Economic Environment

s r e w o l F
December 2010January 2011 The RMA Journal

Wedding Bells Are Ringing

After

a downturn caused by a troubled economy and fewer marriages, wedding-related businesses are on the rebound.
BY

TOON VAN BEECK AND GEORgE VAN HORN

WHILE NOT AN industry in itself, the wedding business is a key revenue contributor to a diverse mix of local businesses. Weddings are customized, and therefore not prone to efciency, and they often occur on an irregular timeline. The clients (bride and groom) dream of perfection, while someone else (their parents) usually pays the bills. In the same way department stores rely on the holiday season to help dene the ultimate success of their year, many small business operators depend on the number and extravagance of wedding events to distinguish a good year from a bad one. This article provides a quick evaluation of the wedding industrys contribution to local economies and the small army of business service providers that support it. Highlighted here are the health of the wedding business, the size of the market, and the reliance of key industries on wedding-related revenue.
Going to the Chapel

Weddings are big business. From the proposal to the return ight of a honeymoon, a typical wedding will have a direct and indirect impact on more than 100 industries. The list ranges from gold mining to travel agencies, but in this article we will look only at industries directly affected by the wedding event. While this categorization whittles down the industry impact considerably, the wedding market remains a sizable $47.2 billion sector. Lets put this revenue in perspective: If weddings were compared to holiday-generated spending, they would rank just behind Christmas and easily ahead of Thanksgiving. The infrequency of weddings is more than made up for by their extravagance. They generate more revenue than Valentines Day, Mothers Day, and Easter combined.

One cause of concern is that the number of couples tying the knot has been in a persistent decline. Marriage rates have tumbled over the past few decades, falling from about 10 marriages per 1,000 people in the mid-1980s to 6.8 marriages in 2009. This decline is a result of social inuences (fewer couples looking to commit) and attitudinal changes, as consumers hold off for nancial and lifestyle reasons. However, the fall in the marriage rate has not resulted in a complete disaster for the industry. In fact, the decline has led to a higher-than-average wedding spend, meaning even greater prots for those involved (Figure 1).
The Wedding Industry and the Economy

Coming off of 2005 and 2006, two of the most prosperous years in the wedding industry, the sector plummeted as the economy entered recession. Revenues fell from a high of $67.5 billion in 2005 to $42.9 billion in 2009. Industry performance is expected to improve in 2010, expanding an estimated 10% to $47.2 billion, but still far below the

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Copyright 2010 by RMA

Figure 1

Number of Weddings versus Average Wedding Spend

2,600,000 2,500,000 2,400,000 2,300,000 2,200,000 2,100,000 2,000,000 1,900,000 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0

years, so businesses need to put in place appropriate strategies to capture that increasing demand. The average engagement time in the United States is 17 months, so long-term targeting and retaining strategies must be implemented. Additionally, businesses need to take proper nancial considerations into account because the product or service in demand may be months away from payment and delivery. Planning for the future, along with having a good customer base, is essential for those involved in the wedding industry. Unlike other industries, sales are not typically day-to-day transactions. They are sizable decisions that take time to plan and implement, for both the customer and the company involved.
The Wedding Industrys Seven Core Sectors

Number of Weddings (LHS) *In 2010 constant U.S. dollars

*Average Wedding Spend (RHS)

Source: IBISWorld estimates

IBISWorld has identied seven core sectors within the wedding industry. These sectors are grouped together because they represent key inputs to the

