You won’t find me in da club…
The mighty nightclub, once the destination for a good night out, appears to have finally fallen to its rivals. “The club market, having gone through tough times on several occasions previously, has really gone into meltdown this time,” says Colin White, head of leisure at ES Group.
He isn’t kidding. Latest estimates from Mintel show that nightclubs admitted 178m people back in 2007. By 2012 that figure had shrunk to a less healthy 133m. And Mintel predicts that only 107m will be throwing shapes in the churches of sound by 2017.
Alongside this revenues have plummeted and are expected to drop further. Back in 2007 revenues stood at £2.27bn per annum. In 2012 they were £1.33bn. This year they are forecast at between £1.1bn and £1.2bn. By 2017 turnovers for the UK nightclub industry are expected to be just £928m.
Pubs and restaurants have weathered the recession well, with the Coffer Peach Tracker showing growth of 4.3% on last year. Casinos have also fared well (see box overleaf).
But a recent report by restructuring specialist Zolfo Cooper said: “In stark contrast to restaurants and pubs, which show encouraging signs of recovery, the outlook for late-night operators remains challenging, especially for the traditional nightclub model and the ‘big-box’ format.”
Clubbing is perceived as a luxury, cash-intensive activity. And it is intrinsically linked with the leisure habits and disposable income of the 18-34 age bracket.
The yoof, despite headlines about binge drinking, are spending far less on alcohol in clubs and bars, possibly as a result of youth unemployment and student costs being much higher than before, says Alex Hill, licensed and leisure specialist at Colliers International.
Drinking patterns are changing. Latest figures from the Office for National Statistics show that 50% of people aged between 16 and 24 have a drink each week, compared with 66% of people in their 40s to 60s. Meanwhile only 3% of 16- to 24-year-olds could be classified as frequent drinkers, against 18% of those claiming their pensions.
Zolfo Cooper figures show that spending on a night out for 18- to 34-year-olds has dropped from £28 to £26. According to the research, this group is now visiting nightclubs less than twice a month – a 30% fall and the lowest rate recorded.
Taken together, this drop in frequency of visits coupled with a drop in spend means that each person in this age bracket is spending £400 a year less than they were in 2012.
None of this is good news for the nightclub operators, many of which have been forced into administration.
Just last month the Espionage clubs in Edinburgh and Aberdeen closed as their parent Duddingston Leisure went into administration.
No Saints has also been turned around with a pre-pack, recalling what happened with nightclub giant Luminar in October 2011 (see box below).
It is possibly an indicator of the growing number of failures in the sector that the government is currently consulting on plans to extend permitted developments to allow casinos and nightclubs to be converted into homes.
But the greatest threat to nightclubs is the fact that they are no longer the only game in town.
Before 2003 the general rule was that if you wanted to go for a drink and a dance after midnight, you went to a nightclub. With the relaxation of the licensing laws and the liberalisation of late licences, that has changed. Now, any bar, pub or venue can apply for a late-night licence.
“That legislation took away nightclubs’ trading advantage from 11pm until 2 or 3am,” says White.
Others disagree that this has altered the landscape that much. “I’m not convinced late-night licences are being used as much as they could be,” says Adrian Leavey, commercial property partner at law firm Trowers & Hamlins.
The exact concepts behind fad bars may come and go like a hipster’s beard, but whether it is ping-pong or karaoke, table football or cocktails in jam jars, these are doing a roaring trade in certain postcodes.
One activity that appears to be doing a booming trade and taking full advantage of the changes in licensing laws are the live music venues.
Mintel shows revenues for live music relatively steady at around £1.5bn over the past five years. But it predicts that this will rise to over £2bn by 2018.
But it isn’t just pubs and bars that are acting as competition for the benighted nightclubs. “As alcohol becomes less of a factor for young people, the field has widened,” says Hill.
“Cinemas are also warming to the idea of late-night openings,” says Leavey. “We are seeing more cinemas pushing for late-night opening hours.”
Odeon and Cineworld have both increased their opening hours. Most cinema chains are introducing VIP packages, such as previews, movie marathons, and, of course bars and dining in a bid to lure late-night custom.
“They are adapting to survive by diversifying and some of this diversification lends itself well to 24/7 opening hours,” says Leavey. “People want to make a day – or night – of it when they go to the movies and cinemas are likely to try and capitalise on this.”
For those eschewing alcohol all together, as the ONS claims around 27% of under 25s are, there is always the gym (see box below).
But a few pure nightclub operators have managed to succeed in what is a shrinking market.
The ones that can be considered success stories – Novus Leisure, Eclectic Bar Group and Mint Group – are predominantly located in London and benefit from its better economy.
They also focus on smaller venues, customer service, premium prices and quality, a far cry from the old sweat-pits of the 90s.
“Smaller, more flexible nightclubs/late bars remain popular,” adds Hill. “They can respond more quickly to what their customers want.”
Eclectic raised £15m recently using this formula, and it is now looking to expand in the regions.
But it will need to be careful acquiring venues in the provinces, says White. “Many of them are not the bargains they seem. There are simply too many venues.”
For the pure-play, big-box clubs the new watchword is flexibility.
