How do the fun center and redemption markets stand today? RePlay consulted a panel of trade experts for their assessment. These folks agreed on the broad outlines of a consensus: the "fun center shakeout" is not quite over yet, but it's winding down after three tough years. Large public corporations have made a big splash with their glitzy, pricey FECs and LBEs, and this will continue...but the survivors and winners of the fun center shakeout are not necessarily always the biggest companies with the deepest pockets.
Rather, the winners are those who work hard at the basics - like plain old-fashioned fun. Zealous attention to service. And, remembering this is showbiz, careful experimentation with innovative new products and concepts. In other words, all else being equal, the best "showman" who truly relates to his customer, is the guy who usually wins. No surprise there, except to see how often some allegedly smart folks forget this timeless wisdom.
Meanwhile, the redemption market has undergone its own consolidation. Fewer new redemption titles debut at trade shows these days. This is partly because the time has passed (both in the U.S. and overseas) where massive FEC expansion acted like a vacuum cleaner, sucking up every original and "me too" title that came along. Today, redemption is solidly established as an indispensible component of a successful fun center, be it an FEC, an LBE or what have you. However, the amount of floor space devoted to redemption is also "established," so this market has entered a product-driven phase. As with video, quality is king: the hits with proven cash box appeal run away with most of the operators' buying budgets.
When the subject is redemption, never forget: regardless of what mix of new and old game titles may be offered in a given fun center, many - perhaps most - redemption experts say that success depends more than anything else on prizes, prizes, prizes. The greatest games in the world won't pull as many quarters into the coin slots if customers don't see hot, trendy, appealing prizes mounted on the walls and displayed at the redemption counter.
That's the overview. Here are the individual views, comments and ideas of our expert panel, in their own words.
From the heart of the Midwest, arcade operator Bill Beckham (Red Baron, Toledo, Ohio) sees a very tough - but survivable - fun center market. "The standard arcades of a few years ago (3,000 sq. ft. and less) are now considered 'smaller' arcades and they are in a severe downturn," he stated. "That's especially true for street arcades and mall locations. This is my third year in a row of down numbers. We've only got four stores left, down from eleven a few years ago. Some we've sold; some we've closed. While the situation is not as severe this year as it has been in the past, in speaking to other arcade operators, I sense a general agreement that it hasn't bottomed out yet."
What about the competition? The ups and downs of big national arcade chains and LBEs is always of keen interest to independents like Bill. "I certainly understand Namco's logic in putting its chain into Chapter Eleven," he commented. "I also admire their forthright explanation of why they did it. As NCI President Kevin Hayes explained, you can take positive steps while realistically reorganizing to meet the changing conditions of the market."
Some independent arcade operators point to competition from the big chains as a serious challenge, but Bill Beckham said reduced traffic to smaller, mall-based arcades is simply part of a shifting retail shopping pattern. He also said smaller operators could take useful tips from the big boys. "In our particular market, we haven't felt the effects of competition from large LBEs like Dave & Buster's," he reported. "But I do see them as a class act. Observing how D&B does things has inspired me to try some new ideas in my own places - like more simulators, smart card payment systems, corporate parties, and redemption showcases."
Asked about the status of fun centers in the Northeastern region, distributor Rick Kirby (New England Coin-Op, Boston, Mass.) said: "They are healthy overall. Operators who work hard at them are doing great; they get what they deserve from their efforts. There is a normal progression of growth in the size of fun centers, as we've all seen in the success of the Dave & Buster's concept. But we have some very professional operators in this area and they are getting ready to compete with whatever comes their way."
Arcade operator Michael Getlan, Amusement Consultants (New Rochelle, N.Y.) said today's very competitive market will winnow out the less-effective approaches. "The FEC industry is facing, as you know, tremendous consolidation," Michael began. "It needs a lot of refocusing. Many people out there are looking for a lot of hi-tech bells and whistles to enhance their appeal; but that leaves them vulnerable. What if the guy down the block gets a bigger whistle, or a slicker hi-tech attraction? Personally I agree with IAFEC President Harold Skripsky, who says that the best approach for today is - go back to basics. What's really fun? What creates a happy mood among your customers? What makes them want to come back?
"Sure, experimentation with new concepts is a good thing," Michael continued. "But grabbing the first bargain around, just because it looks a little different or hi-tech, is not necessarily good. With our operations, we research new ideas, investigate the track records of the manufacturers and products, and if it looks promising, we test them on a small scale first. When we finally make a full-blown commitment to a new product or approach, it's done within the context of a longterm strategy."
Redemption game manufacturer Sal Mirando (Coastal Amusements, Lakewood, New Jersey) echoed Bill Beckham's comments that the worst seems to be over for the fun center biz. "The increase in new FECs is limited today and the ones that are not well-run are closing, as in any other business," Sal observed. "We've had a shakeout in the FEC business but it's mostly over, so the operators who know what to do are surviving. Yes, some additional FEC closures may still happen, but we've seen the worst. Meanwhile, I think the entry of large public companies like Wal-Mart, Disney, Sony and others into this industry can only have a positive effect. These corporations market directly to the consumer. Any time they recognize that our industry can be a profit center for them, it's great for the entire industry because we get more legitimacy and more recognition as being a truly mainstream business. True, it also means more competition, but it's good competition because these firms are so well capitalized."
