Business Opportunities In The Leisure Goods And Activities Industry - Essay Example

Business opportunities in the leisure goods and activities industry  Introduction The leisure good and activities industry is a multi-faceted industrial sector that offers people various avenues to explore, experience and enjoy their free time. The leisure industry offers a diverse set of options for individuals wishing to spend their vacations through hotels, tours, amusement parks, restaurants and sports facilities. Even places such as holiday resorts and sports like Golf come under leisure activities and constitute an integral and profitable segment of this sector (Charlesworth, 2011). Given that the leisure goods and activities industry encompasses such varied businesses, it becomes necessary to evaluate existing ventures across specific industrial segments to ascertain the continuity and profitability of any potential investments into such firms. Besides, it is also necessary to analyze the revenue stream of a target company over a few years to determine the long-term prospects of the firm and its internal stability. Common examples of leisure-based goods or companies include Water Parks, Disneyland, Holiday Tour operators like Thomas Cook etc (Mark, 2010). The primary task of a leisure based company is to ensure that all requirements of a person on a vacation are adequately provided for within the latter’s budget and schedule. The following sections describe the analytical approach used to evaluate prospective business segments, within the leisure industry, that are useful from an investment perspective for AGPO Limited. The analysis is based on latest figures on consumer spending between 2002 and 2007 in various leisure activities such as holidays, restaurants, sports, gambling and entertainment. Trends in consumer spending on leisure activities According to Mathies (2009), consumers are wealthier today, with higher disposable incomes, than they were 20 years ago. In fact, per-capita real income has increased by over 3 times since the 1970s while the standard of living has risen by over two-thirds during this period, especially across the developed world. Victoria (2008) says that over 45% of spending is currently categorized as ‘discretionary’ among consumers in the United States (US) and the United Kingdom (UK). With rising incomes, families now have broader flexibility in their household spending and divert as much as 20% of their incomes on leisure activities. This estimate is similar to the proportion spent by an average American household on food and beverages. Canwell (2009) conducted an extensive survey among households in the US and determined that over 80% of consumers spent regularly on leisure based goods and services. He further attributes such findings to the explosive growth witnessed by the leisure industry over the recent decade. White (2009) has analyzed the growth rate of leisure based companies in North America and Europe and estimated an average of 6% between 2001 and 2010, despite the dip between 2008 and 2009 due to the global financial crisis (Hayward, 2010). Hayward (2010) cites many reasons for the growth in consumer spending on leisure activities. Firstly, the population in most developed countries is ageing leading to more pensioners who seek out prolonged vacations and travel opportunities. Non-traditional households combined with late marriages are also other contributing factors to this trend. Charlesworth (2011) also notes that longer working hours are encouraging people to seek better leisure opportunities whereby people are willing to spend more for better products and services. Analysis of the leisure industry Based on the statistics provided on consumer spending, the cumulative spending across individual leisure segment was compiled as shown below: Fig 1: Consumer spending trends across leisure industry segments The above trend lines indicate that consumers have been spending the most on Food/Drink, Family Outings/Holidays and Household Activities. These findings fall in line with the observations of several previous studies such as those by Mark (2010) and Scott (2008). Ross (2009) says that families tend to spend a lot of their income eating out in restaurants. In fact, he has analyzed behavioural patterns among households with 4 or more members between 1995 and 2009 and observes that families with children below the age 10-15 years tend to dine out more often during a given year than families with older children and adolescents. The higher revenues earned by pubs (shown below) is another insight into recent social trends in the US and UK. Wolsley (2009) says that pubs are frequented by younger individuals who are often prone to working long hours and thus desire a place where they can meet friends and relax during the remaining time. 2002 2003 2004 2005 2006 