The Economic Downturn: A Report to the Industry

Bumps in the road turn everybody into economics majors. There are people who wouldn't be caught dead anywhere close to the business section of their local paper in good times who are now spouting off about credit crunches, discount windows and something called a Freddie-blessed mortgage-backed security.

Many of us here at Tradeshow Week were around for all or parts of the last period the tradeshow industry's hard times were triggered by problems in the larger economy. That's why we decided it was appropriate, in conjunction with the Society of Independent Show Organizers' CEO Summit April 6-9, to examine the implications of the current economic downturn on the industry we cover. The results of that examination are spread out for you over the next several pages; in some cases, on a sector-by-sector basis.

Our conclusion: Most of you are pretty smart. There may be problems in certain corners of the tradeshow industry, but you know what to do.

By now, people who had never even heard of sub-prime mortgages before 2007 are well versed – or think they are – in not only what they are, but also how their collapse has affected homeowners, the housing market and the overall economy.

Likewise, it only made sense that the first tradeshow sector to suffer once the crisis took hold would have to do with residential building.

The Intl. Builders' Show, for example, owned and managed by the Natl. Assn. of Home Builders, saw an 11-percent drop in attendance Feb. 13-16 at Orlando's Orange County Convention Center. According to the NAHB, final attendance for the largest show serving the housing market was 92,098, compared with 103,391 in 2007 (both numbers include exhibitor personnel).

What might seem alarming to some was seen as a positive by Wayne Stetson, NAHB's senior staff vice president. After all, he pointed out, he and others at the association thought the show was going to experience a 20-percent drop. And, Stetson added, even though the slowing economy and the housing crisis were factors, the show faced another issue: After four years in the same city, attendees were just flat tired of Orlando.

The NAHB won't have that problem in 2009: Next year's show is scheduled Jan. 20-23 at the Las Vegas Convention Center.

Hanley Wood Exhibitions President Galen Poss said his company and its 11 shows for the residential homebuilding sector were “holding up very well.”

“We had good growth in '07, and the '08 projections are also projected to go up,” he added.

Even so, Poss said he's seen some declines in attendance. World of Concrete, held Jan. 22-25 at the LVCC, was down 7.5 percent from last year.

Echoing Stetson, WOC Show Manager Tom Cindric said things could've been worse. “We are pleased with the support exhibitors and attendees have shown to us, when things in the commercial and residential construction communities have been affected by the current economy,” he said.

Poss said people skipping the shows right now are not the core buyers anyway. “Also, companies are bringing less people,” he added.

Deck Expo also experienced declines, Poss said, but the Intl. Roofing Expo saw an increase.

Affected or not, all Hanley Wood shows are still serving their purpose by connecting key buyers and sellers, he said, adding, “It's the quality-vs.-quantity argument.”

On the other hand, Poss said, if the economic downturn drags on and spreads beyond the building and construction sector, it could be “more troublesome.”

Poss predicted the economy would continue to struggle through the end of this year and pick up in 2009. “What quarter is anyone's crystal ball,” he added.

–Rachel Wimberly

Officials from Advanstar Communications division MAGIC Intl. reported that “more than 120,000 attendees from 80 countries” attended the Feb. 12-15 MAGIC Marketplace at the Las Vegas Convention Center and Hilton Las Vegas. MAGIC won't parse the attendance number by exhibitors, buyers, press and so on, but nobody at the show seemed to believe there were more buyers there this winter than last, when the show also reportedly attracted 120,000 visitors.

Opinions among those attending Las Vegas fashion week about how the industry would fare through the economic downturn varied as much as the fourth-quarter and year-end SEC filings of publicly held companies in the apparel sector, such as Hampshire Group and Phillips-Van Heusen, owner of Bass, Calvin Klein and several other well-known labels.

Many said they believed high-end clothing and accessories (star of a slew of up-and-coming niche shows in Las Vegas) would continue to sell, as would discount merchandise (such as Tarsus Group's Off-Price Specialist Show), because big spenders would skate through tough times unscathed and everybody else would be looking for a deal. The big loser, most thought, would be mainstream apparel - MAGIC's bread and butter.

In the guidance section of its year-end report, Phillips-Van Heusen (which did see modest increases in revenue and operating income for 2007) said it held a “cautious view of 2008 and a belief that the current economic environment will continue through the year.”

