Inside Track by John Harrington
We’re talking karsies with Peter Marks. The chief executive of Luminar, Britain’s biggest nightclub company, recalls an inspirational speech by Luke Johnson when the serial investor used the slang for toilet to describe the state of the nation’s downtrodden high street businesses.
“His point is that the high street has become boring and uninvested, and until you are invested you don’t in some cases deserve to do better,” says Marks. “Sometimes we find ourselves refurbishing our premises hoping that others will follow because the town centre isn’t the allure and the pull it used to be.”
There are certainly fewer Luminar venues that could possibly fit Johnson’s description since the consortium led by Marks took control of the beleaguered nightclub company from administrators 14 months ago. On taking over, problems with the 56-strong estate were “multiple”, Marks explains.
“A lot of the clubs were just not fit for purpose. And when I say that, I mean the heating was broken and had not been fixed for a year or two. The cooling was exactly the same. We were trading to an audience that frankly didn’t mind, but we were missing out on the better customer profile.
“We’d become expensive in many of our clubs. So we had this perfect storm of poor venues, poorly maintained, and charging too much.”
A “large dose of common sense was applied”, says Marks, and within one month maintenance work had begun. It ended up costing at least £1m in the first year. “That’s not saying we haven’t got issues because we still have - we need to replace a lot of carpet, we need to modernise our venues - but overall we’ve stopped the rot and we are now in growth.”
Full refurbishments, costing between £40,000 and £500,000, began in August, which Marks admits was a little later than the firm had wanted. “It took us eight months to establish all the opportunities that there were in the estate and the order at which we want to do them,” he says.
“The order was based upon a number of factors. The urgency of the fix, the return on the investment and competitor action; if you were in a quite easy to operate uncompetitive environment, you could afford to let a club not get refurbished as quickly as others.”
Then there’s the issue of the leaseholds. The company was reluctant to undertake major work until it had negotiated new leases, which were required on all but the 20 freehold venues - the original leases were cancelled when the previous company was placed in administration.
“Some times that takes months,” says Marks. “If there was one single element that has eaten our time, it’s getting those leases over the line. Until you’ve gone through you don’t actually know what a nightmare it can be and how intense it is.”
Marks says just one or two are yet to be secured, and revealed that terms have just been agreed for a new lease at Oceana in Swansea (it’s currently with lawyers); negotiations took longer because it required a deal on the rent, and complicated by the fact the landlord is in administration.
Nine full refurbishments and four small upgrades have taken place to date; the plan is to complete between eight and 13 this financial year. Marks says overall he’s happy with their impact. Every one has improved business, and he’s looking at payback on investments of between one and two years. The fastest payback, just 20 weeks, was at Liquid in Gloucester, which received a fairly modest investment of £60,000.
Marks explains: “There was nothing much wrong with it, but it had become boring. So we re-presented it - nothing radical, new carpet, new wall coverings and colourings, soft furnishing, bar frontages - and we’ve now got something that’s fit for purpose for bringing in, and retaining, slightly older customers who are more discerning.”
Its nightclub in Crawley, West Sussex, is also trading “really well” after a c£500,000 investment. The former Liquid & Envy re-opened as Moka in October. “It was budgeted to return its cash within 18 months. It will do that and more.”
Cameo in Eastbourne is also set to pay back its £400,000 investment in 18 months. The venue typifies some of the legacy problems that the group inherited. “There we had a business that had had no money spent on it for 15 years. Unbelievable!
“Luminar just saw it as a cash cow. It was never urgent enough because it kept producing the money. What happens to that sort of business is subtle. It’s often the gross profit margins that are coming down, trading to a lower end of the market that are more price sensitive.”
Other investments have fared less well, Marks admits. “Aberdeen has been a disappointment, for a number of reasons. I think as management we got the Aberdeen market wrong.” Mistakes included not managing to “tie down” the student market and targeting an older clientele that “frankly didn’t exist in its location”.
“We are now addressing that and we are working with the students. Every week over the last six weeks it’s got busier.”
Along with the capex investment has been a move to grant much more discretion to managers. This has been shown to have clear business benefits - Marks highlights Oceana in Watford, which “regularly” takes more than £100,000 per week despite no investment in five years.
“That’s been achieved by the manager having control of his business and doing the right thing locally. We de-centralised the business, so they have much more say. He’s changed his pricing structure, changed his promotions and made them relevant for Watford.