2007 (est.) Food / drink Eating out 24,070 25,250 26,510 28,120 29,590 30,450 Pubs 24,000 24,400 24,700 25,000 25,500 26,000 Total 48,070 49,650 51,210 53,120 55,090 56,450 Table 1: Consumer Spending on Food/Drinks The above findings also reflect the frequency with which people visit pubs or restaurants in comparison to going on family outings or holidays. The latter, while representing a significant proportion of the leisure industry’s revenues, are largely preferred among consumers on an annual basis or during vacationing seasons like Christmas. Holidays (involving both domestic and overseas travel) were found to make up almost all of the ‘Family Outings/Holidays’ segment in comparison to the other outdoor leisure activities like visiting theme parks and thus serve as a lucrative sub-segment for potential investment (see last column on average percentage shares below).   2002 2003 2004 2005 2006 2007 (est.) Average % of Total Family outings / holidays Holidays (domestic and overseas) 26,729 28,707 30,642 31,816 32,939 35,005 99 Theme parks 250 270 257 265 274 259 1 Experience days out 77 85 92 90 98 104 0 Total 27,056 29,062 30,991 32,171 33,311 35,368 Table 2: Consumer Spending on Family Outings/Holidays While Hayward (2010) argued that older people are major contributors to the holiday and travel sector, Canwell (2009) says that this strictly remains an annual or periodic trend among the ageing population given related issues like age-related health problems, limited pensions and preference among old people to remain in their homes for most part of the year. This contributes to greater revenues among the ‘DIY (Do-it-yourself)’and ‘Garden Products segments’ as ageing people prefer to indulge in related leisure activities. However, revenue streams seem to be higher for DIY products over garden products and can be explained by the widespread availability of the former in segments like furniture, hardware, crafts etc. Thus, people of all age groups are more likely to participate in DIY based activities in comparison to garden oriented exercises (White, 2009). When analyzed in more detail in terms of specific sub-segments, the Holidays and Food/Drinks segments emerged as the most lucrative business sectors, thus leaving out the Household activities segment from a revenue-based perspective (see figure below). In fact, the top three sub-segments (Holidays, Restaurants and Pubs) account for a significant portion of revenues that has not been matched by any other sector in the leisure goods and services industry. Fig 2: Consumer spending trends across leisure industry sub-segments Conclusion The preceding section has provided elaborate analysis on some of the latest trends in the leisure goods and activities industry and has provided some interesting results. The results from the graph-based analysis corroborate the findings of various researchers from preceding studies. The findings indicate that consumer spending has witnessed an upward trend during the period 2002-2007 in major revenue generating segments such as Holidays, Restaurants, Pubs and Household activities. Revenue growth in other segments like fitness, books, sports and fitness clubs has however remained stable without much growth. Hayward (2010) attributes this discrepancy to higher investments in leisure segments demonstrating better profitability (such as those described as part of Figure 2), which also attract a higher number of customers across all major age groups. In comparison, activities like fitness programs, video gaming and theatre are preferred only by a small proportion of consumers and thus do not offer any noticeable long-term prospects for growth. Thus, it is recommended that AGPO Ltd., direct its investments and business activities towards the holidays, restaurants and pub sectors in order to derive the best return on investment over the coming years. References 1. Canwell (2009). Leisure and Tourism GCSE. London: Nelson Thornes. 2. Charlesworth (2011). The Leisure industry: North American studies: an interdisciplinary unit. Board of Education for the City of North York. 3. Hayward (2010). GCSE Leisure and Tourism. New York: Heinemann. 4. Mark (2010). Introduction to recreation and leisure. Human Kinetics. 5. Mathies (2009). The tourism and leisure industry: shaping the future. London: Routledge. 6. Ross (2009). Organization behaviour for leisure services. New York: Butterworth-Heinemann. 7. Scott (2008). Fundamentals of leisure business success: a manager's guide to achieving success in the leisure and recreation industry. London: Routledge. 8. Victoria (2008). Leisure industry: management, policy and strategy. New York: Sport & Recreation. 9. White (2009). The Leisure industry. Chicago: Leisure Studies Association. 10. Wolsley (2009). HRM in the Sport and Leisure Industry. London: Taylor & Francis. Read More