Size Does Matter: Selecting the Right Size For Your Center
By Randy White
© 2000 White Hutchinson Leisure & Learning Group
There
once was a girl named Goldilocks who wanted to open an LBL (location-based
leisure facility) to make all the other boys and girls happy.
Goldie knew the value of research, so she decided to visit LBLs
owned by the Behr family. She visited the LBL operated by Papa
Behr, and it was HUGE! It was so huge that even though there were
many customers, they looked small and insignificant. It gave her
the creeps, so she left to visit the LBL operated by Baby Behr.
Boy, was it TINY! Even though it wasn't an especially busy day,
all the customers were jammed together like airline passengers
in coach. They looked about as happy, too. So Goldilocks skipped
out of there and poured herself a yummy hot chocolate. Then she
did some thinking. Goldilocks decided to review her feasibility
study to help her program the capacity of the center and all its
components to match market demand, thereby sizing the investment
based upon anticipated operating cash flows. And whaddaya know.
She got it just right.
Goldie was no slouch. She knew that properly sizing your LBL has a profound impact on profitability and long-term success. Unfortunately, the sizing equations are normally left out of the planning of many LBLs including FECs and LBEs, and miscalculations can be deadly. Too large, and the place will look empty even when it's busy, giving the impression of failure, plus your return on investment will be low or negative. Too small, and not only will the facility be crowded, a deterrent to repeat business, but you will invite competition. To maximize profitability and assure long-term success, you must get it just right.
Would You Buy Your Pants This Way?
People determine the size of an LBL using logic that would make no sense in any other part of their lives. It's like shopping for pants and blowing extra cash on a pair that's twice your size, or settling for a pair that's way too small because that's all the store has in stock.
Often, investment criteria drive the decision of what size center to develop. Prospective LBL owners decide that they only want to invest a certain amount in a new center, say $2.0 million. The typical total cash development cost to open an indoor center in a renovated existing building is $120+ per square foot. This means that $2.0 million buys a 16,000 SF center. Is this the size that will be successful in this market? Who cares? It's what's in the budget.
Then again, sometimes owners use the availability of real estate to determine the center's size. If there is a good vacant 25,000 SF store at a reasonable rent, then that's the size of the LBL. Will a 25,000 SF center be profitable? Again, who cares? It's what's in stock.
Many owners get in serious trouble by using the level of investment, the availability of real estate or some other factor to decide what size center to develop. Rather than hope for the best, smart cookies use a market-driven programming and investment approach to size a center. The supportable investment and the center's overall size, its program and the size of each component are determined by the feasibility study and mathematical formulas.
There Is Such a Thing as Too Big. And Too Small.
And there is such a thing as "just right." The way you determine what's "just right" is to base your LBL's size on the market. The market-driven approach is based on the time-proven concept of programming the capacity of the center and all its components to match market demand (attendance), while sizing the investment based upon anticipated operating cash flows. All calculations are based upon the feasibility study.
If the center is bigger or more lavish than the market can support, you'll spend more money on the center than necessary and your return on investment will, um, stink. But you don't want the center or its components to be too small, either, for two reasons.
First, if the center is too small for market demand, it will be crowded, the lines will be too long for guests to be able to participate in enough events, and they'll leave. Take the example of a client who recently hired our company to evaluate his center's serious sophomore slump. He opened his new FEC just 18 months earlier and was experiencing a 40% slump in revenues in the 2nd year. Our research determined that undersizing the needed capacity for the go-kart track had resulted in long lines the first year, permanently driving away customers.
Secondly, underdevelopment invites new competition. You want to size the center to meet market demand, not leave a big piece of the pie for someone else to grab. Who knows? They may ultimately end up with the whole pie.
A market feasibility study will establish the parameters needed for both determining the physical size and the investment amount. Based upon an examination of the surrounding area and direct and indirect competition, a market area is established for the center. Then, based upon analysis of the demographics and socio-economic/lifestyles of residents and tourists, attendance and per capita expenditures are projected. Annual revenues less projected operating expenses then result in an annual cash flow that is used to calculate the supportable investment based upon the financing structure and required returns.
Celebrate Design Day
The design principal of sizing is based upon using attendance to calculate the concepts of design day and peak period attendance or required operating capacity. It is neither economical nor necessary to plan and size the operating capacity and physical size to accommodate absolute peaks in attendance. However, to meet market demands and not create a center that is too crowded, the center should have an operating capacity adequate for busy days. A good balance is achieved by planning for the design day. Design day is not the busiest day, but is based upon an average of the busiest days. Planning for the design day creates a center large enough to accommodate the large number of guests who come at peak times, while at the same time not expending excessive capital to make the center unnecessarily huge.
Sizing the Box and the Stuff in the Box
Now that you know how many people are likely to visit on our nation's newest holiday, Design Day (gifts optional), you can determine how big the facility needs to be, as well as the mix of attractions and the size of all the center's components. There are a number of variables that affect overall size, including circulation space, required seating, the overall mix and the capacity and throughput of each event or center component.
It is vital that your LBL have adequate entertainment capacity. If 800 guests will be in the center at peak times, you sure don't want 400 of them standing around with nothing to do. Nor do you want them queued up forever. Theme parks can get away with long lines because their length of stay is a day or more. If guests can enjoy 1.5 rides per hour, that's fine. But in LBL-type centers with lengths of stay of two or three hours, queues much over 5 minutes will permanently drive away guests.
Entertainment capacity is calculated based upon the cumulative through-put of all events. For example, a large soft-contained-play structure might have a much larger capacity per square foot of floor area than a roller coaster, but its through-put could be less since children spend more time in the soft play than on a 2-minute roller coaster ride.
