Deloitte reports update on the leisure sector

Despite registering a weak uptick for the second consecutive quarter, the Deloitte consumer confidence index continued to trend at record low levels in Q3 2020. The index gained one percentage point quarter on quarter, to -16%, as the partial reopening of the hospitality sector helped to brighten the mood of consumers during the summer months.

Latent demand and government schemes fuel leisure net spending

In the last three months, leisure spending saw a significant uplift compared with the previous quarter. However, spending in most of the leisure categories remains much lower than it was a year ago. This quarter's upward trend was driven by the easing of some of the COVID-19 restrictions in early July which led to the release of pent-up demand. The increase in leisure spending in Q3 2020 was not only supported by factors such as the warm weather and summer holidays, but also by the continued financial support from various government schemes which encouraged consumers to spend. As a result, businesses were encouraged to reopen.

Although some activities such as large live events were still prohibited in Q3 2020, categories like eating and drinking out, and holidays and entertainment, benefited from the government "Eat Out to Help Out" scheme, VAT tax relief, the Business Interruption Loan scheme, cash grants, and the furlough scheme. The eating out category saw a sizeable 47 percentage point increase quarter on quarter, boosted by the "Eat Out to Help Out" scheme, which was recognised as a key driver of the UK economy in the month of August. Similarly, holidays saw a favourable boost: short holidays saw a 27 percentage point increase quarter on quarter, driven by domestic travel and short-haul trips due to international restrictions and quarantine requirements when returning to the UK. The betting and gaming sectors also saw an increase, due to some sporting events including football and horse racing taking place again. The category of going to the gym or playing sport saw a 15 percentage point increase quarter on quarter.

New restrictions threaten to drive leisure spending intentions down

Recent gains could be hampered by new restrictions imposed on the sector. For example, our data indicates that consumers intend to spend less on all leisure activities in Q4 2020 compared to the previous quarter. In addition to the drop in activities due to the end of summer break, restrictions such as localised tier-based lockdowns, guidance to work from home, the 'rule of six' and curfews on pubs and restaurants, will not only harm businesses but could also have a negative impact on consumer confidence. With the continued focus on the sector, underlying demand is likely to be impacted significantly, as consumers are increasingly wary of partaking in leisure activities, in spite of all the efforts taken by the sector to be 'COVID-19 secure'. As a result, categories including dining out, holidays and entertainment are likely to see a significant drop in consumer spending in the next three months.

In the new 'three-tier' system, leisure outlets are only being asked to close if the alert level in a specific area is at its highest. In case of a level-three alert, which will be reviewed every four weeks, pubs, bars, gyms, casinos and adult gaming centres must be shut, while restaurants may stay open. In the event that businesses are required to close, the government has promised to give the workers two-thirds of their pay and provide businesses with grants, until they can reopen. Businesses in areas with lower alert levels are allowed to operate within strict guidelines but are likely to see much lower demand. A new cash grant scheme was announced to give every premises in the hospitality, leisure and accommodation sectors a grant for every month they are in the level-two alert level. This will also be retrospective and businesses in any area will be able to backdate their grants to August. However, maintaining cash flow and profitability will remain the key focus for businesses, as they try to mitigate working capital issues.

In the face of such challenges, the latest government schemes that extend the moratorium on commercial evictions and the expanded job support scheme that will reduce employer contributions, may provide some relief. Further measures have been announced to help businesses preserve cash flow through the winter, including extending business grants, extending the tax reliefs until spring 2021, extension of loan schemes and the repayment terms increased from six to ten years to reduce monthly repayments. However, it remains to be seen whether these measures will be sufficient to support and revive the entire sector.

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