It’s the holiday season, which means blockbuster movie releases.
From Star Wars: The Force Awakens and the final installment of The Hunger Games to the next James Bond movie, Spectre, and the highly anticipated release from Disney-Pixar, The Good Dinosaur, the movie release slate for 2015 is stronger than it’s been in years.
And that translates into more earnings for movie theater operators and greater foot traffic at the shopping centers in which they’re located. Consider this: during the recent economic downturn, same-store sales were declining in all categories except theaters.
“Entertainment and mixed-use developments are the ‘darling’ of both the open-air and enclosed sector developments and as such, theaters act as distinct anchors,” says Timothy Steffan, president of the eastern division of Retail Properties of America, Inc., which owns over 200 retail properties nationwide. “Some of the most successful developments within our portfolio also include theaters.”
Steffan points to Southlake Town Square in Southlake, Texas, The Shops at Legacy in Plano, Texas, and Eastwood Town Center in East Lansing, Mich. “[The presence of a theater] not only increases foot traffic for the soft and hard goods retailers, but also for the quick and better quality sit-down food services,” he says.
More moviegoers
So far this year, industry box office receipts are over $8.8 billion, which is 5 percent ahead of last year and almost 2 percent ahead of the previous record total experienced in 2013. In fact, more people are going to the movies today than ever before, if the new theater experience exists in the market, says Mathew Focht, president of emerging concepts and director at Consolidated Concepts, which specializes in increasing the margins of mid-size emerging concepts.
Focht’s firm represents Silverspot Cinema, a high-end cinema chain with origins in South America. The chain has experienced significant growth over the past few years, including U.S. locations in Naples and Coconut Creek, Fla. and Chapel Hill, N.C. It plans to open theaters in downtown Miami and Beachwood, Ohio in 2017.
Silverspot Cinema and other new theaters, including IPIC, Movie Tavern and Alamo Draft House, are increasing movie market share. Focht points to Silverspot in Naples, Fla., which has grown the market by 50 percent.
“In our core markets we definitely see a demand for state-of-the-art cinema and the people who want to pay the ticket price to enjoy it,” Steffan says. “Greater experiences with in-theater dining are becoming more common place within the entertainment category. The result is that patrons are spending more time at movie theaters, frequenting them more often and increasing property foot traffic and sales. A strong theater, pushing property wide traffic, drives value of the overall project.”
Previously, Focht organized a theater study that showed theaters provide great synergy with both restaurants and retail stores. “Someone seeing a movie is likely to purchase something at a retail store before or after a show,” he says.
There wasn’t as high synergy with someone seeing a movie before or after having dinner. “A two-hour movie experience followed by a dinner experience for one to one and a half hours makes a long evening for most people,” Focht says. “Therefore, providing a high quality dining experience that can be served under an hour is very attractive to a moviegoer.”
Theater transformation
Movie theater operators are doing some interesting things to improve the movie experience and entice people to come to their theaters more frequently, including reclining seats and improved food and beverage offerings.
On average, full-service theaters occupy approximately 40,000 to 60,000 sq. ft. But there’s a trend toward smaller footprints with fewer seats, with theater operators generating cash via higher seat utilization and more food and beverage sales.
Cinemark, for example, is in the midst of repositioning its theaters with reclining seats. By the end of the year, the company anticipates a cumulative total of nearly 400 screens with reclining seats, according to CEO Mark Zoradi. Likewise, AMC Entertainment Holdings expects to have nearly 250 additional screens on-line with recliners before the holiday movie-going season begins.
The improvements that movie theater operators are making are changing the industry, just like stadium seating did in early 2000s, experts say. And landlords are right in the middle of this transformation because most operators lease their space and look to landlords to help finance the build-out.
Landlords are willing to invest in a shell delivery and contribute cash allowance to a theater operator, but the degree of investment varies based on how beneficial a theater will be as an anchor.
“Theaters have begun offering a first class experience with dine-in movies, cocktail bars, special events and luxury seating,” Steffan says. “This has resulted in more owners once again seeing theaters as a positive part of the retail mix, making them more desirable as an anchor tenant.”