consumer pulse survey · 2020. 10. 26. · fishing/hunting 40% 16% 44% motorcycle riding 45% 18%...
TRANSCRIPT
CONSUMER PULSE SURVEYRecreation, Leisure and Fitness in the Time of COVIDOctober 2020
2Consumer Pulse Survey
The COVID crisis has created meaningful shifts in the way Americans engage in recreational and leisure pursuits. At the onset of the pandemic, dramatic reductions in gym / health club visits, hotel stays and plane rides were a necessity in the interest of public health. In the months that followed, RV sales have exploded, home gym equipment is backordered and bikes shops are sold out of inventory, save for the highest end models. Consumers clearly sought to implement a semblance of normalcy in their lives as the immediate health response transformed to a state of coexisting with the virus. To untangle what is going on, our latest Pulse Survey has focused on understanding how the COVID crisis has transformed the way consumers pursue recreational activities and what the future may hold once things begin returning towards the new normal.
To build a picture of how consumers have changed their behaviors (and subsequent purchasing decisions), we surveyed 1,000 Americans on how they spent their recreational and leisure time pre-COVID, during COVID and how they anticipate spending their time in the new normal. Our research shows a seismic shift in how Americans spend their time and money due to the COVID crisis: less health club use, fewer vacations but higher spending in activities perceived as safer, such as outdoor recreation and home-based fitness. Americans do in fact predict a return to
pre-COVID behaviors once the crisis abates, but a significant minority plan to continue the activities that they discovered or boosted during the COVID crisis at the expense of their traditional recreation and leisure activities.
Participation in Recreation and Leisure Activities
A popular narrative explaining the dramatic increases in big ticket items like bicycles and RVs is that COVID has driven large increases in participation, especially first-time participation. Our survey suggests that narrative is accurate in some cases, but not all. As shown in Exhibit 1, participation among existing participants in many recreational activities has actually gone down during the COVID crisis. For example, of people who golfed, 45% reported reduced frequency, 14% reported increased frequency while 41% reported no change in activity level. You may be asking then, “If so, why could I not get a tee-time?” Likely because the golf season did not start with the typical trickle, but with a bang, and those that played more often may have binged. In addition, golf courses limited the number of players on the course at any one time.
The big winner in increased activity was Home Gym / Weights 42% who increased activity versus 20% who decreased activity.
Exhibit 1 - Activity % Increase or Decrease Frequency
THE SURVEY
41%
34%
25%
Walk/Run Including Exercise Bike & Treadmill
33%
32%
34%
Bicycling
38%
25%
37%
Fishing/Hunting
40%
16%
44%
Recreational Motorcycle Riding
45%
18%
37%
ATV/Off Roading
36%
24%
40%
RV/Trailer Camping
41%
21%
39% 41%
14%
45%
Golfing
38%
42%
20%
Tent Camping/Backpacking Home Gym/Weights
32%
37%
32%39%
22%
38%
Boating and Paddling Sport
Stayed the SameIncreasedDecreased
Other
3Consumer Pulse Survey
Unsurprisingly, participation rates across all outdoor recreational activities saw increases. Boating and paddling sports, camping (both with RVs/trailers and traditional tent/backpacking) and other outdoor power sports (ATVs, motorcycles) were all clear winners in new participation. As shown in Exhibit 2, participation rates in each of the activities mentioned above increased by at least 9% from pre-COVID levels. Our interpretation is that new walking, biking, and home gym participation was probably a substitute for time previously spent in health clubs and group classes and was also part of the overall realization that being outdoors was a better for health of mind and body. Boating, RVing and camping were a closer-to-home substitute for a vacation.
Exhibit 3 - Reasons For Reduced Activity During Pandemic
Exhibit 2 - Participation Rate Increase
0
5
10
15
20
Recre
ation
al Mo
torcy
cle R
iding
ATV/
Off R
oadin
g
Boati
ng an
d Pad
dling
Sp
orts
Golfin
g
RV/T
raile
r Ca
mping
Tent
Camp
ing/
Back
pack
ing
Bicy
cling
Fishin
g/Hu
nting
Home
Gy
m/W
eights
Walk
/Run
17%
15%
11%
9% 9%
6%5% 5%
4%3%
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Vacation Behavior
Since recreation participation due to COVID has had varied impact, what explains the massive increase in spending in key recreational product categories? We think a major driver is a reduction in traditional vacation (i.e. hotel, airline, resort) based spending that was redirected into recreational and home improvement spending. To understand the sources of “jump ball” discretionary recreational and leisure spending, we asked consumers whether they had taken a vacation in
2018 or 2019 and whether they had taken a vacation this year. This first thing to note is that 42% of Americans did not take a vacation in either 2018 or 2019 when life was considered normal. Not surprisingly, non-vacationers tend to be those that choose to, or need to be frugal, so those who do vacation have a disproportionate amount of the disposable income available.
