Member of the Club

By Alice Park / Fort Worth

In 1996 a group of Nike marketing executives gathered in a fourth-floor conference room on the company's Beaverton, Ore., campus and looked into the future. On the whiteboard were the names of five possibilities for the company's next big sponsorship push. Two of them, the NFL and the NBA, were in sports where Nike was well established, but the other three represented worlds where Nike was all but unknown: the Brazilian soccer team, the New Zealand All Blacks rugby team and a teenage golfing phenom named Tiger Woods. Wall Street was waiting to see what Nike would do to follow up Michael Jordan and the enormously successful Air Jordan line of footwear. When the company announced that it had signed a multiyear, multimillion-dollar deal with Woods, the reaction was swift--Nike stock fell 5%. Says Bob Wood, one of the officials in that room: "They thought we had overpaid for him."

Investors had good reason to be skeptical. Golf is a notoriously hermetic industry, dominated by a handful of top clubmakers with the advantage of years of tradition and a loyal customer base. Nike signed Tiger Woods before it had so much as a golf ball to put into his hands. But over the past decade, Nike Golf has introduced 10 lines of clubs, 10 series of balls, several styles of golf shoes, and an array of course-worthy golf apparel worn by the 22 swoosh-wielding players on the tour. With the number of golfers in the U.S. flat over the past several years, the only way for equipment makers to increase revenue is to grab market share from rivals. While still small, Nike Golf is one of the fastest growing brands in the sport, with an estimated $600 million in sales. With the introduction of its revolutionary square-headed driver, Sumo2, Nike grabbed 17.5% of the market for drivers in February.

Even more surprising, Nike's all-out effort has produced some genuine innovation--including the Sumo2, which capitalizes on something called the moment of inertia; the geometric shape minimizes the twisting of the club head during an off-center ball strike, translating into a straighter, longer stroke off the tee. "Nike timed it so well that when they decided to get serious and get into golf equipment, they had the ultimate endorser in Tiger Woods," says Marshal Cohen, chief analyst at NPD Group. "Then they introduced new technology into the marketplace and really rejuvenated the golf industry."

Golf and Nike were not obviously made for each other. Indeed, everything about the golf business was contrary to Nike's corporate DNA. Its core business was footwear and apparel, but golf was driven by equipment. Nike distributed to large national accounts such as J.C. Penney and Foot Locker, while golf products were sold in pro shops and specialty retailers that did nowhere near the volume of business that Nike was used to handling. "The only way to run golf successfully was to run it totally separate from the rest of the company," Nike's Wood says.

In 1998 he set up a separate unit, Nike Golf, with its own staff and, by the happy accident of construction on Nike's main campus, its own rented building a mile from corporate headquarters. It would then take Nike Golf two years to produce something that Woods could use, the Tour Accuracy golf ball, which Woods promptly teed up to post victories at the U.S. Open, British Open and PGA Championships in 2000.

Still, one golf ball does not a golf-gear maker make, so in 2001 Wood hired Tom Stites, a soft-spoken, well-respected club designer. On a wall in Stites' small office at the Research and Development Facility in Fort Worth, Texas, the message "Innovate or Die" headlines the whiteboard that serves as Stites' cocktail napkin of ideas. "I keep my blinds closed," he says with a smile, to keep that valuable piece of wall decoration away from prying eyes. Stites learned his craft from tour-champion Ben Hogan, and when he joined Nike, he arrived armed with a box full of prototype clubs that he was eager to make.

For his debut at the new division, he deliberately chose to craft a set of high-performance tour clubs to gain the trust of the world's best players, learn what they wanted and build Nike's reputation in the golf world. Nike Golf's first line of clubs, the ProCombo irons, were targeted at the top 2% of the 27 million golfers hitting the links each year. "We wanted to establish that we could make a product for the best-performing athlete and the best players," says Cindy Davis, U.S. general manager for Nike Golf. "Starting at the top of the pyramid allowed us to draft off that credibility to appeal to other golfers." Nike followed that line with the more forgiving Slingshot series, which again innovated blade design and accommodated the imperfect swings of the average duffer.

Sustaining that appeal will only get harder, but Nike's mass-marketing prowess and global reach could give it an advantage over its golf-only competitors. Nike Golf is already well represented in major retailers, including sporting-goods chains, and is steadily adding accounts in golf-course pro shops, where its market penetration is about 50%. Nike Golf has opened 75 stores in China, and it has its eye on South Korea as well. To show that it can compete with the high-end service of its competitors, Nike plans later this year to provide custom fitting, a feature that had been available only on a limited scale.

Nike's great golf experiment has had its share of hiccups. Just three weeks after the company released the Sumo2 in February, a competitor reported to the U.S. Golf Association that the club exceeded specifications on something called characteristic time, a measure of the head's springlike bounce, which translated into an extra 1 to 2 yds. off the tee. Nike quickly recalled the drivers and is offering to exchange them for USGA-approved clubs by April 30.

The bigger challenge for Nike will be figuring out where to make its next big bet, now that Tiger Woods has more than proved to be a smart investment. It won't have to look further than the fastest growing segment of the sport, female golfers. Nike Golf signed Michelle Wie to a reported $4 million to $5 million deal in 2005, and is launching a line of women's clubs next fall. "It's a dogfight," says Wood. "But in five years, we should be the leader in the business. I don't see any reason why we can't do that." That kind of brash talk may not play too well in the clubhouse--but then again, Nike didn't get inside the door by being polite.