How badly did the recently expanded Austin Convention Center want to book business for what was looking like an extremely soft 2004?
Badly enough to offer booking bonuses ranging from free facility rental to free opening-night receptions to free musical entertainment.
How badly did Boston want to recapture its once-biggest trade show, Macworld, which moved to New York in 1998? Badly enough to offer two years free rent at its second convention center expected to open just in time for the July 2004 Macworld.
And how badly did Chicago’s McCormick Place want to hold on to its biggest convention, the annual assembly of the Radiological Society of North America, and other choice medical conventions? Badly enough to spend $1.5 million to upgrade its communications infrastructure and another $20,000 to $30,000 annually for a connection to an ultra-fast experimental Internet.
Many of the nation’s convention centers are slashing prices, piling on the incentives or jumping through any number of flaming hoops to win and retain business in the most dismal climate for the trade show industry in 30 years.
The nation’s economic slump, the fall of the technology and telecommunications sectors and the sustained downturn in business travel have weakened demand for exhibition space just as massive volumes of new floor space are coming onto the market. Many projects got under way when times were heady and will continue to roll out for several years to come.
“What we’re seeing as a result of that is, the merchandise is going on sale,” said Heywood Sanders, chairman of the public administration department at the University of Texas at San Antonio. “It’s like Marshall Field’s saying everything is 20 percent off. It doesn’t do that if business is good.”
Exhibit space available in the U.S. and Canada rose 7.1 percent this year, to 72.4 million square feet, even as use of space is expected to fall by 5 percent and attendance by 6 percent, according to estimates by Tradeshow Week magazine.
This comes on top of a 3.1 percent decline in use of space last year and a drop of close to 10 percent in attendance.
The declines of the past two years represent the first negative trend in 30 years, said Douglas Ducate, president and chief executive of the Center for Exhibition Industry Research.
The level of pain varies from venue to venue, as does the degree of willingness to sweeten deals.
Top-tier convention centers–mega-halls in Chicago, Las Vegas, Atlanta, New Orleans, Orlando and a handful of other locations–are likely to be weathering this storm better than second-tier rivals, said Robert Canton, director of sports, conventions and tourism for PricewaterhouseCoopers.
In an economic downturn, trade show organizers will reduce the number of locations where they will host shows. Likewise, companies will cut back on the number of shows at which they will exhibit, he said.
“If that is going to be the case, a city like Chicago or Las Vegas is much less likely to be cut off the routing than a Pittsburgh or a Boston or another city on the second tier,” he said. (Of course, the big halls, too, can be among the casualties when beleaguered show organizers pare events, as happened this fall when the organizers of Comdex scratched Chicago and several other big cities from their show roster for 2003).
Published rental rates haven’t declined this year for the major convention centers. Canton cited a just finished PricewaterhouseCoopers study that found half instituted increases, and half remained flat. (Typically, a center will charge a show organizer about 30 cents per net square foot of exhibit space per day.)
What’s undocumented, and ultimately more significant, are deals cut behind closed doors.
“A lot is done under the carpet,” said Sarah Braley, senior editor with Meetings & Conventions magazine. “Once they’re in negotiations, there will be some tweaking. They may say, “We’ll give you this ballroom on Friday night for free if we can get you to come to town.”
Second tier
The most dramatic deals appear to be coming from new or expanding venues in the second tier–venues that increasingly have to compete with top echelon facilities that are going after more and more midsize functions to fill their ever-expanding halls.
“As we’re a new building, we understand we may have to try harder in our early years,” said Andy Antrobus, spokesman for the Massachusetts Convention Center Authority, which has seen slower-than-hoped-for bookings for the Boston Convention and Exhibition Center set to open in 2004.
To snare Macworld, the convention center offered free rent for the first two years of a three-year lease.
“We’re fairly unapologetic about understanding that convention business is about bringing people to Boston and creating an enormous economic impact for our economy,” Antrobus said. “For that to happen, we’ve got to get them here first.”