“Clubs are now looking at being multi-purpose,” says Hill. “They simply cannot stay profitable as big-box clubs that are really full only three nights a week.”
Because of this some are now looking at other uses, especially in the daytime.
“Some are expanding as live music venues, some are leasing nights to comedy clubs,” says Hill. “Some are looking at being truly multi-purpose, becoming venues for yoga classes and daycare during the day.”
One outfit that looked into this was No Saints (see box below).
“No Saints was set up with the intention of being multi-purpose, but that didn’t work out,” says Hill. “It was struggling to find venues that were suitable.” Small wonder. Few spaces lend themselves equally to fat tunes and pounding bass as well as the demands of a parent and toddler group.
“And,” Hill says, “it is hard to get rid of the smell of stale alcohol and vomit.”
Bet big on casinos
In stark contrast to the flagging fortunes of the nightclub scene, casinos are on a lucky streak.
Over the past three decades or so the UK’s casinos have seen an exponential increase in their “drop” – the amount of cash swapped for chips or poured into one-armed bandits in their venues.
In 1981 the drop was a respectable £930m. Thirty years later it was £5bn. Figures from the UK Gaming Commission show that this year that has risen to a dizzying £7bn. The house win from that is a cool £900m.
The UK is also currently in the throes of the first significant change to its casino landscape since the Gaming Act of 1968, with the first new facilities licensed under the Gambling Act 2005 now opening.
Luminar’s legacy
Luminar’s fluctuating fortunes are a good barometer for this tempestuous market.
It was founded in 1988 by Stephen Thomas, a former nightclub bouncer who opened his first venue, Manhattan Nitespot, in King’s Lynn.
Renowned as a late-night visionary with a golden touch, Thomas seemed to be riding a wave with success after success. Luminar’s estate grew and grew, as it opened more than 400 bars and clubs. Then it all began to go wrong.
As the recession started to bite in 2009, Luminar was struggling to keep up repayments on debts of more than £80m. In 2010 Thomas left the company. And on 26 October 2011 Luminar Group Holdings was put into administration.
When Luminar Group Ltd was incorporated on 5 December 2011, headed up by former managing director Peter Marks, the talk was positive, but few could see how the new incarnation would manage to turn the tide.
However, that is exactly what has happened. Betting big on new formats, such as PRYZM – a multi-room club with venues in Brighton, Bristol, Kingston and Leeds – as well as big name DJs such as Zane Lowe and Duke Dumont, it is spending around £5m a year refurbishing its estate.
“When we acquired the business, one of our key priorities was to refurbish the estate, which had been underinvested for many years,” says Marks. “Our investment programme is now starting to deliver results.”
Luminar is once again the UK’s largest nightclub operator, with 53 venues. In May it announced turnover of £88m, a 34% increase in profits to £3.4m, and an EBITDA of £9.7m.
Thomas, meanwhile, went off to set up No Saints – the puckish younger and trendier cousin of Luminar – running the Wonderland and Jam House formats.
But by July this year No Saints was no more. It went into pre-pack administration, hampered by unpaid tax bills and owing £761,000 in rent arrears.
Thomas, however, is back. After the pre-pack his management team bought the carcass of No Saints for £1.73m. It is now running seven of the venues though a vehicle called Exeat Leisure, and is hunting for sites.
Late-night levy
Nightclubs, already under increasing pressure from both reduced spending and growing competition, are now being threatened with a not-so-stealthy tax on their activities.
In 2011 the government passed legislation allowing councils to implement a late-night levy, which requires any premises open late to pay the levy on a sliding scale. For premises that sell mainly alcohol and have a rateable value over £125,000 – which is most clubs – the fee is £4,400 per annum.
So far Chelmsford, Cheltenham, the City of London, Islington, Newcastle and Nottingham have introduced the levy since it came into force in October 2012. Liverpool, Southampton, Tameside and York are consulting.
Rise of the all-night gym
It’s 2am and you have definitely broken your “three drinks then bed” rule. You stumble from the bar, the bass still pounding in your brain, and wave off your friends at the taxi rank.
You really should think about heading home. But you have an urge. A hunger. There is only one late-night venue that can satisfy your desires. The gym.
And as nightclub visitor numbers are plummeting, all-night gyms are becoming increasingly popular.
Peter Roberts is CEO of PureGym, a low budget, no-frills 24-hour gym chain which he founded in 2008. Since it abandoned its planned merger with the Gym Group in July, PureGym has decided to expand independently. According to projections it will be the number-one gym operator in the UK next year, with more than 170 gyms.
“We wanted to offer 24-hour gyms because our entire ethos was about having the freedom to use the gym whenever you wanted,” he says. But he was surprised at how many people do use the gyms in the wee hours.
Of its 400,000 members, some 15% use the gyms between midnight and 5am.
“For most of those who do it late at night it is circumstantial,” says Roberts. They tend to be shift workers, and part of PureGym’s strategy is to open near places that employ a lot of shift workers.
“But there are a sizeable number of people who choose to go late at night,” he adds. “London and other cities are becoming more 24-hour places. So people are really beginning to choose when they shop, eat and go to the gym.”
