The sour economy is forcing nearly two in three event rental operators to discount their rates, according to a recent online survey from Special Events. While the short-term payoff means both clients and cash in the door, some operators worry that it's a vicious game that not only erodes margins today but can push the industry's recovery further down the road.
EVERYONE IS DOING IT
Most operators who are now discounting say they had little choice — everyone else in their market is already doing it.
An operator in a large metropolitan market says he was “forced” into discounting — in the range of 15 percent to 20 percent — because all his competitors are doing the same thing. (Most operators interviewed by Special Events asked to remain anonymous.)
“The price-cutting in our market has gotten out of hand,” he says. “There are companies doing jobs at or below cost just to bring in cash. We have walked away from more jobs in the last 18 months than in the last 18 years.”
Most respondents who are discounting don't cut rates across the board; instead, they discount certain items or offer discounts only to certain customers.
A big-city operator offers discounts on chairs “because there are so many ‘chair’ companies now,” she explains. Many decor companies offer chairs as a loss leader, then up-charge decor, she notes. The rate for chairs “will never come back unless we find a ‘new’ chair that no competitor has,” she says.
A California operator tries to be “specific and purposeful” with its discounts, cutting rates on appealing items to push customers to upgrade to items “they may be on the fence” about, the owner says. And often, this strategy works, he notes. For example, he finds that offering “chiavari chairs for $6.50 in December actually bumps up the quality of other items that are not discounted, like linens.”
Another California operator gives better discounts to customers who open their wallets faster. Customers who pay cash today for an event two months from now get a 20 percent discount; those who pay upfront by credit card get a 15 percent discount. “We do this as a sales strategy to generate income, but we would only do it during times when there's very little income,” he explains.
Miller's Rentals of Edison, N.J., doesn't discount on an individual order, but “in a bidding situation, we'll sharpen our pencils,” notes company head Steve Kohn. “We're not really happy about it, but in order to maintain valued relationships with long-term clients, it's a necessary evil.”
“We have been forced to meet competition and offer greater value by offering ‘packages’ of goods and services,” notes Mike Berk, head of M&M The Special Events Co., with operations in Chicago and Dallas. “If we can do more revenue per delivery, we can afford to share the savings with the customer.”
An unnerving aspect of the discount deluge now swamping the industry, many say, is how random the discounted rates seem to be.
Discounts in his market “are very haphazard,” says one West Coast operator. He began offering “monthly discounts” of about 10 percent in October 2008; he has boosted his traditional 10 percent discount to nonprofits and fundraisers up to as much as 20 percent. “There doesn't seem to be any rhyme or reason” to competitors' discounts, he says. “An event that should go for $4,568 goes for $3,000.”
An operator in the Northeast agrees. “We lost a $10,000 job for a school that ‘had’ to get a bid at $3,000,” he grouses. “That is crazy.”
Indeed, client pressure to cut rates is especially galling. “Many planners are not just getting two or three bids, but sometimes five or six — often getting bids from companies that are not qualified to do the job, don't have the experience, or lack the proper inventory,” an East Coast operator complains. “Then they come back and say, ‘Here’s the price; you have to beat this by 10 percent — oh, and don't forget to build in my 10 percent commission.' They may think they are acting in the best interests of their client but in the end, they are not.”
HOLDING THE LINE
A third of respondents say they won't discount, presenting themselves instead as quality vendors who can wait while the discounters grind themselves out of business.
“Sometimes it pays to lose a bid to a discounter every once in a while,” Kohn says. “The client will eventually come back to you.” For Kohn's Rules, see the sidebar on page 50.
He finds irony in the current market madness. “I find it really enjoyable when the biggest names in the business go one on one with each other just to land a contract,” he says. “When the event is done and the dust has settled, who really wins? The company that was awarded the event? No. The client who received discounted equipment and services? No. The rental companies that held their ground and will live to see another day? Yes.”
Protecting margins while cutting rates has meant operators must cut expenses.
One large East Coast operator says, “We were down 20 percent last year but our bottom line was up because we watched expenses better than ever.”
Austin, Texas-based Marquee Event Group has been diligent about reining in labor and operating costs, notes founder Damon Holditch, CSEP, CERP. “We are not purchasing new rental items unless the client will pay the entire purchase price; they will pay the entire price if they really want an item,” he says. “We point out our new equipment and reliable delivery and pickup services. We have had clients leave us for a cheaper price; they are back to us for their next event with horror stories!”
A multi-city operator notes that his company has streamlined operations for maximum profit. “We're paying closer attention to routing trucks so there is as little overlapping as possible in the same delivery areas,” he explains. “We make sure the order is complete when it leaves the warehouse, and make sure that there are no ‘go-backs’ unless an additional delivery fee is incurred.” His company has introduced layouts and flowcharts in the warehouse and other critical areas to ensure that “working hours in all targeted departments are fully organized and utilized,” he says.
One West Coast operator says he has done “just about everything” to cut his operating expenses: “We've renegotiated our leases, moved one operation, cut our winter workforce to the bone, and held the line on wages — new hires are coming in at 20 percent less than two years ago. We switched phone companies and Internet providers. We cut our Yellow Page advertising out almost completely and are making significantly more direct sales calls to solicit and protect new business. We've had to cut out borrowing for new equipment and curtail our capital equipment purchases, which negatively affects quality in some cases.”
THE NEW NORMAL
The entire industry is facing a market where “too much inventory is chasing too few jobs,” notes Jim Lisi, head of Ventura, Calif.-based EventRents.
Randee Wechsler, president of Atlas Party Rental of Boynton Beach, Fla., agrees. “With the availability of inexpensive rental items for purchase from China and other countries, more people were able to enter the market without having any experience in the rental business,” she explains.
“They sacrificed quality and service in order to just make a sale. Many of these companies do not have the right insurance or business permits and change names often,” she says. “We see many of them going out of business or selling their inventory to other operations.”
So, when will the discounting stampede stop? Opinions are mixed:
“I believe the second half of 2010 has been less of a battle to discount.” — Midwest
“We are contemplating a slight rate increase in March 2011, mostly on specific labor-intensive items, so a lot of our discounts will stay in place through the end of 2010. After that, we hope that the market will have rebounded enough to at least back off on some of the discounts we've implemented, but some will remain in place indefinitely.” — West Coast
“We won't see price increases for at least another year.” — California
“I think we will be in this mode for at least two to three years.” — California
“Will we ever see the market priced as it was in 2006 to 2008 again? I sincerely doubt it. Although we will eventually climb out of this recession, business will be entirely different.” — Steve Kohn
“Customers have become accustomed to bargaining and expecting ‘deals.’ Only once the economy is back at or near the 2007-08 levels will prices have a chance to recover.” — Mike Berk
ATLAS PARTY RENTAL
M&M THE SPECIAL EVENTS CO.
MARQUEE EVENT GROUP
STEVE KOHN'S RENTAL RULES
Steve Kohn of Edison, N.J.-based Miller's Rentals offers his three rules for successful event rental management in tough times:
RULE NO. 1
Quality wins over price in the long run.
RULE NO. 2
You have every right to demand your price.
RULE NO. 3
Always expect the unexpected. Many times we have been awarded a bid even if we are not the lower price. Why does this happen? See Rule No. 1.