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Phil Soar: What happens next?

by Phil Soar
This week our guest editor Phil Soar asks the big question. What happens next?

I’m quite interested in the future – I intend to live there. And the crisis which has been brewing since the suicide note of the Brexit referendum is finally upon us – Boris Johnson, Covid, a collapsing pound, disastrous trade imbalances, Putin, impossible energy prices and now the spectre of Truss. So it might be sage to try and forecast some of the consequences of the forthcoming recession for our own industry.

Predictions make fools of us all. Try some favourites:

Steve Balmer, the CEO of Microsoft in 2007: “There’s no chance the iPhone is going to get significant market share. No chance.” (The iPhone was launched in 2007)

Paul Krugman, Nobel Prize winning economist and New York Times writer in 1998: “By 2005 or so, it will become clear that the internet’s impact on the economy will have been no greater than that of the fax machine’s.”

Darryl F. Zanuck, one of Hollywood’s most powerful figures, in 1946: “Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

The Decca Records head of A&M rejecting the Beatles after their 1962 audition: “We don’t like their sound, and guitar music is on the way out anyway.”

Innovation and change is simply not predictable. Twenty five years ago – not that long in a slow moving industry like ours – we attracted visitors by sending out brochures, and tickets, and postcards and asked everyone to reply by post so we could add them to our mailing database. The use of fax campaigns was regarded as revolutionary.

And we took cash – lots of it – on the door. Staff walked round selling Catalogues for £1 or £2 – on average 17% of all visitors bought one. Conference delegates would hand over $50 or $100 in cash at the door. I remember stashes of cash being counted in the back office. Security and registration staff were paid in cash from the stash and trying to stop the operations team dipping into it for an evening drinks session was a nightmare.

Do you ever see a £10 note on site nowadays? (Do you ever see a £10 note, full stop?)

We will have 10% less to spend in 2023

But we find ourselves in a very trying time. The Bank of England is talking about 14% inflation and a two-year recession, with the economy declining by some 2%. On the brighter side, this is mild compared with early 1990s (3%), the early 1980s (4%) and 2008 (6%).

With the rises in energy and mortgage costs the median estimate is now that the disposable available expenditure of the average household in the UK will fall by 10% in 2023. Note that this doesn’t mean that income falls by 10%, but that, after taking account of energy bills and increased mortgage costs, the average household will simply have around 10% less to spend on everything else. This is the most dramatic fall in real spending power since records began.

But, above all else, what happens is not necessarily predictable and could be thrown out of kilter by completely unexpected and random events.

I am not seeking to make predictions – but I am paid to try and think about some of the things which might occur. I am not suggesting that anything which follows will happen – but I don’t think we should be completely surprised if some of them do.

How will we deal with inflation? 

This is a complex and interesting issue which our industry has not faced for three decades. Personal inflation rates (CPI etc) and business inflation rates are different. While the average household is going to have 10% less to spend in 2023, the effect of energy prices on most businesses is far lower because energy forms a lower percentage of total costs (the exception of course is hospitality businesses like bars and pubs).

Mathematically at least, if your costs rise at 10% next year and you raise prices (square metre charge out or delegate rates) at 10% then, assuming you sell the same number of square metres, your profits will rise by 10%. I have shown elsewhere how high inflation in earlier decades had the effect of inflating profits for some exhibition companies.

But we face the problem of being a slow cycle business. If you are one of the trade show companies which operates on the “subscription model” – ie you re-sign maybe north of 70% of exhibitors on site – then you can’t actually affect your core revenues for another year. If you ran a show last week and raised prices by (say) 4%, then you are a hostage to fortune as you cannot alter the bulk of your 2023 income, while being faced with price increases of maybe 14% plus for the next 12 months.

By the time you can respond again (say September/October 2023), inflation may have fallen back dramatically (the Bank of England suggests 4.5% next autumn) and you no longer have the freedom of manoeuvre.

I suspect that most companies have not thought through this problem in good time and that the slow cycle of our industry will catch them out. Whether they can compensate in 2023 and beyond remains to be seen.

