"MAP" and "Net Down" what's that all about?

"Net Down" - the Ultimate Weapon

If you look at the golf equipment business as a fight to the death between the big guys and the little guys - this time I'm talking about manufacturers, not retailers - the neutron bomb in the business is the concept of "net down".

Take Nike as an example. At the beginning of the year, the signature Nike product was the "SQ Square driver - 5900". Way back in February 2008 when it first shipped, the 5900 carried a retail price tag of $599.95 equipped with an Aldila VS Proto shaft. It was never really expected to sell for that price. That was the high water mark for the Sumo 5900 with the "premium" shaft. The stock shaft was the Mitsubishi "Yellow Board" with a price tag of $499. But at the beginning of 2008, all of the major golf equipment companies had figured out that 2009 was going to be the year of the $399 driver - so that became MAP. The $499 price tag on day one looked like a discount. The "street price" was always $399. Either the VS Proto or the Yellow Board shaft came with the deal.

If the Nike Sumo 5900 was priced at wholesale to allow a 30% markup at $399 you can do the arithmetic. Dealers were paying something like $270 for each driver they brought in the "door". Most dealers made a little over 100 bucks for every Sumo 5900 they sold for $399 and that lasted until about July, 2008.

By July 2008 the Nike sales representatives polled their "doors" and tallied up the number of 5900's that were still in inventory. The number was too high. They decided that they needed to drop the price of the Sumo Square 5900's to $299 to make sure inventories were depleted. Word went out to their retail channel to count up all of the 5900's that were in stock and forward the number to Nike. In return, each "door" was credited for every driver still in stock to allow them to sell it for $299 and maintain a survivable profit margin. Credit is received in the form of more Sumo 5900's. That's "net down" - the retailer gets credit for the products still in inventory - paid with more inventory - "netting down" the cost so it can be sold at a lower price and still make a little profit.

The essence of big business is the "product year". Make a new product, launch it, sell it, close it out, tally the results and then go again for the next year. Today's multi national conglomerates operate in that mode. That was never the way the golf industry operated before - when it was a "mom and pop" business. In the old days a good design lasted for three or four years. If you didn't sell it this year, you could hold it over to sell next year. It's only been since the "go-go days" of the golf industry - the golden 1990's - when golf equipment started being marketed like fashion products. At the end of the season what doesn't sell goes to the liquidator.

It would be great if every new golf club design were better than every one that came before. If that happened, 18 cappers would be hitting 300 yard drives straight down the middle. Only a few new models ever make it into the "classic" category.

In November 2008, the Nike sales team polled the distribution channel once again and found that there were still too many 5900's in inventory. Time for another "net down". The official MAP price dropped again, this time to $199 - presumably cheap enough to flush all of those drivers that were $499 six months ago. D-Day for the last reduction just happens to be Friday, the 12th of December. At that point all Nike retailers will be free advertise and sell their 5900's for $199. It just so happens that this is an opportune time for our Sidewalk Sale.

All Nike 5900 drivers in stock (and special orders) will be available for $199 this Saturday at the Golf Lab Sidewalk Sale. That's a fabulous deal for a very good driver. The Nike 5000 Sumo drivers will also be available at the same price. The Sumo irons are getting a price cut as well. This information is not "advertising". It is a private communication between the Golf Lab and our proprietary customer list. Repeat: this is not advertising, this is private communication.

It's a little confusing to keep up with falling prices. The Sumo 5900 that cost $270 and sold for $399 at the beginning of the year was costing $130 and selling for $199 at the end of the year. With "net down" Nike was able to allow its retailers to continue to sell the 5900 for a small profit even as the selling price collapsed. "Net Down" is not unique to Nike. All of the major companies have similar programs to try to stabilize their distribution channels.