State of the UK Leisure Sector

The UK economy has shown itself to be particularly resilient to the shocks that have affected other countries in recent years. It has largely ridden out the effects of the September 11th 2001 attacks on the US, the South Asian crisis sparked by SARS and in recent months has seemed able to withstand the July 7th and 21st terror attacks on the UK mainland.

But fears have grown recently that the UK economy may be on the verge of a substantial correction. Some observers point to evidence from the service sector of the economy to suggest that hard times are on their way. So should we, as students of the leisure industry, be concerned about these indicators? What evidence is there in reality of a slowdown in leisure spending and should we be concerned for the future?

In this At your Leisure we look at the signs of activity in the sector and ask, 'Is the party over for the leisure industry?'

The evidence

1. The UK service sector is slowing

Chartered Institute of Purchasing and Supply (CIPS) activity index measures the amount of business going on in the service sector
Despite a slowdown, though, the index shows that the sector grew for the 29th consecutive month
Transport, communications, hotels and restaurants were among the strongest parts of the sector; financial services were weakest

See UK's service sector growth slows from the BBC.(http://news.bbc.co.uk/1/hi/business/4215484.stm)

2. Further evidence of a slowdown in services

DIY and home improvement giant B&Q cut 400 head office and regional jobs
Ruled out cuts at B&Q stores
But later news contradicted this
Backdrop of slowdown in spending on gardening and DIY
Analysts 'Verdict' predict a 1.5% fall in this area
First drop in five years

See B&Q cuts 400 jobs in costs drive and B&Q to close 22 stores in revamp from the BBC.(http://news.bbc.co.uk/1/hi/business/4218006.stm, http://news.bbc.co.uk/1/hi/business/4247762.stm)

3. Other indications of a decelerating services sector

Partygaming, an online gambling business, warns of falling growth in future
Caused a 30% fall in their share price
Higher turnover of players
Decline in amount of money they spend
Average spend fell 7%

See Slowdown fear knocks Partygaming from the BBC.(http://news.bbc.co.uk/1/hi/business/4217990.stm)

The impact

So what does this mean for the service sector, the overall UK economy and UK workers?

Analysis of some key parts of the leisure sector

Health and beauty

Spending on health and beauty is perhaps not discretionary anymore.
Consumers may be committed to annual leisure membership payments.
There is a trend for this type of expenditure to be regarded as essential.
Similarly, spending on improving our bodies may not be discretionary. Our self-image is important and men and women regard it as a right to have a 'body-beautiful'. So there are treatments with botox, collagen, other non-surgical and surgical routes, all designed to find routes to 'beauty'.

Leisure spending in the home

There is little evidence of consumers spending less on home entertainment.
Widescreen TVs, Personal Computers, broadband connectivity, telephony are all popular additions to households.
It's arguable that excess supply has led to flooded markets and declining prices, except for early adopters of new technology.

Home improvement, DIY and gardening

Whilst house price inflation was in double digits with the value of consumers' homes rising annually by up to 20%, spending on home improvements was buoyant.
But the housing market shows clear signs of stabilisation, with price rises flattening out to between 5% and zero.
Demand for home improvement products and services has begun to wane.

Image: Has the UK population finally tired of its DIY obsession? Copyright: Frank van den Berg

Domestic travel and leisure breaks

There are few signs that this part of the sector is in decline.
Visits within the UK appear resilient to a downturn in consumer demand. VisitBritain produces a regular snapshot of current tourism trends in its 'Trends update'. See the August 2005 issue. (http://www.tourismtrade.org.uk/MarketIntelligenceResearch/TrendsUpdate/TrendsUpdate.asp)
Consumers view a second holiday as a necessity, the first main holiday may be taken abroad, supplemented with a second break in the UK.

Transport

The greatest threat is in the cost of fuel as oil prices have been hit by low production by oil producing countries, war in the Persian Gulf, the impact of Hurricane Katrina on North American production, among other factors.
But there is little evidence that consumers are travelling less as a result of higher petrol prices. Spending on petrol is regarded as being non-discretionary. People's cars are essential and they'll continue to fill them up regardless of the price of fuel.
There is a bigger threat posed by the impact of higher prices on inflation. The Consumer Price Index (CPI) rose last month (August 2005) to 2.4% largely as a result of the spiralling price of oil. See Oil lifts inflation to highest level for nine years from the Guardian.(http://www.guardian.co.uk/business/story/0,,1569321,00.html)
The Monetary Policy Committee of the Bank of England is responsible for maintaining price inflation within +/- 2%, so they might be expected to raise interest rates in order to 'choke off' price increases.
But given the shaky nature of consumer retail spending, interest rate increases are unlikely. Any tightening of monetary policy is likely to hit consumers in the form of increased mortgage repayments. The Bank is unlikely to hit the retail sector in this way.

Retail

Depending on where you look, arguments can be made either in favour of there being a dramatic slowdown in retail spending or of a more resilient retail climate.
Evidence from clothing retailers such as Marks and Spencer indicates a slowdown, but for discount operators such as Primark, there are few signs of a difficult trading environment - if anything, the opposite. See Investment plan for Primark chain from the BBC.(http://news.bbc.co.uk/1/hi/business/4236898.stm)

Conclusion

The overall economy is a complex beast, with sectors able to expand at different rates over time, with few major impacts on the wider economy. Data indicate that activity in the secondary sector, especially construction and manufacturing, is strong enough to keep the overall UK economy growing. But perhaps for some in parts of the leisure sector, the party may be over.

Activities

We can analyse the spending habits of various segments of the population. Barclays have produced a report tracking football fans' expenditure. The report [PDF, 2.4 MB] can be downloaded from the Barclays site.(http://www.newsroom.barclays.co.uk/content/detail.asp?ReleaseID=125&NewsAreaID=112)

Access this report and tackle the following questions:

Look at the section on football fans' spending on health and beauty. How much do fans spend on average in this area? How much do you think this will have changed in the past 20 years?
In the section of the report on clothing and fashion Marks and Spencer are highlighted as one of the most popular brand names. Why do you think M&S are experiencing problems with their business despite this evidence of their popularity?
How might firms try to take advantage of the findings of this report?
Health and beauty products are one of the big growth areas in leisure spending. A report in The Guardian, The beauty products from the skin of executed Chinese prisoners, looks at the use of collagen treatment. (http://www.guardian.co.uk/uk_news/story/0,,1568467,00.html)
What impact do you think this could have on the growing beauty treatment sector? What other cautionary tales can you find about the safety or desirability of such treatments?
Start a journal of news stories to record the performance of the leisure industry. This should provide a useful databank of information for use in your studies, as well as being an interesting exercise in itself.

At your Leisure - 19 September 2005

The State of the UK Leisure Sector