2024 runs at 15% lower than 2019

I have already suggested that we must expect visitors and square metres in 2024 to be running at 15% or so less than 2019. I stick to that – but what I must stress is that this does not mean that all shows will be smaller. Past recessions have tended to focus the decline on a small number of, often, larger events. In 2008 would you have predicted that the next (and soon to arrive) recession would soon lead to the culling of  The Motor Show, The London Boat Show, InterBuild, IPEX and Interiors – five of the UK’s biggest events?

Collapse of international visitors leads to …

It is already clear that we will be seeing many fewer international visitors at UK shows. When the EU introduces its US-like fingerprinting and photo controls next May (fancy the Channel Tunnel or St Pancras with that routine for every holder of a UK passport?), then the UK and EU will be psychologically and practically further detached. The UK government has not pronounced yet, but would you put it past Liz Truss to retaliate and insist that EU visitors at Heathrow go through the same nonsense?

This acceleration of post-Brexit trends will definitely lead to the UK becoming an even more provincial market.

So bigger shows up sticks and move to Europe

Several owners of our larger shows believe that the European market is very important to them. And even if they don’t, some of their exhibitors might think that. We face higher inflation rates than anywhere else in Europe and much lower growth rates (or, more accurately, negative growth). We are experiencing venues understandably looking to deal with that, and also claw back some of their losses from the pandemic. Energy and security bills will rise dramatically for event organisers in the next 12 months. No doubt Amsterdam, Paris and Barcelona will continue to offer very attractive terms (two years’ free tenancy anyone?) to jump ship from London. Coupled with the UK detaching itself from Europe, we could well see some large shows decide that they had better move across the channel sooner rather than later. Hyve’s recent decision to move ShopTalk to Barcelona from London may or may not be a straw in the wind.

Paul and Ian, Nigel and Anna, Jeremy and Simon were all superb through the pandemic. They helped hold the industry together – they were the embodiment of “we are all in it together”. No one can criticise their need to look for new revenues or think deeply about the future. This makes today very unusual indeed in the long history of our industry. We can no longer assume “business as usual”.

NEC and Olympia are becoming desination venues – and this may have consequences

Ian Taylor has told the industry about the NEC’s attractive plans for its further development. More and more it becomes a “destination” rather than a set of exhibition halls. This is obviously linked to HS2, where the major interchange station will be next door to the NEC. The station is almost in the venue – closer to Hall 5 than the M42 exit – and there will be a people mover taking everyone from the HS2 station across Pendigo Lake and into the NEC on their way to the airport. The inevitable housing developments around the whole site (just 42 minutes to Central London – quicker than taking the tube from Heathrow or Epping) will add to the appeal as a destination.

Olympia is already well on the way to being the “West London Destination” with its five star hotel, 4,500 seat conference facility, 1,575 seat theatre and 20 restaurants.

In both cases, the relative significance of exhibitions is in decline. While there are no known plans to close down space, it is not inconceivable that the NEC could close its older halls to free up space for other uses, and Olympia could limit the amount of time available for trade shows. I am not saying this will happen, but it is surely not impossible in this decade.

The future of service companies

The disappearance of Freeman was one of the major shocks of the pandemic. The companies that serve our industry do not operate on outlandish margins. Their’s is a tough business. And while I can argue that the great majority of events will not decline and that the loss of a Motor Show or IPEX does not affect the majority of organisers, it does affect service companies dramatically. Margins in the industry are tight and staff shortages post-Brexit continue to trouble everywhere. The loss of more large events – either through closure, or attendance falls at consumer events, or moving abroad – can have a dramatic effect. I have no insights into GES’s thinking, nor of the majority of our registration companies. But we cannot discount the destabilisation that will come from another supplier exiting the marketplace.

A big consolidation play

It is not clear when or how price multiples for the bigger players will return to the levels we saw in 2018. One or two recent acquisition processes in the USA have suggested that there is still an appetite for trade shows – with buyers thinking they don’t have to quite pay 2018 prices. I think there is a decent chance – let’s say one third – that there will be a sudden, major consolidation play by one of the larger PE groups. They could seek to acquire Comexposium, Clarion, Tarsus and possibly the RX portfolio in a well planned strategy. That would dramatically change the whole market.

But there will be successful new entrants 

It is hard to generalise in our industry. One can only be specific with one’s own experiences. Blenheim grew dramatically during the 1990-92 recession. It was possible to launch new events (Premier Collections, Furniture etc) into a quiescent marketplace. The bigger guys pulled back, cutting costs, pressured by their boards to maintain profits and margins rather than launch new ideas – thus creating opportunities which wouldn’t have existed two years before.