high of just ve years earlier. As shown in Figure 2, Figure 2 the wedding market is expected to remain on this upward trend through 2015, with 2009 expected to be the low point for the sector. $80,000 While swings in the economy greatly affect spending per wedding, the underlying demograph$70,000 ics are slowly improving. The decline in popula$60,000 tion growth of the 20- to 34-year-old age bracket bottomed out between 1997 and 2002, and those $50,000 in that bracket $40,000 who are conThe positive revenue tributing to the $30,000 outlook for the next five rising popula$20,000 tion totals are years offers weddingquickly ap$10,000 dependent companies proaching the great opportunities $0 median age for rst marto build business riages. Annuand increase their alized growth in the 20- to competitiveness. 34-year-old group over the ve years to the end of 2013 is projected at 1.2%, a signicant improvement over the growth rates for the prior two ve-year periods, which were 0.6% and 0.4%, respectively (Figure 3). The positive revenue outlook for the next ve years offers wedding-dependent companies great opportunities to build business and increase their competitiveness. Thousands of weddings were put on hold during the recession because couples and their parents were nancially strapped. There will likely be a strong uptick in weddings over the next three
$Millions

U.S. Wedding Market Revenue

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: IBISWorld estimates

wedding planning process. Yet they are differentiated by their varied products and services. Few companies in the wedding industry actually provide services for an entire wedding (thats the job of the wedding planner) because each couple has specic demands that no one company can meet on a regular basis. The seven sectors include reception, wedding attire, wedding rings, photography, owers, wedding planners, and other (Figure 4). Within reception, wedding attire, and other, multiple and often highly diversied industries generate wedding revenue.

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December 2010January 2011 The RMA Journal

2015

Clearly, all of these categories have a sizable sensitivity to wedding demand drivers such as number of engagements, per capita disposable income, unemployment levels and job security, and consumer condence. At the same time, each of the seven revenue sources has unique risks and key success factors. The wedding industry cannot be grouped into a single frame when determining how much a lender may need to nancially support a business. Rather, each sector must be reviewed individually and its operators evaluated in terms of other sources of revenue and the competition from other industries providing similar services.
The Reception

Figure 3

64,000,000 63,000,000 62,000,000 61,000,000 60,000,000 59,000,000 58,000,000 57,000,000

Total Population 20-34 and Median Age at First Marriage

28 27 26 25 24 23 22

56,000,000 21 The reception is the biggest expense of a wedding, 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 generating an estimated 38% of total industry revTotal Population 20-34 (L) Medium Age at First Marriage (R) enue ($17.94 billion in 2010). The reception sector Source: IBISWorld estimates can be broadly classied as the accommodation and food services division. Major costs associated with the reception include venue rental, food and beverages, IBISWorld has identied eight industries with a direct food service and bartender, wedding cake, and hotel for effect on the wedding attire category (Table 2). Major sellthe bride and groom. ing items include the Customers spend a considerable amount of time choosbridal dress, groom The wedding industry ing the reception location and making it t their demands. and groomsmen attire, cannot be grouped For this reason, the reception operates with unique risks bride and groom accompared to other categories. Potential customers can be cessories, bridesmaid into a single frame deterred from choosing a specic location or company outts and accessories, when determining how over minor issues, and that equates to a loss of business and hair and makeup. opportunity. This sector is estimated much a lender may Like all industries, rms in this area must continually to account for 12.4% of need to financially meet and satisfy their key success factors so that they remain total spending, coming support a business. competitive and viable. Table 1 shows six related IBISWorld in at $5.85 billion. industries that have direct inuence on the wedding market Substitution is a huge competitive disadvantage for wedand fall into the accommodation and food services sector. ding rms specializing in the attire market. This factor is From a wedding perspective, these gures show opporparticularly true for formal wear and costume rental, given tunities for new businesses. Operators within the Figure 4 industries low on the list can seek to capitalize on an improving wedding industry by directing more of their marketing toward this potential clientele. The Seven Revenue-Generating Areas Developing good word-of-mouth recommendations, Wedding Size: $47.2 billion2010 fostering excellent customer relations, having a welltrained staff, and implementing appropriate pricing Other policies will help moderate the business risks associ24.1% Reception Wedding Planners ated with this highly competitive sector.