Exhibit 4 shows a dramatic change due to COVID in the percentage of people taking vacations using planes and hotels, which fell by 50%. As you might expect, travel and vacation behaviors were forced to change. The pandemic is an undeniable disruptive force that may bring long-term changes to the travel and leisure industry. One thing is clear from our survey – consumers intend to adapt and seek new leisure outlets. This disruption is creating significant opportunities, and in some cases accelerating pre-COVID trends. For example, RVs, camping and backpacking enjoyed significant increases, presumably because those activities are perceived as a safer form of vacation travel/accommodation. We note the law of small numbers is at play, but at a minimum the pandemic has created a generational opportunity for certain sub sectors to attract new enthusiasts.
Exhibit 4 - Change in Vacation Patterns: Most Significant Vacation 2020 vs 2019
-100
0
100
200
325%Flew/Plan to fly to destination and
camp(ed) 146%Camped/Plan
to camp using RV or trailer 89%
Drove/Plan to drive and camp(ed)/backpack(ed)
67%Did not/
Will not take a vacation
50%Drove/Plan to drive to
destination and stay(ed) with friends/family
-7%Drove/Plan to drive to destination and use(d) traditional accommodations
-13%Flew to a
destination and stayed at Airbnb or other home
rental
-50%Flew to a
destination and stayed at a hotel
-65%Cruise
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How was the reduction in vacation spending redirected? Consumers reported three key places where vacation dollars were spent: savings, home improvement and recreation (Exhibit 5). The increases in savings and momentum of the home improvement retailers have been well documented. While smaller in impact, 7% of households who took a vacation in 2018 or 2019 redirected some 2020 dollars into recreation. This explains some of the behavior driving big ticket recreation items like boats, bicycles and RVs.
If big ticket recreation spending was buoyed by reduced vacation spending, what are the prospects for 2021? Our questions on 2021 vacation plans suggest that a lot of
that vacation money will not return to the airlines and hotel chains. Exhibit 6 shows consumers’ anticipated 2021 vacation spending plans assuming the health crisis is substantially diminished. The good news is that only 41% of households anticipate not taking a vacation compared to the actual rate of 43% in 2018/2019. The bad news is that only 24% plan to spend as much or more as back in 2018/2019. The reduction is due to lingering concerns over the safety of planes and to a lesser extent hotels. As a result, we expect many of the observed trends to continue into 2021 and consumers to reduce their reliance on communal forms of transportation and lodging (i.e. planes and hotels)
Exhibit 5 - 2020 Vacation Spending Redirected
Exhibit 6 - 2021 Vacation Spending Plans
0
5
10
15
20
25
I (cannot/could not) take the vacation I
wanted because the destination was not open or the event
was cancelled
None of these describes my
situation
I (will cancel/can-celed) vacation plans and (will use/used) those funds on a
home-improvement project instead
I (will/took) the vacation that I was
always planning
I (will change/changed) my plans to avoid
planes/hotels/etc. to minimize health
risks
I (will change/changed) my plans because of the uncertain economic
outlook
I (will spend/spent) less money on
vacation this year and increased
savings
I (took/will take) some of my vacation budget and (spent/spend) it
on recreational-based activities and
recreational purchases closer to home
21% 20%18% 18% 17%
13% 13%
7%
0
10
20
30
40
50
I likely won’t go on vacation or spend very little
I plan to spend as much or more than 2018 and 2019
I plan to spend more than 2020 but less than 2018 and 2019
I plan to spend less than 2018 and 2019
I plan to spend closer to 2020
41%
24%
13% 11% 10%
6Consumer Pulse Survey
Exhibit 7 - Health Club Participation Pre, During & Post COVID
Health Club Usage
Another source of spending on big ticket recreation products is reduced health club spending. Our survey asked people about health club and group class participation before, during COVID and after the health crisis abates. As shown in Exhibit 7, use of health clubs, gyms and group classes has declined considerably. Before COVID, 25% of people used health clubs/gyms and 11% group classes. During COVID, participation has dropped to 8% and 4%, respectively. Clearly, regulatory shutdowns and health fears have been devastating to the industry. 75% of the people who reduced health club use are not paying dues as a result of either mandated shutdowns/suspension of dues or voluntarily choosing to leave.
Where are those membership dues going? 57% report increasing savings and 33% report spending on different recreational activities. A third of health club spending is a huge injection of cash into outdoor recreation. In 2019, U.S. gym industry revenues were $35 billion per IHRSA. How much of that spending is at risk of permanently leaving health clubs/gyms? We asked consumers their health club and group exercise plans once COVID gets under
control. 80% plan to return to health clubs and gyms, so clearly the social interactions, sophisticated equipment of gyms and instructor-led sessions are valued. But 20% of industry revenue seems to be at risk thanks to forced trial of alternatives during the COVID crisis. The industry will clearly need to evolve its value proposition to win back consumers who are seemingly inclined to continue pandemic induced fitness habits. We also believe that there will likely be industry consolidation and closures of poorly capitalized and small fitness clubs.