Top-tier facilities do not appear to be giving away space, but they are responding in other ways to the intensified rivalry arising as more and more exhibit space comes online nationwide.
“With McCormick Place, you’re looking at a place that has expanded and expanded, and managed to stay at the front, though the lead is narrowing,” said Sanders, of the University of Texas. (The one-time undisputed champ has been feeling heat from Las Vegas, Orlando and a few other spots for quite some time.)
To keep its leadership position, the center “has promulgated new labor agreements, built new garages, built a busway from the Loop and now it’s got new technology,” Sanders said.
“It’s like rearranging all the floor space on the first floor of a department store–it’s not what you do if business is great, but what you do if you’ve got a competitive problem,” he said.
Tom Mobley, general manager at McCormick Place, said such changes took place over a decade, not out of any sense of crisis, but rather because the center “is always looking for innovative ways to make ourselves more attractive.”
He rejects the notion that the current climate has led to “sale” conditions.
“We don’t go on fire sales, we don’t have Christmas sales,” he said.
Still, Mobley acknowledges an intensifying competitive landscape, and a willingness to negotiate “certain hot-button issues.”
That’s certainly the case in rival Orlando, where the Orange County Convention Center will nearly double its exhibit space with the opening of a new building next May.
“Quite honestly, at this point, we’d work with any piece of business to get them in here,” said Kathie Canning, deputy general manager.
Bookings for the new facility have been a little soft, according to Tom Ackert, executive director, in part because of a lack of large business hotels in the immediate vicinity.
Transportation costs
To keep the customers coming, the center is looking for ways to cut hotel and transportation costs, he said.
Orlando also is counting on the “blessings of God,” he said. “I tell the staff we have the best sales people in the world, but a lot of time the weather changes it for us.”
Some convention centers, such as the Donald E. Stephens Convention Center in Rosemont, are beefing up their marketing .
“We’re very heavy into print advertising–we have been for years–and we’ll probably increase that a little this year, and we’ve added another salesman on our staff,” said James Freeman, executive director.
The intensity of competition will only heighten in the next few years as the inventory of exhibit spaces in the U.S. and Canada rises by 12.2 million square feet, or 16.8 percent, to 84.6 million square feet by the end of 2005, according to estimates by Tradeshow Week.
Among the biggest will be a 1 million square foot center at the Mandalay Bay Resort and Casino in Las Vegas. When the center opens in January, Las Vegas will be home to three of the top 10 convention centers in the nation.
Major expansions are on tap for McCormick Place as well as convention centers in New Orleans, Toronto, Houston, Denver and Pittsburgh, among others.
“I expect this will be a challenge for a lot of venues,” said Canton, of PricewaterhouseCoopers.
“Three years ago, I don’t think the challenges would’ve been as great,” he said.
Still, anything is possible, said Braley, of Meetings & Conventions magazine.
If the economy turns around, if the U.S. doesn’t go to war, “everything can grow again,” she said. “And the centers who’ve added monstrously will be able to find business to fill it.”
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McCormick Place tops list of convention facilities
The Chicago area is home to two of the largest convention centers in the United States. McCormick Place and several others are undergoing or planning expansions, contributing to an increase of convention space available in the U.S.
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TOTAL EXHIBITION SPACE IN THE U.S AND CANADA, 1998-2005
In millions of square feet
2005: 84.6
CURRENT EXHIBIT SPACE
In millions of square feet
McCormick Place (Chicago) 2.20
Las Vegas Convention Center 1.98
Georgia World Congress Center (Atlanta) 1.37
Reliant Park (Houston) 1.19
Sands Expo and Convention Center Las Vegas 1.12
Orange County Convention Center (Orlando) 1.10
Ernest N. Morial Convention Center (New Orleans) 1.10
Kentucky Fair and Exposition Center (Louisville) 1.07
International Exposition Center (Cleveland) .90
Donald E. Stephens Convention Center (Rosemont) .84
Sources: The facilities, Tradeshow Week
Chicago Tribune
– See microfilm for complete graphic.
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