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The overexpansion of CLVs, especially FECs, is sheer folly

It’s really getting hard to understand if there is any sanity left in the out-of-home (OOH) community leisure venue (CLV) industry, especially for developers of the classic formula family entertainment centers (FECs). We’re seeing daily announcements of all types of new centers. It appears the feasibility logic for the new CLVs is that if you build it, they will come, as if demand for OOH entertainment will expand with the new offering. The fallacy with that is it is a zero-sum game for OOH leisure; consumers will only spend so much time and so much money for OOH leisure and entertainment, and it has actually been on the decline as digital screen and at-home entertainment continues to capture more of their leisure time and money. Every analysis our company has done shows a clear trend of declining, not growing, demand for OOH leisure venues. 

One thing that’s driving the crazy rate of new centers we’re seeing is the retail apocalypse. All the department and retail store closures have freed up lots of vacant space that landlords want to fill, often at very seductive lease terms. Yes, a little lower rent than in the past and maybe some landlord TI money helps to lower the breakeven point some, but not all that much. To be profitable, CLVs need healthy attendance and spending. And it is very hard to achieve that by building in markets that already meet the OOH demand. Also, much of the vacant retail space is vacant since it is in a marginal market. 

So, the strategy for all the new CLVs might be to take market share away from the competition by being better. Yes, it might be possible to capture some away from the competition, but in most markets, very little competition is really that bad, and they will still get a slice of the pie.

There is a basic problem with the classic FEC model that continues to be developed – the formula of having attractions that appeal to everyone, to children, families and adults. Over the almost three decades since that formula first surfaced, there’s been an expansion and segmentation of CLV types targeting specific demographic groups and types of activities. So, while in the early days of FECs, that formula generated adequate attendance revenues by also appealing to adults since adults had so few other options, today there are all types of entertainment venues specially targeting adults rather than families. Why go to an FEC when adults can go to a venue that is tailored for them such as Top Golf, or Punch Bowl Socialor a Dave & Buster’sas just a few examples of the many options they now have. FECs have basically lost the adult market, a part of the attendance they once had that made them a viable concept. And they are also losing some of the family market to venues targeting adults. Places like Dave & Buster’s, although they have no children’s games, attract families, especially during weekend and holiday daytimes. 

Another hurdle for FECs is the continuing decline of the birth rate, and with it the number of children and families with children who can be customers. The family market is shrinking. 

The classic FEC formula that worked in the early days is no longer viable in today’s world.

In most of the major markets in the U.S., we are also seeing oversaturation of OOH entertainment options and it just doesn’t seem to stop. Building more CLVs of all types, including FECs, in all but the few unserved markets does not expand the demand. Instead, consumers just spread their OOH attendance, time and money among the increased competition. 

It’s just plain foolishness out there with the classic FECs continuing to pop up everywhere. First the Australians showed up thinking they had found the magic formula with Main Events. Then the Japanese with Round1. Now we even have an airline company, Allegiant Airopening a chain of 100,000-square-foot G4CEFECs (pronounced “G-force”). And that’s just the tip of the iceberg of all the classic FECs that have recently opened or announced development.

Paul Carr, VP of Business Development for Allegiant Travel, the parent company of the airline,said, “G4CEis designed to appeal to all ages. We have something for everyone.” And the company said that includes pre-teens and teens who have few OOH entertainment options. That’s exactly the outdated formula that developers thought was the key to success decades ago.

Allegiantalso believes they will have a marketing advantage, as they will be able to market G4CEsto their existing airline customers. What they may have missed is that they are a discount airline appealing to predominately middle- and lower-class customers, who account for the minority of the OOH entertainment spending.

A lot of the growth of these new FEC chains is driven by when the first ones opened, they seemed to be successful. That’s because just about any new OOH venue works the first six months to a year as everyone shows up to check it out. That’s doesn’t translate into repeat appeal and long-term viability. The problem is that in today’s social-capital-driven experience economy, people are collecting experiences, especially with so many available to collect. Repeat visits don’t create the social capital visiting a new experience can when shared on social media.  

This wide growth of CLVs is great for the equipment suppliers, lots of sales. What they don’t realize is that when the bubble breaks, which it will as the market can’t support them all, there will be lots of used equipment on the market, so their sales will go south with all the closures. I guess for industry consultants, when the apocalypse comes, especially for the outdated FECs, there will still be plenty of work, as they will be hired by the failing ones to develop strategies to save them. Unfortunately, not that many will be saved in what is an over saturated and ever shrinking customer base, especially for classic FECs. 

About Randy White

Randy White is CEO and co-founder of the White Hutchinson Leisure & Learning Group. The 30-year-old company, with offices in Kansas City, Missouri , has worked for over 550 clients in 36 countries in North and Latin America, Africa, Asia, Europe and the Middle East. Projects the company has produced have won seventeen 1st place awards. Randy is considered to be one of the world’s foremost authorities on feasibility, brand development, design and production of experience destinations including entertainment, eatertainment, edutainment, agritainment, play and leisure facilities. Randy was featured on the Food Network’s Unwrapped television show as an eatertainment expert, quoted as an entertainment/edutainment center expert in the Wall Street Journal, USA Today, New York Times and Time magazine and received recognition for family-friendly designs by Pizza Today magazine. One of the company’s projects was featured as an example of an edutainment project in the book The Experience Economy. Numerous national newspapers have interviewed him as an expert on shopping center and mall entertainment and retail-tainment. Randy is a graduate of New York University. Prior to repositioning the company in 1989 to work exclusively in the leisure and learning industry, White Hutchinson was active in the retail/commercial real estate industry as a real estate consultancy specializing in workouts/turnarounds of commercial projects. In the late 1960s to early 1980s, Randy managed a diversified real estate development company that developed, owned and managed over 2.0 million square feet of shopping centers and mixed-use projects and 2,000 acres of residential subdivisions. Randy has held the designations of CSM (Certified Shopping Center Manager) and Certified Retail Property Executive (CRX) from the International Council of Shopping Centers (ICSC). He has authored over 100 articles that have been published in leading entertainment/leisure and early childhood education industry magazines and journals and has been a featured speaker at conventions of over 20 different leisure trade groups. Randy is the editor of his company's Leisure eNewsletter, has a blog and posts on Twitter - https://twitter.com/whitehutchinson
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