25%
8%
20%
11%
4%8%
29%33% 33%
51%55%
53%
14% 13%15%
3% 3% 3%5% 4% 4%
Exercise using equipment in a gym
or health club
Exercise in a health club/studio group
class
Exercise indoors using home equipment
Exercise outdoors – walking, running
Exercise outdoors - biking
Exercise outdoors - other
Exercise indoor - other
Pre-COVID During COVID Post-COVID
7Consumer Pulse Survey
Recreational Spending
COVID has clearly caused many people to increase outdoor recreation activities or try them for the first time. Huge amounts of recreational equipment spending have been freed up from reductions in vacation and health club spending. What is that money being spent on? 11% of those surveyed reported making a big-ticket recreational purchase. As shown in Exhibit 8, the most frequently purchased items were substitutes for health clubs and gyms – stationary bikes, treadmills and rowers such as Peloton, Wahoo, Hydrow, Echelon and others accounted for over half of all purchases. The next most popular purchases were bicycles at 23%. These are most likely substitutes for health clubs, gyms, and group classes. On the other hand, 10% of the purchases (off a much smaller base of users) were RVs which were likely substitutes for conventional vacation spending, but this small change in terms of numbers of participants was a huge positive change for the industry.
Potential Implications for Investors, Manufacturers and Branded Consumer Companies
COVID has served as a giant driver of trial for outdoor recreation activities. It has been a huge boon for major purchases of bikes, RVs, boats and home workout equipment. Our research suggests that interest in those activities will continue post-COVID, although the purchase cycle of big-ticket items will likely preclude 2020’s record levels. Suppliers of echo effect products and services that support those 2020 big-ticket purchases should see on-going opportunities.
As the health crisis further stabilizes, consumer sentiment is showing signs of recovery – the University of Michigan Consumer Index of Consumer Sentiment now sits at its highest level in the past 6 months. The pandemic has imposed daily challenges in the lives of every American, and with added stress comes a heightened need for positive outlets. Demand shocks in both directions have created opportunities in the recreation and leisure space. Our research can be tailored to provide insight into your company’s unique situation. We would be delighted to explore how the new normal will affect your business and what the implications are for financing, valuation, transactions, strategy and priorities.
Exhibit 8 - Most Frequent Purchased Items1
0
5
10
15
20
25
30
35
Home Gym/
Weights
Walk/Run, Including
Exercise Bike and Treadmills
Bicycling Tent Camping/Backpacking
Fishing/Hunting
Boating and Paddling Sports
RV/Trailer Camping
Golfing Recreational Motorcycle
Riding
ATV/Off Roading
Other
33%
23% 23%
14%12%
10% 9%10%
5% 5%
10%
1Items may have been purchased in multiple categories
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ABOUT LAZARD
Lazard Middle Market LLC, a subsidiary of Lazard Ltd (NYSE: LAZ), is a leading middle market investment bank that provides customized advice on mergers and acquisitions, debt and equity recapitalizations, and financial restructurings to mid-sized companies across a broad range of industries. Lazard, one of the world’s preeminent financial advisory and asset management firms, with origins dating back to 1848, operates in 40 offices across 25 countries in North America, Europe, Asia, Australia, Central and South America.
Lazard’s Middle Market Consumer, Food & Retail TeamLazard has financial advisory specialists throughout the world with experience and relationships in the consumer, food/agriculture, and e-commerce/ retail industries. These bankers have played key advisory roles in some of the most important, complex, and industry-defining transactions. Our middle market Consumer, Food & Retail team has senior bankers in Charlotte, Minneapolis, and New York with long, deep roots at Lazard. Since 2000, we have completed more than 300 transactions and acted as financial advisor to clients on mergers and acquisitions (both buy-side and sell-side), capital raises, refinancings, and restructurings. Our transactions are award-winning, strategic, and often, cross-border.
SAMUEL ALEXANDER Vice President
JIM D’AQUILAManaging Director
Head of Consumer & Retail [email protected]
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ADEEL AHMADDirector
KYLE RYBAKVice President
ALEJANDRO COLADirector
DAVID IVERSONManaging Director
Group Head of Consumer, Food & [email protected]
ADAM WIEDENManaging Director
HARSH SINGHDirector
9Consumer Pulse Survey
ABOUT CH CONSULTING ADVISORS
CH Consulting Advisors is a boutique, strategy consulting firm focused on the consumer and retail industry. We advise leading private equity, and consumer and retail companies in corporate and portfolio growth strategy and buy-side and sell-side diligence. CH Consulting Advisors brings deep analytics, extensive industry experience, and flexible approach to working with executive teams, boards, and investment teams. Our senior leaders are deeply involved with every effort.
PETER HSIACo-founder & Managing [email protected]
BRUCE COHENCo-founder & Managing Director
GROWTH STRATEGY EXPERTISE:Planning process has helped dozens of middle market and global companies ignite growth
50+ YEARS EXPERIENCE:Decades of consumer and retail industry experience and knowledge
FLEXIBLE AND EXPANDABLE:Customized assessment approach for targeted or expansive scopes that leads to shareholder, board, executive, and investor confidence
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PRIVATE EQUITY ADVISORY:Expertise across the investment cycle: buy and sell-side diligence, portfolio strategy from the lower middle market through the bulge bracket
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