Operating and entertainment capacities not only has to be worked out for overall attendance, but also by different age groups. If the center is going to serve both younger children and adolescents, the capacities need to be determined separately for each group, as what works for one age group does not work for the others.
The mix and size of events must be adjusted to provide both the needed variety and the overall entertainment capacity. All the capacity should not be in events with a high time spend rate, or the per-capita spending per visit will be too high, decreasing frequency of visits. There has to be adequate variety and balance between anchor and impulse items. And there has to be balance within the anchors. If one popular ride has an hourly through-put of 400 guests while another popular one only has 200, then the mix will be out of balance in terms of customer demand and capacity.
But Wait! There's More!
As if that wasn't enough, there's also the matter of the token-operated games, for which you must determine both the investment level and the needed number of games. In LBLs, games are like popcorn at the movies. Guests come to an LBL for the anchors just as they go to the cinema for the movie, not the popcorn. The concession stand should be large enough so that customers just wait in line a minute or two.
Increasing the size of the popcorn stand beyond that will not increase popcorn sales, just like adding games above the supportable amount will not increase game sales. If there are too many games, either your return on investment in games will stink or the revenue from games will be too low for your coin-operator to supply you with the best new games. Too few games and there will be inadequate entertainment capacity, guests will be frustrated and game revenues will be lost.
The correct number of games is a function of the projected annual game revenue. A quality mix of new games requires a certain revenue per week per game to support the investment. Annual revenue is divided by 52 weeks, then by the revenue required per game to arrive at the supportable number of games. This result is then multiplied by the required floor area per game to arrive at the approximate size of the game area.
Many Guests = One Really Large Toilet
Just kidding. But it's true that every center component needs to be sized based upon required operating capacity. This includes the number of fixtures in the restrooms and the size of the parking lot. Don't count on zoning ordinances to tell you the number of parking spaces or plumbing regulations to tell you how many fixtures in your restrooms.
When it comes to parking, zoning ordinances usually either don't have an appropriate use category that matches LBL parking demands or they underestimate what is required. And even if the LBL occupies a former retail space, that doesn't mean the parking will be adequate. LBL's peak parking demands far exceed those of retail.
Restrooms are a special case. Rather than being sized based upon design day attendance, they should be sized based on peak attendance. That's because lines for the women's restroom will turn off guests. And when preschoolers want to go, there better not be any lines, or else. Again, building codes won't be a useful guide. Plumbing regulations err both ways. Often, they assume the center is a theatre, with everyone using the restrooms all at once at intermission, greatly overestimating an LBL's needs. And the number of fixtures needed for the ladies' room will be greater than for the men's, no matter what the code says.
Operating capacity must also be calculated for the number of check-ins, the number of attendant stations at the redemption counter, the number of café seats, the number and size of the party rooms, even the size of the pizza ovens and grills. Storage capacities also must be calculated based upon delivery frequencies or you could run out of pizza dough or popular redemption prizes in the middle of a busy Sunday afternoon.
Group business adds another dimension to sizing of the entertainment events. Children in birthday parties like to do things together. If the average birthday party has 10 children and you only have 6 bumper cars, this won't work. And if 60 children arrive on a school field trip, where will they assemble before being divided into smaller groups? Where will they store their stuff? Is there enough café seating for them plus regular guests?
What We Need Is a Plan
After the program, capacity and sizing issues are all defined, they must be translated into a master or preliminary plan. Naturally, what works in theory doesn't translate exactly to the plan. Adjacencies need to be worked out and certain events need to be zoned together. Restrooms should be easy to find. Queues mustn't block the visibility of events. Adequate circulation paths need to be designed. This means that the required space will often exceed the earlier calculations.
The preliminary plan tells you whether the development cost will match the supportable investment. The preliminary plan is used to prepare a realistic construction cost estimate and to project the costs of all furniture, fixtures and equipment and all the soft costs. Using a square-footage-construction-cost estimate has gotten many an LBL in serious cost-overrun problems. Likewise, the preliminary plan is used to cross check operating expenses, including labor. Most likely the feasibility study only used some industry averages. With a real plan, exact staffing requirements can be calculated.
Keep in mind that there is a minimum size that will work, no matter how small the market. LBLs can only shrink so much before the formula fails. It takes a certain size center to accommodate a mix that gives a center critical mass and drawing power. A six-player laser tag arena just isn't exciting. Ten games do not make a game room. There is no such thing as a four-hole miniature golf course. Once soft-contained-play gets tiny, it has no perceived admission value when the McDonalds PlayPlace is free.
There are many markets where there is demand for out-of-home entertainment but the market is not large enough to generate the needed investment return on the cost of the minimum size center, which is why many markets don't have an enclosed mall. Even in the smallest markets, it still takes a minimum of around 20,000 SF for an indoor FEC to make the formula work with sufficient variety and critical mass, assuming sufficient market demand exists to support that level of investment.
By now, Goldilocks has graduated from hot chocolate to the harder stuff. Hey, we never claimed it was easy to determine the "just right" size of a center and its components. But it's a whole lot easier than explaining to your banker and investors why guests don't play at your place anymore.
Randy White is the CEO of the White Hutchinson Leisure & Learning Group, a Kansas City, Missouri, U.S. firm that specializes in market feasibility, consulting and design of FECs and family and children's venues. The firm has won many awards for the design of its domestic and international FECs. Mr. White can be reach at voice: +1.816.931.1040, fax: +1.816.756.5058, or via e-mail or on the web at <www.whitehutchinson.com>.