Louis Deering, owner of two clothing stores and an attendee at this winter's Las Vegas fashion week, echoed that: “I think people are going to be cautious. I think it's smart to not go crazy.”

Exhibitors were feeling this vibe and, apparently, so was MAGIC. The company cut the show schedule back from four days to three, responding to exhibitor requests to get rid of a day they felt was costing them more than it was worth.

Reflecting on what might be ahead for the rest of '08, Chris de Moulin, recently hired executive vice president of MAGIC's fashion group and president of MAGIC Intl., said, “I think it's always tougher to do good business in a struggling economy. But … the news came out about retail sales actually being a little up in January. Turns out, even in tough times, people have to shop.”

Another industry insider said that was true, but in a certain order. Joe Frazier, vice president of Mercury Intl. Trading Corp., pointed out on the floor of The WSA Show (the week after MAGIC in Las Vegas) that people buy what they have to have first (work clothes), then what they need for their kids, then what women need and, last, what men need.

The long and short of it? “I think the first quarter is going to be a difficult quarter for (fashion) retailers, and the second quarter is going to be even more trying,” Frazier said.

–Heidi Genoist

There is barely a discouraging word in the health care sector. The most recent annual Tradeshow Week Medical and Pharmaceutical Report indicated that business was up in 2007 by every measure, but especially attendance, which rose 3.1 percent across the board.

Indications are that will be the case again this year. Interphex, Reed Exhibitions' major pharmaceuticals show, opened March 26 at the Pennsylvania Convention Center in Philadelphia with what show managers claimed would be a record crowd of 20,000, up from 9,981 last year in New York. Granted, it was collocated for the first time with Biotechnica, Deutsche Messe's biotechnology show. Still, Reed Life Sciences Group Vice President Kevin Richards estimated Biotechnica added a mere 1,000 more attendees.

Meanwhile, Randy Bauler, exhibits director for the American Assn. of Critical-care Nurses' Natl. Teaching Institute & Critical Care Exposition, said he expected at least 7,500 nurses at the May 6-8 show at McCormick Place in Chicago. That's up from 6,861 last year in Atlanta.

“We might even make 8,000,” he added, “and, if we do, that would be an all-time record.”

According to Bauler, “in general, health care has been practically recession-resistant.”

First, the health care industry dodges some of the ups and downs that other industries experience because much of its funding comes from government programs like Medicare and Medicaid. Second, the focus of every show is the continuing education that is almost compulsory for physicians, nurses and other health care-sector employees. This means show managers can draw people to an exhibit hall even if conditions in the larger economy are less than perfect.

Finally, research and development on pharmaceuticals and medical devices is not as dependent on economic cycles as other industries' products, which may not take as long to germinate.

Still, Bauler advised not to confuse recession-resistant with recession-proof.

“On the exhibitor side, we have seen some decline,” he said. “We're down about 50 booths (from last year's 535).”

Most of those, he added, are smaller exhibitors who said budget cutbacks kept them away.

When health care shows do suffer declines, organizers often blame geography or timing, not a slow economy. In 2007, the American Society for Healthcare Engineering Annual Conference and Technical Exhibition took a 14.6-percent attendance hit because it was held in New Orleans (instead of Boston, as in 2006).

“People did not want to travel to New Orleans,” Exhibit Manager Benjamin Rabe said.

–Michael Hart

The information technology tradeshow sector was hit hard by the tech bubble bursting earlier this decade and the economic downturn following Sept. 11. But the industry has bounced back healthier than ever – albeit in a different form.

Gone are the days of massive high-profile computer shows, such as COMDEX. They have been replaced by specialized vertical events in key market sectors. Smaller shows that engage targeted audiences are less vulnerable to a fickle economy, said Dick Blouin, president of 1105 Events, a unit of 1105 Media.

He gave the example of Tradeshow Week 200-ranked FOSE, an IT show that is primarily for the federal government and is part of the 1105 Government Information Group. “The government is good for us,” Blouin said. “It's built around core markets.”

Neil Vitale, 1105 Media's president and CEO, noted that FOSE is essentially a regional show since it draws the overwhelming majority of its attendees from the federal government based in its location: Washington, D.C.

