Murder on the Dancefloor and Heartbreak Hotel

July 22, 2021

Some of our more energetic readers, lately out of practice in their clubbing activities, may still be feeling the excesses of Sunday night and Monday morning, when revellers flocked to dancefloors and nightspots for the first time after a lengthy lockdown.

Hopefully for nightclub operators, huge pent-up spending was in evidence and the punters will back next weekend. Nonetheless, it’s highly unlikely that these business owners will be in the party mood for some time.  In contrast to outdoor-focused leisure businesses such as campsites and trailer parks, which saw revenues in May 2021 more than 50% up on May 2019, indoor venues  were nearly 50% worse off, with pubs and clubs down 61%.

That was clearly before ‘Freedom Day’, but a combination of continued caution, staffing problems and closures from the present ‘pingdemic’, as well as the end of Government financial support, mean that leisure and hospitality are far from out of the woods.

Covid has only highlighted what has always been the case: the hypersensitivity of these sectors to changes in the economic environment. Typically bearing high levels of fixed costs and operational gearing, leisure and hospitality businesses clearly take disproportionate hits to profitability when there is a reduction in revenue.

A notable fixed cost for operators in these areas is real estate, whether that means rent on a restaurant unit or estate, a commercial mortgage on premises such as a club, or a long lease on a hotel. Very soon after the first lockdown commenced in March 2020, Buchler Phillips began accepting engagements on behalf of several leisure companies, large and small, with related issues around property costs, not least because their operations had been thriving ahead of the pandemic.

In the spirit of turnaround and restructuring, the best approach to resolving real estate issues for leisure and hospitality businesses is to find constructive solutions and lowering the tone of the discussions in the best long term interests of both parties in a contract. In recent times, agreeing a revised, turnover based rent has been one possibility to keep businesses in this sector operating from their established premises, while remove the risk of a void for landlords.

Looking ahead at future-proofing businesses in these sectors, it is possible to plan for obstacles. Leisure and hospitality are ultimately consumer focused sectors where tastes and buying patterns may change. They are highly competitive, with points of difference difficult to establish outside the obvious areas of value for money and superior service.

A critical element of planning is managing fixed costs as tightly as possible, therefore mitigating the impact of all types of business interruption or unexpected changes in the competitive landscape. There are many specific areas worth addressing for the long term: improving efficiencies, productivity and cost saving; hospitality industry-specific issues regarding tax, VAT, HMRC and PAYE; employment issues; cash flow optimisation; asset reviews; leasing and finance options for equipment. And a good deal more.

The key is not to leave any of this too late. Pubs, clubs and hotels need all the help they can get in shifting the Covid hangover once and for all.

Written by Larry Jobsz, Managing Partner of Buchler Phillips, the UK’s leading independent corporate recovery, restructuring and turnaround firm


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