FOOD FOR THOUGHT

Recently Callaway Golf (ELY:NYSE) received a Strong Buy rating from the investment firm Thomas Weisel LLC. A price target of $20 a share was established for shares of the equipment company. The research coverage discussed several aspects to Callaway's business model but perhaps the most interesting regarded the upcoming golf ball launch. Analyst John Weiss stated Callaway's goal for market share of the ball is 10 percent in 3 to 5 years. The estimated premium golf ball market is about $900 million in the U.S. and another $900 million outside the U.S. at the manufacturer's level.

Weiss estimates that Callaway can achieve approximately break even results if golf ball sales are about $70 million, or 4 percent of worldwide market share in 2000.

Weiss further estimates that there have been 5 million golfers who have purchased Callaway clubs in the last five years. Should every one of the 5 million players purchase only two sleeves of the new ball in 2000, the estimated 4 percent of market share could be achieved. Callaway spokesman, Larry Dorman stated, the figure of 5 million players over the past five years, "is conservative."

Perhaps the most intriguing part of the investment thesis, is the opinion that an Internet strategy is not only inherently attractive for Callaway, but also could effectively compliment a strategy of more limited retail distribution and more aggressive efforts to maintain retailer's gross margins. The limited distribution would be a tool to effectively weed out those retailers who lower Callaway prices in an attempt to attract customers into stores to sell other products to or that shrink profit margins. Therefore the limited retail distribution could effectively maintain a higher price point on the products.

For whatever it is worth, Thomas Weisell's John Weiss, believes it would be extremely worthwhile for Callaway to supplement a limited retail distribution strategy with its own Internet strategy involving the direct sale of Callaway clubs to consumers. The largest challenge would be to maintain the support and loyalty of retailers who would find themselves competing with Callaway.

Weiss believes the support and loyalty of retailers is directly related to the consumer demand for and profits on a given club.

"Like everyone else we are looking at how the Internet can help our business without hurting our customers. It is not an easy thing to do," stated Larry Dorman on this hot topic of direct selling through the Internet.