“There's no fly-in, so we don't have the travel hurdle,” he added.

Both Blouin and Vitale said they hadn't seen any declines in attendance or number of exhibitors at any of 1105's IT events so far – but there still could be. The current economic downturn, Vitale said, “is still unfolding.”

Blouin predicted that if he did see symptoms of a downturn, it would be in attendance first. “Exhibitors won't be seen until later because they have contracts,” he added.

Eric Faurot, senior vice president of TechWeb, one of four newly formed units previously under CMP Technology and owned by U.K.-based United Business Media, said that none of the 180 events under his banner had been affected by a slowing economy. In fact, he added, many of them have grown 15 to 35 percent in the past year.

“Our strategy is really to be the leader in all forms of face-to-face in the IT sector,” Faurot said. “Economic contractions tend to favor category leaders.”

TechWeb has events that specialize in everything from embedded systems to Internet protocol to Web 2.0. “Interop, our biggest brand, is up 10 percent from last year, and we are still (a few) weeks from the event,” Faurot said. “There's clearly confidence.”

Interop Las Vegas, ranked No. 192 on the 2007 TSW 200, is scheduled April 27-May 2 at Mandalay Bay Resort & Casino in Las Vegas.

TechWeb has so much confidence in the market, Faurot added, the company's shopping around for more shows. “(In a) contracted market we can find good deals,” he said.

–Rachel Wimberly

At first glance you might think manufacturing would be one of the most vulnerable tradeshow sectors during tough economic conditions. After all, when spending drops, doesn't the lessened demand for products also lead to a slump in manufacturing? And wouldn't that hurt manufacturing tradeshows?

Not necessarily. For one thing, a lot of manufacturing technology is created for the long term. What is typically displayed and sold at tradeshows in this sector in 2008, for example, isn't meant to be used this year. And common wisdom dictates that in bad times, exhibitors should increase their marketing efforts.

Kevin O'Keefe, senior vice president of events for Canon Communications, which owns a bevy of manufacturing shows, has seen positives despite what seems to be a worsening economy.

“We have felt no negative effect on our events at all,” O'Keefe said. “In fact, our Charlotte collocated events (Design & Manufacturing South, Plastec South, ATX South, PTXi South and SouthPack) that ran in March experienced record attendance and exhibitor renewals, as did our show in Anaheim at the end of January of this year.” And, he added, exhibitors have told him their businesses are strong and trending up.

“Since all our events are about advanced manufacturing and are not directly tied to consumer products or the housing market, we do not anticipate any major downturn,” O'Keefe said. “In fact, our entire 2008 lineup both here in the U.S. and in Europe has been experiencing strong growth in space and attendance with upcoming events, showing attendee pre-registration up well over 2007.”

O'Keefe noted that in 2009, if the financial markets do not correct themselves, there may be an impact on capital equipment spending affecting some parts of his events. But for now, he added, “so far, so good.”

Peter Eelman, vice president of exhibitions for AMT – The Assn. for Manufacturing Technology and The Intl. Manufacturing Technology Show, spoke from Shenzhen, China, where AMT has a pavilion in the Shenzhen Intl. Machinery & Moulds Industry Exhibition.

“Certainly, a major economic problem will eventually affect all segments of the economy,” Eelman said. “However, to date we have not experienced any decline in the IMTS show.” In fact, he added, space sales are up 5 percent for the next show, scheduled Sept. 8-13.

Eelman even said he saw a silver lining to the current economic situation. First, there's broader recognition in the industrial community that productivity increases must be made for future survival. In addition, many see some positive effect from the federal government's economic stimulus package, which includes incentives for purchasing equipment.

“As we know, the situation is increasingly fluid and persistent weakness will impact demand eventually,” Eelman said, “but by increasing our focus on innovation and productivity, we intend to tap our audience demand for this information regardless of the overall market conditions.”

–Gary Tufel

Attendance at consumer shows may have dropped an average 5.8 percent in 2007, according to Tradeshow Week research, but it came as little surprise to industry professionals. What's more, they could have improvement this year.

The consumer show sector saw declines in attendance and number of exhibitors during the last economic downturn after Sept. 11, too, said Jubilee Vinga, account manager at the Natl. Assn. of Consumer Shows.

