay 14, 2019

Callaway CEO Chip Brewer on record Q1 sales, the future of innovation and "a lucky break"

Coming off a record first-quarter sales announcement last week, Callaway president and CEO Chip Brewer told Golf Digest's senior equipment editors Mike Stachura and E.Michael Johnson, “We are pleased with where we are and where we’re going.” That might be an understatement after the company posted net sales of $516 million, a 28-percent increase year over year. In a wide-ranging conversation, Brewer discussed everything from the artificial-intelligence design of the company’s top-selling Epic Flash driver to Callaway’s investment in its ball plant in Chicopee, Mass., that he sees as an important legacy for the brand.

Golf Digest: How would you assess the numbers for your overall and golf business in particular, especially given what seems to have been a very difficult spring weather-wise?

Brewer: Our golf business has a fair amount of momentum and the industry is healthy and even though we didn’t get a good bump from weather we’re pleased with the direction. Given the weather, it’s been surprisingly good. The industry got through the spring without any significant problems, but we could use a little sunshine, blue skies and green grass right now. Statistically we’re going to have to have a good spring sometime, but still we tiptoed through that in a pretty strong position as an industry. Our brand continues to be plowing forward.

GD: Do the success of the golf numbers (up 3.6 percent overall in the first quarter) speak to any changes in how consumers approach the purchasing process now, especially with the growth in club fitting?

Brewer: I think there are so many of these green-grass locations now in terms of finding access to one or with courses and clubs putting them in or even the continued expansion and success nationally of the high-end fitters like Club Champion starting to become significant in terms of their scale, it feels like that is changing the game at the retail environment. But you also have green grass becoming much more sophisticated. And I think to some degree that makes the overall business less dependent on weather because obviously you can go through a fitting without it being sunny out.

If you’re an informed consumer, I think you have to feel you really need a whole research process and testing process and fitting process. Maybe if I swung my buddy’s club and killed it I would feel OK in buying the same thing, but I think I would feel like I wasn’t making a smart decision just walking in to retail and buying without being fit and going through a thorough testing process. And I think that’s good because it highlights the true innovation and technology that we think gives companies like ours an advantage. Plus, ultimately that’s also good for the consumer because they’re going to be more likely to get it right.

GD: Those technological tools like high-speed cameras, digital simulations and launch monitors that are in the consumer environment now have been standard practice for years in the equipment R&D world. But your investment in artificial intelligence on the design front this year with Epic Flash driver is fundamental to your overall approach going forward. How did that happen and where does it go from here?

Brewer: It’s definitely an area we’re going to continue to invest in, and we feel it’s going to be really important across our entire product range going forward. I think anybody can point to a supercomputer, and that’s really the easiest part of this whole area, but relative to the scale of the bigger companies in golf it’s nothing, it’s a drop in the bucket, it’s really readily available. But I think going forward if you’re not in this area you’re not going to be able to be competitive. Right now we’re just in stage one of what we’re going to be able to do with A.I. We innovated around face technology in the metalwoods this year with Epic Flash, and we’ve already learned so much since then. We’re looking to go beyond just the face. Let’s now get the whole body involved, let’s get all of it and start fine-tuning across a much bigger space. Let’s refine the models, let’s get into spin predictions across different clubs, and let’s consider the variants across different types of players to think about the individual performance of clubs. Let’s look at golf ball. It’s a much harder game in golf ball because some of the cause and effect we’re still learning. Everbody is.

GD: But you’re saying it’s more than equations and algorithms and predictions on a computer screen, correct?

Brewer: The thing is the people we’re now hiring in these roles are totally different than what we used to do. We’re bringing in software people and people with Ph.Ds in different areas, and we’re putting those into the advanced research group. These are totally new skill sets from what we previously had. On the club side we had aerodynamicists, we had metallurgists, we had experts in impact mechanics, mechanical engineers, but now you need a whole new skill set that then integrates with those people. It’s exciting, but it does require a different type of investment. Sure some of the software we buy off the rack and some we create our own and some of the stuff you buy you then have to modify, and that’s what gets kind of complicated here.

We’re just scratching the surface on it right now. A.I. is a great new frontier for us. I think everybody is going to go there. I would be very surprised if they don’t, but to get it right it may be more than using the same people you’ve had up to now. It’s a little different approach.

GD: That’s one kind of R&D investment, one direction. But you’re making some pretty significant other investments, especially on the manufacturing side.

Brewer: One of the ways we compete on the product side is our ability to innovate through just general R&D but those achievements are very much interlocked with our manufacturing capabilities. And that’s one of the big changes that I’ve seen in the industry in the last 10 years. As innovation gets harder and harder, it’s so interlocked with your ability to control the manufacturing process and deliver on those benefits that are increasingly hard to come by.

