Christopher PeakDissertation Defense12-13-2016

Discovering the Relationship between Macroeconomic Trends and Regional Theme Park

Performance

Agenda

Introduction Statement of the Problem Findings from Literature Methodology Results Implications Conclusion Recommendations

Introduction

• Consumer spending is a highly-researched topic and has been evaluated by multiple industries

• With consumer spending accounting for more than half of the gross domestic product in the United States, understanding the impact of the consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index on spending trends is crucial to predicting reactions from changing macroeconomic conditions

• Understanding the impact of these macroeconomic trends on consumer spending is vital for policymakers and business leaders alike, especially in times of shifting macroeconomic conditions where swift decisions need to be made.

Statement of the Problem

• Downturns in macroeconomic trends have historically been followed by decreases in consumer spending

• Researchers have demonstrated the effects of macroeconomic downturns on consumer spending in retail industries, when metrics like consumer confidence, interest rates, unemployment rates, stock market values, and consumer credit index decline

• Regional theme parks are separate from other retail, travel and tourism destinations because unique variables related to the businesses characteristics, goals, and revenue drivers that differ from typical retail and destination locations

Statement of the Problem (continued)

• Although there is research on the impacts of macroeconomic trends in relationship to various industries, there is no current information on how changes in macroeconomic trends impact regional theme park attendance and overall revenue results

• This lack of information impedes the industry’s ability to develop strategies to combat changes in consumer behaviors at regional theme parks when macroeconomics trends shift

• If this research is not done, regional theme parks will not know how to plan for and react properly to changing macroeconomic conditions, and would most likely underperform due to this inability

Methodology

• A non-experimental quantitative method of inquiry, correlation design utilizing ex post facto quantitative research was used to understand how the consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index impacted regional theme park attendance and revenue performance

• The data gathered used publicly distributed records for all variables• With the data gathered from verified public sources, no issues related to

data quality or completeness was present

Methodology (continued)

• The interval values of regional theme park attendance and revenue performance were used as the dependent variables to understand how the consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index impacted regional theme park performance

• The independent variables that consisted of the consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index were also interval values

Methodology (continued)

• The exact population for this study was Six Flags and Cedar Fair Entertainment

• These two corporations consisting of thirty-three regional theme parks were selected based on their representation of approximately sixty-six percent of the regional theme park industry across the United States

• The closest competitor to these two companies operated six locations in five states, with other industry participants falling well below these totals

Findings from Literature(Theory of Planned Behavior)

• Research has concluded that in some instances, rational behavior is overruled by one’s desires related to a product or activity. To better understand these occurrences, the theory of planned behavior is used to evaluate the influence of consumers’ knowledge, beliefs, and feelings related to a product

• Research related to the theory indicated four main factors that drove consumers to behave in a certain way. These factors included commitment and perceived importance, consumption and entertainment, attendance and discover, and joining others

• Another study utilizing the theory of planned behavior examining a product that was consumed in public noted cultural norms and social benefits as the largest two impacts on decision making, with attitudes related to the products quality, taste, and health benefits coming in third

Findings from Literature(Consumer Spending)

• Recent research determined that interest rates, annual inflation, annual earnings increases, and mortgage rates affect consumer spending in the most direct manner

• Macroeconomic indicators including consumer confidence, stock market values, unemployment rates, and the consumer credit index have also been shown to impact consumer spending

• Other research evaluated consumers’ intent to change spending patterns during times of economic change using the theory of planned behavior

• During times of financial crisis, consumers’ attitudes had a significant impact on their decision to move money

• When consumers are threatened by stressful situations or environments, they use their spending to take back control

Findings from Literature(Regional Theme Parks)

• Regional theme parks are designed to attract consumers that want to spend a specific amount of time in an environment that creates surroundings of enjoyment and new experiences

• Consumer spending is a key component to the success of the regional theme park industry. Information related to factors that may increase or decrease consumer spending is quite valuable to the regional theme park industry due to the impact of consumer spending on the industry’s attendance and revenue performance totals

• Many consider attendance at an amusement park to be a luxury item or event with culture, values, attitudes, and cultural behaviors being identified as influences on consumers’ behavior patterns when considering luxury items

• Said another way, a positive or negative attitude toward a product or company may be the deciding factor related to consumer purchases of luxury items regardless of the product being sold

• The study also concluded that a consumer’s ease in performing the purchase was also a driving factor in the decision process. If income levels are a deterrent to purchasing goods, marketing or financing activities need to be in place to overcome this obstacle

Findings from Literature(Consumer Confidence)

• Consumer confidence is typically defined as the likelihood that consumer spending is to be relatively strong or relatively weak among consumers in the general population of an economy

• Research indicated high correlation between the consumer confidence index and household spending. Another study connected increased consumer spending with just the expectation of financial increase with consumers spending more as their confidence levels increased through an expectation of future financial security before they had the money in hand

• The impact of consumer confidence on consumer spending was recently evaluated across specific sectors including durable goods, semi-durable goods, and nondurable goods.