Wedding Attire

2.0% Flowers 4.5%

38.0%

The wedding attire category incorporates the retail, rental, and personal services sectors. However, most of the category is related to the retail sector, where product and service substitutes abound. Customers are able to move easily from business to business in search of outts and accessories.

Photography 8.8%

Wedding Rings 10.2%

Wedding Attire 12.4%

Source: IBISWorld estimates

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Table 1 Wedding-related Accommodation and Food Services Industries Growth Reception: Related Industries Hotels & Motels Single Location Full-Service Restaurants Chain Full-Service Restaurants Bars, Nightclubs & Drinking Establishments Caterers Bed & Breakfast & Hotel Accommodations 2007-2009 -3.1% -2.8% -2.4% -5.3% -0.8% -3.8% 2010 1.3% 3.1% 3.1% 1.1% -1.1% 0.5% 2009-2012 3.0% 2.9% 2.6% 2.6% 1.7% 1.3%

able nancial losses due to deep discounting and slumping retail prots over the past several years. The margin of error between an oversupply of inventory during bad times and a shortage of inventory during good times is crucial to the nancial health of any single operator.
Wedding Rings and Flowers

Related IBISWorld Industries

Source: IBISWorld

Table 2 Wedding Attire Industries Growth Wedding Attire: Related Industries Clothing Accessories Stores Hair & Hair Salons Lingerie, Swimwear, Uniform & Bridal Stores Womens Clothing Stores Shoe Stores Formal Wear & Costume Rental Mens Clothing Stores Department Stores 2007-2009 0.7% -3.0% -10.2% -4.7% -5.0% -.07% -4.2% -5.3% 2010 3.8% 2.0% 1.2% 1.3% 0.2% -3.0% -2.6% -1.5% 2009-2012 5.3% 2.6% 2.3% 1.5% 1.4% -1.1% -1.5% -2.5%
Source: IBISWorld

Table 3 Wedding Ring and Flower Industries Growth Wedding Rings & Flowers: Related Industries Jewelry Stores Florists 2007-2009 -4.6% -7.4% 2010 -0.8% -1.4% 2009-2012 1.2% -0.6%
Source: IBISWorld

Two more sectorsrings and owersalso fall within the retail spectrum of industry analysis. The jewelry market has long been considered one of the higher-risk industries in the United States, receiving a very high risk rating from IBISWorld. Over the next 18 months, however, industry risk will fall into the medium-to-high risk band. The lowered risk is attributable to improving economic conditions, an expected decline in unemployment, rising per capita disposable income, and a stronger wedding market. The jewelry industry is characterized by very high and increasing levels of competition, but it has a prot margin of 10.4%, well above the 7.5% average for the retail sector as a whole. Jewelry markets are in a strong position to maintain and grow operations, but lenders must ensure that prot margins are not jeopardized by the high levels of competition in this industry. On the other hand, the orist market is expected to have a high risk rating in the next 18 months, given that it faces strong competition from the supermarket and grocery store industry. Florists will need to focus on individual retailing segments and special occasions to improve their overall competitive position. Accounting for about 55% of industry revenue, cut-ower arrangements represent a major segment for orists. For those specializing in weddings, this segment often can generate more than 80% of revenue. Additionally, the margins associated with a wedding are very rewarding for businesses that can control stock levels and implement high levels of quality control. Nonetheless, having all your eggs in one basket is a high-risk/high-reward approach for a orist. A look at the history of key sales and their consistency throughout the year will help minimize lending risk in this category (Table 3).
Photography

that an estimated 30% of this industrys revenue comes from suit and tuxedo rentals for weddings. IBISWorld has identied the growth in cheap imports from China as one of the greatest threats to this industry. More men are purchasing these imports instead of renting their attire as the price difference between renting and buying diminishes. As a result, risks for the formal-wear industry have heightened over the past few years, something nancial lenders need to be aware of if they intend to serve this sector. Consistent with most retail operations, the need to adequately control stock on hand has become increasingly important to the health and viability of individual operators. Thousands of retail businesses have experienced consider-

