Published in KoalaPlay Group July 2004 Newsletter.

The Feasibility Study: The Foundation for Success

by Randy White

© 2004 White Hutchinson Leisure & Learning Group

The feasibility study is the foundation on which successful located-based entertainment facilities (LBEs) are built, yet it is amazing how many LBEs are developed with flawed studies, or no study at all. Many LBE entrepreneurs spend more money advertising their LBE's opening day than on determining whether and how the LBE should be developed in the first place. Feasibility studies typically cost no more than 1% to 1.5% of a LBE's total cost. They tell you whether you should proceed and how to get the highest return on the money you'll spend. A professional feasibility study determines:

  • Whether the project should be built
  • Who the target market (niche) should be
  • The optimum concept and mix
  • The correct size
  • Design and operational factors critical to turning the target market into loyal repeat guests;
  • How much the LBE will really cost
  • The revenues, expenses, and return on invested capital

Unfortunately, many LBE developers take the course of least resistance and least cost by either not using feasibility studies or doing them themselves. They seduce themselves with attendance and revenues projections that have no solid basis in reality. Our company has never seen a do-it-yourself feasibility study conclude the project shouldn't be developed. Many of those projects are now roadkill. Entrepreneurial zeal blinded proper business due diligence and wisdom.

In this article we will discuss the market study portion of the feasibility study. In the next issue we will discuss the financial aspects of feasibility studies.

The Market Study

Market areas for LBEs depend on many variables, including:

  • The LBE's critical mass (mix and size)
  • Length-of-stay and per-capita spending
  • Competition and its location
  • The exact location of the project
  • Visibility and accessibility
  • Patterns of travel
  • The location of the project in relationship to nodes of retail, restaurants and other forms of entertainment
  • Physical and psychological barriers

One common mistake amateurs make is to use of rules of thumb to define market areas with concentric circles, such as a five-mile radii. Consumers don't behave that way. Real market areas end up being irregularly shaped, like amoebas, and vary from project to project. The difference between plotting concentric circles and true, amoeba-shaped market areas can have a dramatic impact on feasibility. For centers of a similar type and size, our company has seen market areas in densely populated areas extend only to three miles, and ones in sparsely populated areas extend as far as 60 miles in one direction, yet only 12 miles in the opposite direction.

Interpreting the Market Data

Once market areas are defined, demographic and socio-economic/lifestyles (SEL) data must be analyzed and interpreted to determine whether a project is feasible and what is the best concept and mix. Again, amateurs beware. We have seen many prospective owners waving their demographic reports without the slightest idea what they mean or how they relate to market demand, attendance, financial feasibility and product design.

The best that demographics can provide is a picture of the population in aggregate and in averages and medians. SELs tell you more. SELs tell you who your potential customers really are: their values, their behaviors, and their lifestyles. SELs are important because people tend to choose one product over another primarily because the values of one reflects their own identity, a concept that retailers call lifestyle marketing. By using SEL analysis to target a niche market, a LBE can be designed to create the high level of guest satisfaction that is required today to generate guest loyalty and repeat business. Unfortunately, most LBEs fail at SEL targeting. They build a generic center that doesn't match the tastes, values and needs of any SEL group, and it can cost them their businesses.

A feasibility study is not magic, although it can have a magical effect on the success of your LBE. It makes the difference between decisions based on solid information and those based on wishful thinking, and it is the smartest investment you can make to ensure that all the investment and time you put into your LBE will pay off.

Randy White is the CEO of the White Hutchinson Leisure & Learning Group. The company specializes in consulting, design and production of family and children's leisure venues. Randy can be reached via the company's Web site www.whitehutchinson.com or via e-mail.