• The research concluded that analyzing these specific sectors would have given greater predictive ability during the timeframe analyzed. With the exclusion of auto purchases, the durable goods category would have seen the greatest impact

Findings from Literature(Stock Market Values)

• While at a first glance, the stock market values may seem like a point of interest for only the wealthy, current research has proven the connection between the stock market and total consumer spending

• A recent study found that with every unit of change in the business confidence level the stock market also increased one and a half percent. When consumer confidence levels change by one unit, the stock market has an even greater response, increasing by over four percent

• Consumers also see the stock market as a leading indicator of future economic activity, thus giving the consumer the expectation of financial growth or decline. Research indicated a decline in consumer investments during downshifts in the stock market as an initial reaction, further enhancing the connection between consumer spending and stock market values

• Previous generations used the ability of the dollar to convert into a metal, and the value associated with this conversion as their basis of the dollar’s worth. In contrast, the current generations view the stock market and other macroeconomic factors as their guidance on the dollars worth

• Research also indicated a stronger response from consumers related to negative trends versus positive trends in the stock market

Findings from Literature(Interest Rates)

• While interest rates and consumer spending have not been directly linked as they relate to everyday purchases, research has shown a direct relationship between interest rates and large ticket purchases, including automobiles and homes. The trickle-down effect of these large ticket items has also been directly linked to overall consumer spending

• Another recent study indicated that as interest rates lifted, or were predicted to increase, both cyclical and planned spending were shown to decrease

• Rising interest rates also created lower future expectations causing an increase in the likelihood of decreased spending on larger ticket items, driving the overall spending total down across the board if interest rates do not increase

• In contradiction to other studies, a recent study noted that during the most recent economic recovery, lower interest rates have driven only modest increases in spending on durable goods. The items included in the durable segment consisted of residential investments, vehicles, recreational goods, and household goods

Findings from Literature(Employment Rates)

• Research has shown that as employment rates decline, consumer spending will soon follow with a lack of jobs in an economy leading to foreclosures, homelessness, and bankruptcies

• These situations obviously decrease the amount of spending from the individuals involved, but also affect the spending and investment capabilities of the landlords and banks holding the loans for the homeowners

• Other studies have shown that consumers have been able to sustain a consistent level of spending, even during times of declining employment rate due to a lack of consumers’ motivation to change consumption habits during times of unemployment

• These consumers used savings or acquired help from friends and family to sustain their current spending habits during employment difficulties and when unemployment benefits were expanded, so were spending levels above their normal levels

• While short term spending trends were upheld due to this practice, long term spending was decreased due to higher levels of debt and reduced savings

Findings from Literature(Consumer Confidence Index)

• As a direct input into the amount of income that is available for consumers to spend, the consumer credit index, or the availability of credit or loans within the United States economy is a driving factor within research around consumer spending

• Current studies found that credit limits were a deciding factor for consumers when purchasing a home, and sometimes a factor for everyday items. A lack of self-control is evident concluding that many consumers use credit card companies and mortgage lenders to set the spending limits that to which they adhere. As more controls have been implemented to control debt levels, overall spending levels have been negatively impacted

• Households with increased levels of debt have shown lower levels of spending versus households with smaller amounts of debt. While increased levels of credit spurred short-term spending, in the long run, consumer spending was impeded by higher levels of debt

Results

• A linear regression model used to evaluate the relationship between the five predictive variables (consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index) and attendance at both Cedar Fair theme parks and Six Flags reflected no correlation between the variables

• This same model was used to evaluate the relationship between the five predictive variables (consumer confidence index, stock market values, interest rates, unemployment rates, and the consumer credit index) and revenue at Cedar Fair theme parks along with Six Flags

• While all five independent variables did not show a combined correlation to the revenue performance at each corporations locations, specific independent variables did show correlation to revenue performance at both six Flags and Cedar Fair theme parks

Results(Cedar Fair Entertainment)

Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .589a .347 .165 .205760802000000

2 .581b .337 .198 .201691234000000

3 .554c .306 .202 .201133902000000

4 .513d .263 .193 .202277656000000

5 .450e .202 .166 .205661120000000

a. Predictors: (Constant), CCI B/W%, Stock B/W%, Debt % of GDP B/W%, Interest Rate B/W%, Unemployment

B/W%

b. Predictors: (Constant), CCI B/W%, Stock B/W%, Debt % of GDP B/W%, Interest Rate B/W%

c. Predictors: (Constant), CCI B/W%, Debt % of GDP B/W%, Interest Rate B/W%

d. Predictors: (Constant), Debt % of GDP B/W%, Interest Rate B/W%

e. Predictors: (Constant), Debt % of GDP B/W%

• With model four providing significance and the largest Adjusted R Squared value, the combination of debt as a percentage of GDP combined with interest rate increases explained 19.3% of the variance related to Cedar Fair Parks revenue performance