Lazer-Tron's sales & marketing VP Matt Kelly said, "I would agree that the fun center shakeout is tapering off. The better run centers I talk to are seeing strong or improving revenues. I think we'll start seeing a lot more facilities for grownups along the lines of Dave & Buster's - 15,000 to 25,000 square feet with pool and bar and a 10,000-sq.-ft. gameroom. This will impact the FECs that are not well run, but the well-managed places will always draw good family trade."
Matt also pointed out that the health of the fun center market doesn't have a simple mirror-type relationship to the sales enjoyed by redemption manufacturers. "There's a surplus of used redemption equipment in distributor warehouses today, which comes from trade-ins and from large-scale closures of certain CECs and FECs," he observed. "Since a well-maintained redemption game is just as good as a new one, many operators are happy to buy the two-year-old model at half price. So redemption collections in America's FECs are very good. In well-run, professionally managed facilities, redemption earnings are often as good as they were several years ago. Sometimes stronger. Video is in many cases much less profitable than it used to be, as we all know."
NECO's Rick Kirby put a positive spin on the redemption scene while conceding there's room for improvement. "The ASI show definitely had some 'must' redemption product for fun centers," he said. "Today we have plenty of good, strong equipment available to buy; both video and redemption are looking quite promising. Of course, I'd always like to see a greater variety of new redemption concepts and innovations to enhance the classics."
Amusement Consultants' Michael Getlan agrees that "The redemption market is strong and we have some good new products. Thankfully," he added, "most of the redemption staples are still going strong too. As always, the secret to success in redemption is in prize selection. That's the key! You've got to have prizes that drive gameplay."
Red Baron's Bill Beckham said, "Redemption remains a vital part of any FEC or fun center operation. With very few exceptions, the small arcade with just video, cannot last. Because of the cost of equipment and the cost of rents...and due to the fact that video by itself isn't the draw it used to be...a purely video operation has a very difficult time today. My own preference is for a location with a heavy emphasis on redemption. You do have to rotate redemption games to give your location a new flavor, although this doesn't have to be done as often as with video. At the ASI show, we didn't see as much new redemption equipment as in years past. Like video, it's consolidated down. But the quality of what was shown, was fine. You still have to get the number one hits; I also liked LazerTron's convertible Video Redemption System concept. The earnings may not be as sensational as with dedicated token action games, but it's a good, solid way to offer variety and it's relatively inexpensive."
Lazer-Tron's Matt Kelly was frank in saying that times have been better for redemption gamesmiths, but reminded us that the hottest fire is what produces the hardest steel. In this case, leading factories (he was too modest to mention any names in specific) are rising to the challenge of slower sales by creating new levels of value. "Redemption manufacturers have been hurt by the glut of equipment on the market. It is indeed a hit-driven market in the U.S. and we've all been affected by the overseas currency devaluations, whole countries shutting down. It's still a viable business, but one you have to work harder and smarter at." After we pushed Matt a bit, he admitted: "We've been very pleased with a strong response and re-orders by some of the top arcade, FEC and LBE operators to our Video Redemption System approach."
Coastal's Sal Mirando said the redemption market has entered a new, more mature phase. "The weakness of the redemption market is that it's maturing," he said. "That's probably also its key strength. Redemption is now really considered a viable part of the FEC; it's no longer experimental. The sales challenge for manufacturers is that most FECs already have redemption today and they're not building more redemption centers. In general, the redemption business is becoming more and more like video. That is, redemption was always market-driven in the past. Purchases depended more on the demand to fill expanding floor space, than on the quality of a specific product. Now we are more product-driven, similar to the video companies. New floor space is limited, as I said, due to limited FEC expansion. So, buying decisions today are more narrowly focused on the hottest product in order to maximize the profitability of that existing floor space...not on buying a range of redemption equipment to fill up a new, empty center."
Sal added that redemption sales have shifted back a bit from foreign markets to the U.S. "The growth market for redemption in recent years has been overseas, but that's leveled out somewhat," he advised. "The Pacific Rim's expansion has been crippled by the financial crisis, which began in Indonesia. Just a few short years ago when the Republic of China opened up, we all thought the mainland would be a huge market, too. But trade barriers proved to be a problem so it never really materialized. Taiwan literally crashed more than three years ago. In fact, it's hard to believe three years have passed since then, and it's still closed for all intents and purposes. Very recently, domestic U.S. business has picked up a little bit. Perhaps it's just a matter of time; the business cycle has come full circle. Perhaps a bit of the pickup is due to new FEC expansion, although not necessarily. It's also partly seasonal, partly normal replacement, and you've gotta remember," Sal ended with a chuckle, "in this business, even the weather plays a role!"
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