Beware of Suppliers Promising Plenty

Unfortunately, in the LBE industry, there are many suppliers who do not conduct their sales efforts by standards most of us would consider to be honest and ethical. This is especially a problem for unsuspecting LBE developers without experience or expertise in the industry. When these developers rely on specifications, designs and information provided by suppliers, the result is often a poorly performing project -- or one that become industry road kill.

One area where caveat emptor is the rule rather than the exception is with static interactive attractions such as soft-contained-play and both water and dry interactive structures. Our company's experience is that suppliers often grossly overstate the operating capacity of their units, sometimes claiming the units will accommodate twice or more as many guests as is realistically practical.

This becomes a problem if the LBE developer relies upon the suppliers' capacity specifications. When built, the LBE will not have the entertainment capacity it anticipated, which will negatively impact the number of customers who can be accommodated during busy times -- and result in lower revenues. Right-sizing an LBE is a crucial part of the feasibility and design process. It is important to size an LBE to accommodate its peak period demand, a calculation dependent on the nature of the LBE, local customs, location in terms of weather patterns and its projected annual attendance. Right-sizing includes providing the needed entertainment/play capacity to accommodate peak period crowds.

If an LBE is built too small, it will be crowded, and guests will have long waits to use the attractions. When it comes to community-based LBEs, guests won't tolerate this. As a result, not only will the LBE be unable to capture its full potential for business, it may also quickly gain the reputation as a place to avoid because of crowding and long waits (for more on right-sizing, see "Size Does Matter: Selecting the Right Size for Your Center"). Unfortunately, when LBE developers rely on suppliers' inflated claims concerning capacity, they set themselves up for this problem.

The inflated capacity claims some suppliers make are equivalent to this scenario: Let's say you need an SUV that eight people can ride in comfortably. An auto dealer sells you a model he or she claims is the right size for eight people. You get it home, load it up with all the kids, and find it holds only six people comfortably. In that situation, we would call the dealer's claim consumer fraud. But for some reason, everyone in the LBE industry looks the other way, including trade associations such as IALEI (which is supposed to represent the best interests of its operator members) and allows these practices to continue, to the detriment of the operators.

We recently had a conversation with an executive from one of the major suppliers of interactive units. His name and company will remain anonymous to protect the guilty. He openly admitted his company engages in inflating capacity specifications on its units. When we asked him why, he said that if he were truthful in stating capacity, his company would be at a competitive disadvantage with other suppliers who inflate capacity specifications. That seems like a rather flimsy justification for being disingenuous (to be kind with our language): We have to be dishonest because our competitors are.

We suggested a more ethical way to handle the situation might be to give customers two figures on capacity -- the realistic one and the one competitors would quote. But there was no interest on the executive's part. The conclusion we draw from this is despite some suppliers' claims that they're looking out for the best interest of the customer, the truth is, they really don't give a hoot, even if their exaggerations of capacity result in worse than projected financial performance for the customer's LBE. Heck, the supplier got the money from the sale and has moved on to another customer.

Another area in which some suppliers often mislead customers is in making claims about how much revenue their attractions will produce. With no knowledge of an LBE's market or competition, suppliers will tell the customer that Attraction Y will produce X-amount of revenue a year. Some suppliers show prospective customers revenue projection sheets based upon different utilization rates, implying that such utilization rates can be achieved for that customer's project. However, from years of experience, our company knows the truth: a detailed feasibility study is the only way to accurately project the revenue an attraction or an LBE will produce.

Just as many suppliers will overstate potential revenues, they often understate operating costs to inflate the profitability of their attractions. They leave out many expenses, or quote unrealistically low expenses in information they give to customers. They also exclude such things as occupancy costs (rent or return on real estate) and indirect operating costs that also have a clear impact on profitability.

Another way in which suppliers can lead LBE developers astray is by designing components and features into the facility that have little or no play or entertainment value. These features increase the price of the unit, and thus, both the salesperson's commission and the supplier's profit. Even suppliers our company regularly deals with often send us designs loaded with features we never requested. It is also surprising how may suppliers will tout their designers as experts, especially in designing for children. Yet the designs we get from them are either inappropriate for the specified age group or fail to meet the specified function. It usually takes our company about four revisions from suppliers before we get a design we will approve. You really have to be on your toes to make sure you don't end up with a unit that has bells and whistles with little or no value, but drives up the cost of the unit. Or worse, you could be saddled with a design that doesn't meet its intended use.

Finally, many LBE developers get the short end of the stick by relying on the suppliers' advice for the mix and design of the LBE. There is no way a supplier of go-karts and guard rail systems can ever ignore its own best interest by recommending and selling anything but its own equipment. Do you think there is any possibility the supplier will design a track with anything other than 100% of its own company's equipment? Do you think they will recommend that you buy your two-seater karts from another supplier whose product is a better fit for your FEC?

Our firm was recently hired by a client who had originally turned to a supplier to design a small FEC. In the design, the supplier used only its own games and equipment in the mix. Fortunately, our client suspected something wasn't right and turned to us for independent advice. We quickly pointed out that the mix the supplier had designed into the FEC was totally inappropriate. After we explained our reasoning, the client agreed and said they were lucky they had not gone forward with the supplier's original plan. Our company has seen many similar situations in the past. We have also evaluated many poorly performing LBEs that were the result of suppliers' advice and designs.

The bottom line of all this is quite simple. There are some very reputable suppliers out there. But many who seem reputable in most respects are not reputable in other areas and can cause you serious financial harm if you rely on their specifications, information, designs and advice. It is unfortunate that there is not a higher level of professionalism and honesty among many suppliers. Unless you are active in the LBE industry and regularly deal with multiple suppliers, there is no way for you to sort out the truth from falsehoods and distortions. That is where an experienced, unbiased industry consultant and/or designer (who doesn't sell or get commissions from equipment) will more than earn his or her fee.