GD: That’s a big part of your commitment to the ball manufacturing operation at Chicopee.

Brewer: We have close to 450 people working there now, and I think it was in the ball park of a hundred when I showed up. The team was evaluating whether we should shut the facility and move it outside of the U.S. and we took a different tack, and we think it’s had a very positive impact on peoples’ lives, and we’re very proud that these balls are made in the U.S.A. We don’t make all of our balls in the U.S.A. so I don’t want to be a hypocrite here, but our premium golf balls are made in the U.S.A. and I love the fact that we’ve been able to have a big impact on Chicopee. It’s helped the town and the region and jobs really have been created there. The area is busy and vibrant and it’s set to stay there, and even what you’re seeing now we’re still in the middle of a transition. We’re really only tangentially starting to see the benefits of what we’re spending there at this point. These are all long term benefits. We should have an advantage in the space on a manufacturing and an innovation side as a result of what we’re doing there. One of the things I hope will be a little bit of a legacy is that we took Chicopee from a good facility to the best in the world.

GD: Your ball business is a clear No. 2 in the marketplace now. How did that happen and what’s the plan going forward?

Brewer: We’re learning a lot, and I think we got to where we are by doing things differently. Innovation, yes, but also courage. We came out with soft, fast cores and different types of tour balls and really soft Surlyn golf balls in Supersoft and then Truvis and Triple Track and ERC Soft and all of those were very different approaches. When we were just trying to do the same things others did, we were not doing particularly well. Even when we made a really good golf ball, nobody cared. We were languishing with everybody else at 8 points of market share. So one of my first learnings was the idea of making a ball just as good as Titleist is a fool’s mission because you still lose. Therefore making it different, making it what Ely called “demonstrably superior and pleasingly different,” we had to make aggressive moves to move the needle. Lowering the compression of your ball by five points so that you’re technically softer is a waste of time. A tour ball at 70 compression that was also fast resonated. The Supersoft product with very low compression resonated. Truvis was in some regards instinct and in some regards just a complete lucky break. But we took a shot. Triple Track and the ERC Soft are doing really well for us. Sometimes our detractors say we’re only doing well because of marketing, which is flattering. But when we were marketing balls that were built the same ways as competitors’ balls we must have been really terrible marketers. Then, we got to be really good marketers when we changed and designed something different. Even Supersoft, which has been a category-killing ball for us since we introduced it [in 2014], we have not yet run our first ad on. Our marketers must have a Jedi skill there. We’re learning a lot, and I think we got to where we are by doing things differently.

Innovation, yes, but also courage. We came out with SoftFast cores and different types of tour balls and really soft Surlyn golf balls in Supersoft and then Truvis and Triple Track and ERC Soft and all of those were very different approaches from where the rest of the industry went. When we were just trying to do the same things others did, we were not doing particularly well. Even when we made a really good golf ball, nobody cared. We were languishing with everybody else at 8 points of market share kind of stuff. So that was one of my first learnings here was the idea of making a ball just as good as Titleist is a fool’s mission because you still lose. Therefore making it different, making it what Ely called “demonstrably superior and pleasingly different,” we had to make aggressive moves to move the needle. Lowering the compression of your ball by five points so that you’re technically softer is also a waste of time. We had to make bold moves and then figure out ways to make the cores perform faster than they would otherwise. A tour ball at 70 compression that was also fast resonated. The Supersoft product with very low compression resonated. Truvis was in some regards instinct and in some regards just a complete lucky break. We didn’t absolutely know but we took a shot. Triple Track and the ERC Soft ball is doing really well for us. Our consumer ratings on all these balls are exceptionally good, and I think the market share is reflective of the consumers’ reaction to the balls. Sometimes our detractors say we’re only doing well because of marketing, which is flattering. But when we were marketing balls that were built the same ways as competitors’ balls we must have been really terrible marketers. Then, we got to be really good marketers when we changed and designed something different. Even Supersoft, which has been a category-killing ball for us since we introduced it [in 2014], we have not yet run our first ad on. Our marketers must have a Jedi skill there.

How we take it from here is one of the fun things. As you know we’re investing like crazy in this business. What we’re doing in Chicopee is really a process aimed at the future so that we have an advantage there. It’s adding some capacity, but more than just capacity, there’s going to be a lot of capability around quality, consistency, further innovation. We’re putting most of $40 million into that over three years. We’re going to have a facility that’s going to let us differentiate ourselves in a whole new manner going forward.

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