Of the many strokes of luck which lead to CloserStill’s emergence, one of the greatest was starting – with no events or staff – in 2009. This was the worst of all the post-War recessions, and as a result hardly anyone was investing. Many were actively disinvesting. Halls were welcoming, interesting ideas could be tried without competitors, good staff were available.

The same will be true this time. There will be people you have not yet heard of, companies which don’t yet exist, and ideas which will only seem obvious afterwards. In three or four years time there will be two or three new kids on the block growing fast. Find them and invest in them now.

Will we pivot to digital? 

This is the great divide of 2022 and the next two or three years. Our two largest companies are talking about 25% (or thereabouts) of revenues being “digital”. There is much talk of treating our customers (the exhibitors) in a much more holistic way and of offering them a suite of additional services. Of course, what might be termed “digital revenues” is a matter of debate – an all-encompassing “20% of revenue is digital” without explanation does not reveal much. If this approach succeeds in the eyes of it progenitors then we might be seeing a truly different industry – or perhaps two industries as the larger groups diverge from their more traditional peers. What we will see is investors (PE and VC) making this one of their tick boxes (“How much of your revenue is digital?”) This is comparable to the standard question: “How are you geo-cloning – particularly to China?” we inevitably heard around 2014 (How did that one work out?)

But the great arc of history tells a different story 

The world is always gloomy. Newspapers  always stress the problems and the disasters we face. It can be hard to find “evidence” for a better alternative but easy to extrapolate apparent trends towards disaster (“Population growth will destroy the planet”, “We are running out of oil”, “Union power will destroy the UK economy.”)

The symbiotic relationship between politicians and journalists leads to a tendency to overstate any threat, because nothing gets better headlines than scare stories and it allows governments to pretend they are doing something useful. As Moshe Maor says: “Policy makers believe they are more talented and competent than they actually are, have more control than they actually have and have more chance of solving policy problems than they actually do.”

Looking back, it is rare that a crisis turns out to be as desperate as predictions indicate, and it is equally rare that government actions solve the problem – what does occur is the unexpected.

The gradation of slow improvement is often imperceptible. For those over 50, compare the UK today with the 1980s.

The arc of history and humanity veers slowly to the positive. This doesn’t mean there are not occasional downbeats. We have seen three in very recent history – the financial crisis of 2008, the pandemic of 2020 and the Putin Energy crisis of 2022. Statistically this might suggest we shall not see a repeat of the last 15 years in the next 15.

What I really believe we are most likely to experience is a cautious recovery of the exhibition sector over the next (say) four years. I have bored readers time and again with our great historical truth – trade shows have been around since 1240 and the basic model has never changed. People like dealing with people face to face. We have overcome every kind of mishap in that time – and the recovery from the 2020 pandemic is in many ways a plus. If we can deal with that so well, then we can deal with anything. From prognostications on the death of the trade show in summer 2020, we have moved to “this sector is about as resilient as they come.”

Recent larger deals in the sector have seen multiples close to 2018 – and that has been something of a surprise. When you consider the restrictions on travel, the deaths of millions, the staggeringly rapid arrival of vaccines (what a company BioNtech is), the crazed political controversy over jabs (32% of the US – one adult in three – is still not vaccinated) and the seemingly negative mood of the major economies. Then it is a surprise when I walk into Olympia, the NEC, ExCeL and Porte de Versailles and see really busy aisles and exhibitors happy to rebook at 100% and beyond. How did that happen so fast?

I am not trying to pretend everything is perfect – visitor rates at circa 75-80% of 2019 seem to be the norm at the moment.

But on balance, this adds up to a positive view of the future for our industry. It wont be the same as 2015. Brexit has meant that the UK economy will be permanently smaller than it should have been and we are becoming an even more provincial market. But the great majority of shows will do well. They will grow, if gradually, and their businesses will prosper.

You might not believe it reading many of my articles, but I am an optimist. I wouldn’t have invested in a dozen exhibition companies if I wasn’t. We belong to a wonderful industry – it will be here, strong and intriguing – long after we are all dust. 



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