A Blog by Jonathan Low

 

Nov 10, 2020

How Pandemic Consumers Have Redirected Travel and Entertainment Spending Towards Home

People don't yet feel safe going out so they are redirecting their purchases towards making home more comfortable and fun. JL

Kimberly Chin and Sarah Needleman report in the Wall Street Journal :

Consumers holed up during the coronavirus pandemic redirected their travel and entertainment dollars toward pizza, videogames, home-exercise equipment and luxury goods. Companies connected with travel and tourism continued to report sharp declines in their businesses. Consumers are shifting the money that they usually spend on entertainment elsewhere. Companies tied to the connected world—including videogame firms, e-commerce businesses and online delivery services—have experienced stronger engagement rates during the pandemic.

Consumers holed up during the coronavirus pandemic redirected their travel and entertainment dollars toward pizza, videogames, home-exercise equipment and luxury goods, according to several companies that provided business updates Thursday.

At-home fitness company Peloton Interactive Inc. PTON +2.63% said its revenue more than tripled to $757.9 million in the September quarter, while pizza maker Papa John’s International Inc. PZZA 2.95% reported 17% sales growth—the company’s strongest in nearly eight years. Videogame maker Take-Two Interactive Software Inc. TTWO -3.64% posted surprise growth in net bookings and a larger profit on fewer new releases.

The pandemic accelerated the amount of time and money that people spent on videogames, said Strauss Zelnick, chief executive of “Grand Theft Auto” publisher Take-Two. He expects a decent portion of the industry’s larger and more engaged user base to stick around after the health crisis, as new and returning players increasingly turn to games to socialize with friends and family.

“People are leaving their homes, they are going back to work, they are going out and have been for a few months. And yet, our numbers continue to boom,” Mr. Zelnick said.

Consumers are also watching more television. Streaming-video provider Roku Inc. said its total revenue increased 73% to $452 million. “The ongoing Covid-19 pandemic continued to accelerate the shift of viewing away from traditional linear and pay TV,” the company said in its letter to shareholders Thursday, referring to the disease caused by the new coronavirus.

Peloton said high demand for its products since the beginning of the pandemic has resulted in “unacceptably long wait times, well beyond our expectations.” The company said it is making investments to enable faster deliveries but that it will be operating under supply constraints for the foreseeable future.

The company also said lead times for its most popular exercise bicycle are now four to six weeks. “If you look back since the pandemic started, that is the shortest lead time since April,” said Peloton President William Lynch. Peloton shares, which have more than quadrupled this year, fell 7% in after-hours trading.

In contrast, companies connected with travel and tourism continued to report sharp declines in their businesses Thursday. Year-over-year revenue fell 95% at entertainment and venue operator Live Nation Entertainment Inc., 78% at casino company Wynn Resorts Ltd. and 48% at online-travel agency Booking Holdings Inc. SeaWorld Entertainment Inc. SEAS -1.11% said its attendance declined 80% in the quarter, hurt by fewer operating days and capacity curbs.

“Despite these limitations, attendance improved throughout the quarter,” said Marc Swanson, SeaWorld’s interim chief executive.

Many fewer people are going to the movies as pandemic-driven theater closures have disrupted release schedules and depressed revenue throughout Hollywood.

Theater operator Cinemark Holdings Inc. reported 1.9 million patrons during the quarter, compared with 73.3 million a year earlier. Cinemark this summer began trying to lure people back to its theaters by allowing people to rent out its spaces for private watch parties. Since launching the initiative four months ago, Cinemark has sold nearly 50,000 private watch parties, and more than 600,000 people have attended, Chief Executive Mark Zoradi said Thursday on a call with analysts.

Movie and television studio Lions Gate Entertainment Corp. LGF.B +6.14% reported a 37% decline in motion-picture revenue. The studio also plans to lay off about 15% of the 450 workers employed in its film group, according to a person familiar with the plans.

‘We believe consumers are spending at higher rates on luxury products, as there has been reduced spending on experiences due to travel restrictions.’

— John Idol, chief executive of Capri Holdings

Consumers are shifting the money that they usually spend on entertainment elsewhere. Capri Holdings Ltd. , the parent company of luxury brands Versace, Jimmy Choo and Michael Kors, reported sales of $1.11 billion, down 23% from a year earlier but improved from the 67% comparable decline in the prior quarter. The company attributes some of the improvement to homebound consumers who are treating themselves to luxury goods.

“We believe consumers are spending at higher rates on luxury products, as there has been reduced spending on experiences due to travel restrictions,” Chief Executive John Idol said.

Canada Goose Holdings Inc., GOOS +0.32% which sells luxury outerwear, said it recorded double-digit revenue growth from e-commerce in the quarter, with a significant acceleration in September.

“We know the consumers are looking to spend more time outside, not just for normal day-to-day purposes, but also out of necessity,” Chief Executive Dani Reiss said during a call on Thursday.


More outdoor time translated to higher sales for Vista Outdoor Inc., which posted a roughly 30% increase in its top line from shooting-sports and outdoor-product sales for the September quarter.

Consumers who are visiting malls seem to be doing so with purchases in mind. Mall operator Macerich Co. ’s third-quarter traffic was 80% of last year’s figure, but sales were 90% of last year’s total, suggesting a higher conversion rate, CEO Thomas O’Hern said.

As restaurants reopen, Papa John’s is starting to experience some deceleration in its sales growth. Systemwide comparable sales in North America were up 24% in the latest quarter, compared with a 28% gain in the second quarter. CEO Rob Lynch acknowledged the trend, but added that the pizza chain has picked up more than eight million new customers this year.

“A lot of them are coming in through our loyalty channels, and a lot of them have higher frequency and higher ticket averages, than the customers prior to the pandemic,” Mr. Lynch said.

Besides Take-Two, videogame publishers including Electronic Arts Inc., EA +1.48% Activision Blizzard Inc. and Zynga Inc. also reported strong results for the latest quarter. Zynga, known for its mobile games such as “Words With Friends” and “CSR Racing 2,” turned in record quarterly revenue on Wednesday.

Companies tied to the connected world—including videogame firms, e-commerce businesses and online delivery services—have experienced stronger engagement rates during the pandemic. “It’s an escape from reality,” JMP Securities analyst Ron Josey said. “It’s helping you connect with those that you typically would connect with in person.”

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