Weddings are the primary source of revenue within the photography industry, generating 45.5% of industry revenue. There are no obvious large players in this segment. Operators generally service specic geographic regions from low-cost, part-time photographers to elite, high-end service providers. These businesses have low start-up costs and investment requirements, making them a successful lending proposition. They do not require a great deal of cash to nance their operations, which reduces lending risk. Wedding photography has been one of the fastest growing segments in the photography industry in recent years. The average expenditure on photography for an American

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December 2010January 2011 The RMA Journal

couple reached about $2,500 in 2008, up from less than $1,000 in 1999. More wedding photos are now being taken and purchased, while improved post-production services are a way to add value to increase revenue. This trend bodes well for lenders, but high photography skills, wordof-mouth recommendations, and project management ability are all required for a wedding photographer to succeed. Furthermore, photography is one of the highest discretionary areas within the wedding market. During tough times, many couples will turn to friends and family to produce the memories of their special day.
Wedding Planners

The Other Category

Other captures all the remaining items that a typical wedding includes. Some are more traditional purchases (invitations, reply cards, and rehearsal dinners), while others are more discretionary in nature (transportation and music). For nearly all of these services, there can be a high risk of product or service substitution, and an operator without signicant recognition will experience low customer attainment and sales.
Conclusion

Planning a wedding can be very daunting for some couples and their families. For those who choose to hire a wedding planner, this expenditure can be one of the highest costs. Not all couples hire wedding planners, which increases the risk for this sector because it accounts for greater discretionary spending than many of the other wedding sectors. While only 2% of total wedding market revenue is derived from wedding planners, it can often be above 20% for individual weddings because a couple may hire a wedding planner to organize everything from A to Z. Wedding planners experience risks similar to those faced by other wedding sectors. After all, in arranging a wedding, the planner deals with every one of those industries. One of the biggest constraints for wedding planners is incorporating their markups on top of prices quoted by third parties. Successful wedding planners maintain strong relationships with a wide range of service providers, have a good reputation, and are able to provide unique solutions to meet individual client demands. Lenders must recognize these success factors and understand the nancial responsibilities and liabilities involved when wedding planners are managing multiple service providers.

Ranging from accommodation and food services to retail, transportation, and professional services, the industries involved in organizing and carrying out a single wedding event are signicant. For industries with a high revenue concentration associated with weddings (such as wedding planners and photographers), the success of their business is linked directly to the economic and social trends affecting wedding spending. For the many other service providers, wedding-related revenues are a key variable in business performance and protability. For lenders to these businesses, the high level of competition and the ease of substitution among service providers pose additional business risks. Since getting repeat business from satised customers has its limits, the most successful operators benet from consistently high word-of-mouth recommendations and referrals. Given the length of time from engagement announcement to wedding day, operators with a strong track record and well-established businesses will have a distinct advantage in generating and managing an order book consistent with their business capacity. v

Toon van Beeck and George Van Horn are senior analysts with IBISWorld. They can be reached at toonv@ibisworld.com and georgev@ibisworld.com.

Call for Articles: Back to the Basics

RMA Journal readers cant get enough of how
to articles that explain the basics of lending. And nobody writes those articles better than bankers. Please consider sharing your expertise by writing a how to feature, such as how to analyze cash ow, how to choose an appraiser, or how to prepare for a meeting with a potential customer. Do you have experience in lending to a particular niche? Other RMA members could benet from your experience in lending to gas stations, churches, or spas. In this environment, almost everybody has experienced a loss on a credit that never should have been approved in the rst place. Consider telling your tale in a Spilled Milk feature, using ctitious names for the customer (and even the bank). We can all learn from our mistakes. You dont have to be a great writer. Just get the facts down in written form, and The RMA Journal editors will polish your prose while you put a shine on your career as a published author. Contact Journal editor Kathie Beans, kbeans@rmahq.org, with questions or an article proposal.

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