Feasibility Studies
for
Location-Based Leisure Facilities

The feasibility study is one of the most misunderstood aspects of developing a location-based leisure facility. Yet, it is perhaps the most important step, as mistakes at this early stage can permanently handicap the project's performance, perhaps fatally. A good feasibility study is more that just a set of financial projections. Done properly, it becomes the market-driven strategic plan that is the road map for all subsequent decisions. As much as answering the question "Is a project feasible?", a good study also addresses the question of what is most feasible and what should all its attributes be to assure maximum success.

For more, see our articles:

1. The Feasibility Study, Guard Your Investment from Wishful Thinking,
2. Niche Marketing: The Difference Between Hitting and Missing Your Target Market,
3. Size Does Matter: Selecting the Right Size For Your Center,
4. Finding the Investment Sweet Spot, and
5. Not All Populations are Created Equal: Understanding the Differences to Maximize Success.
6. The feasibility study, the blueprint for success.

White Hutchinson Leisure & Learning Group has developed the following market and financial feasibility program to meet the needs of the location-based leisure industry. The feasibility program uses a proven and thorough methodology of site inspection, field work, competition analysis and geo-demographic and geo-lifestyle cluster analysis combined with our experience, knowledge and research. For foreign countries, demographic and socio-economic data is often not available to the extent available in the USA. In these situations, WHLLG has been successful in developing analytical methodologies to establish adequate demographic data required for market feasibility.

The feasibility study is divided into two different phases: Market Feasibility & Economic Feasibility.

Phase 1 - Market Feasibility Study

During this phase we will inspect the surrounding community, identify existing competition and determine primary and secondary market areas based upon drive times, competition, patterns of travel and shopping, natural or psychological barriers, and other market area influences.

Geo-demographic and lifestyle cluster market area data, including five-year population projections, will be obtained and analyzed. (For many international locations, detailed demographic data is often not available. In those situations, White Hutchinson will gather all available geo-demographic data and extrapolate from it needed information.)

If at any time during the market analysis it appears the project might not be feasible, work will be stopped and the total fee will be adjusted to only reflect work performed to that time.

A written summary of the market analysis will be provided at the conclusion of this phase, which will contain:

• identification of market areas;
• definition and character of the market area population including demographic, lifestyle clusters and socio-economics;
• breakdown of the population into appropriate segments to determine potential users;
• estimates of the number of customers appropriate for the proposed project;
• identification and impact of other competitive recreation/entertainment activity;
• recommended strategic direction for development; and
• recommended project mix.

A discussion will then be held with you to reach a decision of the strategic direction before concept design work commences.

Phase 2 - Economic Feasibility

Concept Development

This is when the recommended nature of the project will be refined and an unthemed conceptual physical plan of the project developed. Included will be:

• recommended mix of recreation, entertainment and other program elements;
• recommended facility size;
• conceptual floor plan;
• ADA compliance inside and out;
• preliminary food and beverage concept;
• points of purchase;
• cross-merchandising of program elements;
• adjacencies;
• exterior sketch of possible exterior; and
• conceptual plans of sufficient detail to permit preliminary construction estimates by a contractor.

Cost Estimate

Based upon the concept plan, a preliminary cost estimate will be developed that includes all cash outlays required until opening to the public. These costs include:

1. construction
2. rides and attractions
3. furniture, fixtures and other equipment
4. start-up inventory
5. operating capital
6. soft costs

The construction cost estimate will need to be developed in conjunction with a general contractor to assure that it reflects local building costs.

Construction costs are difficult to estimate without a design, due to multiple variables, so development of a conceptual plan and construction cost estimate is essential if the feasibility study is to have any accuracy and credibility for potential lenders and investors.

Financial Feasibility

Based upon the market analysis, project concept plan and cost estimate, pricing recommendations and attendance projections will be made and a three or five year operating pro forma will be prepared detailing probable revenue, expenses, profits, cash flow and pre-tax return on investment. The projection will detail expenditures by revenue category. These projections will be run based upon the estimates of the project's cost and proposed financing structure (owner equity and loans). A sensitivity and breakeven analysis is also included.

Our proprietary financial model clearly details all the underlying assumptions that drive the pro forma. This allows you to evaluate the reasonableness of the conclusions. We believe this is very important to you as our client, as you are the person who has to make the business decision of whether or not to proceed.

Cost of Feasibility Studies

The total cost of a feasibility study depends on the location, size and nature of your proposed center. Generally, the market study phase of feasibility costs between US$9,000 and US$12,000 plus travel expenses for North American projects. Typical family entertainment and children's edutainment center studies cost $10,900 plus travel expenses. Complex projects with multiple type facilities, such as a combination fitness, recreation, aquatic and entertainment project, can cost more. Many international projects cost more due to longer travel times.

The cost of the economic feasibility phase (preliminary plans, cost estimates and financial pro formas) varies greatly based on the nature and size of the project, as this phase of work includes preliminary site, building and interior design work. Generally, this phase of feasibility costs between US$20,000 and US$40,000.

Once we understand your proposed project and your needs, we will be glad to give you a fixed fee proposal.

Completion Times

A market feasibility study requires anywhere from four to six weeks to complete. Economic feasibility studies require anywhere from two to three months to complete depending on the complexity of the project and where they are located. In order to schedule a time to begin your study, we require a contract and initial payment. Depending upon our work schedule, we have usually been able to start work within several weeks of finalizing the contract.

The following are representative tables of contents for the two reports. The actual contents of each study will vary some depending on the type of project and the market where it is located.