• While multiple variables outside of the study may have impacted the results during this timeframe, a correlation between debt as a percentage of GDP combined with interest rate increases and revenue performance at Cedar Fair parks was established

Results(Six Flags)

• With model two providing significance and the largest Adjusted R Squared value, all independent variables excluding debt as a percentage of GDP explained 33.5% of the variance

• While multiple variables outside of the study may have impacted the results during this timeframe, a correlation between all five independent variables excluding debt as a percentage of GDP and revenue performance at Six Flags parks was established

Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate

1 .683a .467 .319 .094753103100000

2 .671b .451 .335 .093614750400000

3 .636c .404 .315 .095025008400000

4 .598d .358 .297 .096267823900000

5 .524e .274 .241 .100000288000000

a. Predictors: (Constant), CCI B/W%, Stock B/W%, Debt % of GDP B/W%, Interest Rate B/W%, Unemployment

B/W%

b. Predictors: (Constant), CCI B/W%, Stock B/W%, Interest Rate B/W%, Unemployment B/W%

c. Predictors: (Constant), CCI B/W%, Stock B/W%, Unemployment B/W%

d. Predictors: (Constant), Stock B/W%, Unemployment B/W%

e. Predictors: (Constant), Stock B/W%

Results(Correlations)

• The inter-item correlation between most of the independent variables was not significant apart from three sets

• Using the 2-tailed correlation factor, unemployment percentage and debt as a percentage of GDP had a strong covariance

• Unemployment percentage and interest rates both had a strong covariance between themselves and consumer confidence as well

• With more than one predictive variable showing covariance with another predictive variable, the null hypothesis that no covariance existed was rejected

Correlations

Debt % of

GDP B/W%

Unemployme

nt B/W%

Interest Rate

B/W%

Stock

B/W% CCI B/W%

Debt % of GDP

B/W%

Pearson

Correlation

1 .607** -.362 .079 -.251

Sig. (2-tailed) .002 .083 .715 .236

N 24 24 24 24 24

Unemployment

B/W%

Pearson

Correlation

.607** 1 -.142 .008 -.508*

Sig. (2-tailed) .002 .507 .972 .011

N 24 24 24 24 24

Interest Rate B/W% Pearson

Correlation

-.362 -.142 1 .043 .502*

Sig. (2-tailed) .083 .507 .843 .013

N 24 24 24 24 24

Stock B/W% Pearson

Correlation

.079 .008 .043 1 .036

Sig. (2-tailed) .715 .972 .843 .869

N 24 24 24 24 24

CCI B/W% Pearson

Correlation

-.251 -.508* .502* .036 1

Sig. (2-tailed) .236 .011 .013 .869 N 24 24 24 24 24

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

Implications

• A correlation between the independent variables debt as a percentage of GDP and interest rates in relation to revenue performance at Cedar Fair parks exists. These findings are consistent with previous research indicating that as a direct input into the amount of income that is available for consumers to spend, the consumer credit index, or the availability of credit is a driving factor of consumer spending

• Results also aligned with previous research indicating that while decreases in interest rates did encourage future planned spending, it was not a driver for increased spending on a day to day basis for Cedar Fair Guests

Implications(continued)

• These conclusions aligned with previous research indicating that the theory of planned behavior also indicated the same trends, concluding that attitudes that are influenced in the short-term drive decision making for Six Flags guests

• It also indicated that Six Flags guests saw stock market trends as a leading indicator of future economic activity, thus giving the consumer the expectation of financial growth or decline

• This data also indicated that day to day consumer spending is very tied to consumer confidence with decreases in interest rates doing the opposite by encouraging future planned spending while not driving increased spending on a day to day basis

Conclusion

#1: Since both companies do not provide attendance data on a monthly basis, the use of macroeconomic indicators to predict attendance at regional theme parks is restricted#2: Specific macroeconomic indicators can be used to predict future regional theme park revenue performance#3: Specific macroeconomic indicators had intra correlations that must be considered during research. Further research could be conducted to find other macroeconomic variables that impact regional theme park performance#4: The study contributed to the theory of planned behavior by presenting a correlation between macroeconomic indicators and consumers future spend with regional theme parks across the United States

Recommendations

• Regional theme parks should utilize specific macroeconomic indicators to predict future performance at their locations. With full access to the attendance data, along with other internal factors, regional theme park operators should be better equipped to plan resources over the short and long run using this process

• A clean look at the data with the external factors eliminated from the study like weather, time of year, capital investments, and one off impacts could provide exponential amounts of useful information if used correctly