“But we saw those numbers rebound quickly, and jump up above the pre-9/11 numbers,” she added.

That's not to say that the sector will get away scot-free.

Vinga was quick to point out that the viability of consumer shows depends heavily on the marketplace the show is staged in and the market it serves. If anything, she added, she thinks the focus on the economy is causing people to watch their spending more carefully. So, for instance, if they are thinking of making home improvements, they may be more likely to attend a home show before they start renovations to make sure they're getting value for their money.

“People still value consumer shows,” she added.

TSW Associate Publisher and Director of Research Michael Hughes also said consumer shows looked good for the coming year, even if the general economy does not.

“Since the last downturn, there has been strong growth in the number of consumer shows,” he added. “There's more competition today, and some of these newer shows may not survive. But if the unemployment rate doesn't spike and consumers continue to spend, consumer shows should remain healthy in 2008.”

TSW research indicates that the previous downturn hardly affected consumer shows, which grew by an average annual rate of 4.5 percent in net square footage from 2000 to 2003. And then, once the economy began to turn around, the sector really took off: Square footage grew by 13 percent in 2005 and 8 percent in 2006.

Some managers of hobby shows have said poor economic conditions help them, because hobbies become more important to people on a budget. Likewise, Vinga said, consumer shows become popular attractions for people interested in the items on display.

“Consumer shows provide the public the opportunity to get together with like-minded individuals,” she added. “It kind of unites a community.”

–Stephanie Corbin

The last U.S. recession hit hotels hard.

People were reluctant to travel after the events of Sept. 11 and business stagnated, according to Joe McInerney, president and CEO of the American Hotel & Lodging Assn.

“It was different than any other recession that we had,” he said. “It took us a couple years to come out of it.”

However, McInerney added, he views the current economic conditions in a different way.

He explained that 2000 was the best year in the hotel industry, which led companies to overbuild in the early part of this decade. By contrast, the current economic climate has caused hoteliers to develop at a steady pace, without building more rooms than the industry can easily absorb, McInerney added.

Does that mean that signs of an economic downturn this year will put an end to all the recent announcements of hotel expansions and construction?

Probably not.

“As an industry, we have always been good at mistiming our expansion,” said Jan Freitag, vice president of global development at Smith Travel Research. “We build into a downturn. Keep in mind that not all hotels that are being planned will find financing and, therefore, will not actually make it.”

McInerney also said that lack of financing would help the hotel industry weather this recession.

“Anybody that is building a new property and has not been financed yet will probably have a problem … which will extend construction time,” he added.

So far, the AH&LA's 2008 forecast remains strong. The association expects occupancy to stay close to the 63.2-percent rate the industry saw in 2007, McInerney said. The average room rate is forecast to be $108, up from $103 in 2007 – a strong sign for the industry, if not the show manager.

According to a recently released report by Ernst & Young's Global Real Estate Center, the weak U.S. dollar could actually be a good sign for the hospitality industry, as it brings more foreigners to the United States.

“The continued weakness of the dollar is producing multiple beneficial effects on the U.S. hotel market, which is likely to continue for the foreseeable future, and which may pull the sector through current recessionary pressures,” said Michael Fishbin, Ernst & Young's U.S. director of hospitality and leisure.

“Even though they don't like our politics, they like the U.S.,” McInerney added.

And, he pointed out, the dollar's performance compared to other currency is keeping domestic travelers in the country for their vacations.

“It's not as bad a picture for our industry as it is for other industries,” McInerney added.

Freitag said the recession would cause a slowdown in leisure travel, but with little or no impact on the “extreme upper end of the markets.” Business travel will hold up, he predicted.

“From the economists we talk to, the slowdown will not be a recession, but just that – a slowdown,” Freitag added.

–Stephanie Corbin

Las Vegas may be the only destination in the United States that actually benefited from Sept. 11. No one in the city believes there was anything good about the tragedy or the ensuing travel recession, but after the dust had settled, something became clear: People would still go to Las Vegas for a tradeshow.

Why? Destination boosters believe it's the unique confluence of affordability, accessibility, vast and varied space and room availability, and the ability to kill the business and leisure birds with one stone — family in tow, if necessary.

