Good Riddance to a Horrible Year
By George McAuliffe, President, Pinnacle Entertainment Group
Remember your school days? Some teachers were really tough and you knew their tests would be too. So you prepared for them. As my basketball coach used to say, “Success is when preparation meets opportunity.” But how do you prepare for a novel coronavirus? By definition, a “novel” coronavirus is a new coronavirus that has not been previously identified.
We have learned a few things that will help us when the next new pandemic strikes:
• In our personal lives, maybe the survivalists are not extreme. We should all have a stash of certain items: thermometers, Tylenol, masks, water, canned food and, oh yes, toilet paper. We should also drop a few pounds and get in shape to stay ahead of those “preexisting conditions.”
• As citizens of our great country, we should ensure the politicians and bureaucrats have robust, resourced plans in place to deal with this type of national emergency. Let’s get the fiscal house in order while we’re at it. Our government can’t keep spending more than we take in, and we need reserves for emergencies.
• As business people, we’ve learned the importance of financial strength, cash reserves, and flexible business models to cope with the unforeseen.
In our world of out-of-home entertainment, we operate in the hardest hit segments of the economy. An FEC’s reason for being is to provide places for people to gather. For the last 10 years, arcades and FEC attractions were added to restaurants, bowling centers, cinemas, hotel resorts and casinos, all among the hardest-hit industries in the year of Covid 19.
On a positive note, as a country and as an industry, we have taken the big hit and survived, though not everyone. Certainly, we all feel for the families who have lost loved ones, and we feel for the owners and staff of the businesses that have closed their doors. But, our industry has found a way to survive and some sectors are doing very well.
Most experts predict a tough winter. We are seeing a spike as I write this in mid-November. But we’re also hearing positive news with vaccine trials. Those same experts predict steady improvement to near normal in mid to late 2021.
What Do the Numbers Say?
As regular readers of this column know, we are very data-oriented in our company’s consulting practice. We collect weekly sales information from a large database of clients. While we never disclose individual numbers, we do aggregate the data in search of trends.
We’ve been tracking the numbers all summer into fall.
June 1, 2020: Only seven client locations were open. A snapshot of the sales in these locations is shown in Table 1. The sample size is small, but there is a clear week-to-week upward trend in sales.
August 9, 2020: 84% of reporting locations are open and sales are improving as shown in Table 2. Locations added 25% more sales dollars in the last two weeks of the period compared to the first and improved vs. the previous year from about 40% in the first two weeks to over 50% in the last two weeks.
September 6, 2020: Five additional locations opened and one closed for a net of 43 locations reporting sales. The six-week average sales for week ending 9-6-20 was 55% of the previous year, and up from 44% for six weeks ending 8-9-20. For the last four weeks of this reporting period, sales were 64% vs. the same period last year.
November 1, 2020: For this period, the six-week average sales was 63% of previous year as shown in Table 3. Two additional locations opened for the entire period, but two locations (one each in Minnesota and Illinois) closed. The closing locations were removed from the comparison leaving the total measured at 43 locations.
A closer look at Table 3 shows that the first three weeks started off strong, with the percentage compared to the previous year in the high 70s and 80s, but then dropped to 69%-57%-66% for the last three weeks. This tracks the Covid case spike timeline and is concerning, especially considering the two locations which closed in the period.
What Does this Mean for 2021?
My crystal ball is no clearer than yours but I’ll offer the following:
• As we enter cold weather and flu season, the situation will deteriorate. (We saw that with the drop in sales vs. 2019 in the last two weeks of the current period, and the two store closings, the first since early summer).
• I’m hopeful that this will increase the number of people taking Covid seriously, wearing masks, etc. If so, this will minimize the risk of returning to lockdowns.
• We will continue to see FEC businesses close.
• Recovery will begin in the spring, hopefully with a vaccine to accelerate it.
• Given the relatively strong numbers we saw in the fall –– 80%+ vs. 2019 in some weeks –– I think our customers will flock back once it’s clear Covid is on the wane.
• We will be a smaller industry with the survivors in a stronger position to prosper.
George McAuliffe has helped hundreds of businesses large and small develop and execute arcades and FECs. He has personally operated family entertainment centers from 2,000 to 150,000 square feet as a corporate executive, entrepreneur and consultant. He is the owner, with his partner and son Howard, of Pinnacle Entertainment Group.
George lives on the Jersey Shore with his wife, Julie. They have three sons, two daughters-in-law and a grandson.