Drawing on this experience, the Las Vegas Convention & Visitors Authority has become the first bureau to implement a pre-emptive travel-recession marketing campaign for early 2008. It's called Vegas Right Now and emphasizes the very characteristics of the city that saved it six and a half years ago (more on that on Page 20).

Not that anybody's admitting there even is a travel recession, but, according to the LVCVA's research, convention attendance numbers in the top Tradeshow Week 200 city were down 11 percent from October 2007 through January 2008, compared with a year earlier.

“We learned our lesson pretty quick after 9/11 and were out in the marketplace pretty fast when we saw what was happening with the travel recession,” said Chris Meyer, LVCVA vice president of convention sales.

The city definitely has the odds in its favor. According to research commissioned by R&R Partners, the Authority's advertising agency, people are planning to travel less this spring, yet they are 76 percent more likely to attend a convention if it's held in Las Vegas than elsewhere.

And, with a bureau budget that is a dozen or so times larger than its closest competitors', the LVCVA can afford to do all it wants to make sure that happens. Then again, nothing's taken for granted.

The former Nevada state treasurer recently proposed two ballot initiatives that would divert some of the Authority's bed-tax revenue to the state budget, expected to be $800 million in the red next fiscal year, according to some projections. The LVCVA has filed a lawsuit to block the initiative, and claims that archnemesis Sheldon Adelson, chairman of the Sands Corp., was behind it. Lined up on the LVCVA's side are all the other casino corporations with hotel rooms, meeting space and convention centers in the city.

Despite the Sands' alleged resistance, R&R Partners President Billy Vassiliadis said his new campaign was “aiming at conventioneers before they get here with some messaging.”

“We're committed,” he added, “to working with both Mandalay Bay (Resort & Casino) and Sands Expo (& Convention Center) in terms of the delegates they have coming, to continue to drive that, giving them a reason to come and stay longer. The timing is perfect for that.”

–Heidi Genoist

Economic downturn? What downturn?

“I know that everybody's talking about a possible slowdown in the United States,” said CMP Asia Senior Vice President Michael Duck, who is based in Hong Kong, “but certainly, the shows we've seen here have been reasonably robust.”

It comes as little surprise that the Chinese tradeshow industry continued its rapid growth in 2007. According to the annual report on the exhibition industry by the China Council for the Promotion of Intl. Trade, there were 924 major exhibitions in Beijing, Shanghai and Guangzhou, 60 more than in 2006.

Paul Woodward, principal of the Business Strategies Group and manager of the Asia-Pacific office of UFI, the Global Assn. of the Exhibition Industry, typically prepares an annual report of exhibition activities in Asia. He has not yet completed his report on 2007.

“We recorded 30-percent growth in 2006,” Woodward said. “It seems impossible to continue that in '07. If there is any slowdown, it's probably more of a maturing process. In other words, there might be 8- or 9-percent growth instead of 30 (percent).”

Although the Asian economy – and its exhibition industry – remains quite strong, there is some question about what impact the problems in the U.S. could have, particularly at the large sourcing shows over the next month.

“If South China is going to get some slowdown in manufacturing because of a slowdown in orders from the U.S., then there could be something latent to care about,” Duck said.

The China Import & Export Fair, better known as the Canton Fair, takes place April 15-30 in Guangzhou, and sections of the China Sourcing Fair take place April 12-15 and April 20-23 at AsiaWorld-Expo in Hong Kong.

“Those are entirely driven by exports,” Woodward said. “The attendance figures there will be very interesting to watch.”

Even then, most of the world's currencies remain quite strong compared with the dollar. It could be that any falloff in orders at the sourcing fairs from the U.S. would be replaced by new business from other parts of the globe.

“It's still a little early to tell,” Woodward said. “We're just getting into the main trade fair season.”

Also possibly neutralizing any negative effects caused by conditions in the U.S. is the fact that China's own consumer economy is growing quite quickly. In the future, more and more attendees at the sourcing shows in Guangzhou and Hong Kong will be domestic buyers.

“The Chinese market is going to be slowly taking on the role of retail spend itself,” Duck said.

Zheng Shijun, vice president of the China Intl. Exhibition Center Group, said he believes global economic developments will have an impact on China.

“The U.S. dollar is depreciating, and the U.S. economy is still the powerhouse of the world,” Zheng added.

–Michael Hart