“You can’t have a one size fits all attitude for nightclubs. Every town and every market place is different.”
Building on this theme, Marks isn’t a big fan of branding in nightclubs, although he stresses that there will be no full-scale debranding of the estate that includes concepts such as Oceana, Liquid and Lava & Ignite.
”Branding was initially put into nightclubs for the City because it got a better rating as a branded business. Brands work, but not very well in nightclubs. The pace of the cycle is quicker.
“Where we have a good business that’s branded it will remain branded; there’s no need to rebrand anything if it’s not broken. The challenge comes when it is broken and the credibility is gone. For example, Crawley used to be called Liquid. The credibility had gone so there was no way we wanted to open it up as another Liquid. Aberdeen, Liquid, [is] exactly the same.
“We are not dismantling the branded estate per se, it’s just that when the business is branded, you need to re-invigorate it.”
Marks reveals that the aforementioned Oceana is one brand that’s set for some changes. The nine-strong brand will be changed from a two-club, five-bar concept to a three-room, two-bar design. Each room will offer a different music style: mainstream, retro and “something for more sophisticated music tastes”. This could include R&B or another form of dance music.
A trial of the concept in Cardiff from 1 December “worked very well indeed”, Marks says. “That’s going to be our template for dealing with the Oceana brand.” He hopes to have implemented it across all Oceanas over the next two to three years at a cost of around £500,000 each. The Kingston site would probably be next, Marks says, depending in the outcome of the upcoming licence hearing into the licence revocation. This would probably be followed by Bristol then Leeds.
In each case the type of music in the third room would be driven by the local market, another sign of Luminar’s desire to avoid a top-down approach.
The thinking behind the Oceana rebrand, and the investment programme more generally, is to attract a wider customer base; crucially, this includes slightly older clubbers.
“The average clubber is aged 18 to 22,” Marks says. “Thereafter, we’ve lost the 23/24/25 year-olds. As they get older they want different things, they want a little bit more luxury, a bit more sophistication, a little bit better service. We’ve got large venues that can actually accommodate a different feel in certain areas of these business. So we can put together better VIP areas, better lounges, or alternatively, from the point of view of music, some thing different, something more sophisticated.
“I think the mainstream is always going to Luminar’s market. But where we’ve got second and third rooms, we need to be different from the neighbour. We need growth in those areas.”
Linked to this is the increase in bookable space. Luminar currently has c400 booths in the estate and every significant refurbishment sees more added. The spaces are usually sold out nearly every Saturday night, Marks points out.
One immediate concern for Luminar is resolving the high-profile issue of Oceana in Kingston. The venue’s premise licence was revoked following a fatal stabbing at there in October, and Luminar has appealed the decision. “We’ve met with residents, we’ve met with police, we’ve had constructive meetings with both, and our case is in May,” he says.
Marks says that in general terms, the regulatory environment “gets harder and harder and harder every year”.
“We are an easy target. We are forced down the line of polycarbonate drinking vessels, more CCTV than ever before, better-regulated doormen than ever before. I have to say, though, a lot of things that have been done have been for the better. Our venues are now the safest they have ever been.”
Marks is heavily critical of the way mobile phone thefts are counted as incidents at venues in police records. Luminar has previously stated that 88% of reports from Oceana in Kingston were for this very thing. He calls phone thefts an “epidemic” and called for “more sophistication” in how incidents are reported.
Marks is unsurprisingly not a supporter of the late-night levy, dismissing it as “another tax” - “It’s a bit like your car tax - it’s not spent on roads!” The measure is estimated to cost the firm £100,000.
But unlike many of his peers in the pub trade, he’s a “big fan” of having minimum price of alcohol, which he says would be a great help to his business with its extremely price-sensitive customers (he does understand concerns that the proposed level could be increased at a later date, however).
With the capex programme now well underway, does Marks envisage a time when Luminar returns to the acquisitions trail?
“We’ve looked at several expansion opportunities over the last year,” Marks reveals. “We’ve bought one site, in Guildford. We have others under consideration right now.
“But the important thing for me is not to have the largest estate of nightclubs, but all them performing to their potential.”
He adds: “If we can just return to the profit levels of two years ago with the current estate it will add £10m to out bottom line. It’ll take two years.”
For Marks, who was formerly chief executive of Brook Leisure and Sports Café, the success of Luminar’s recent investments shows that despite its recent problems, prospects are still good for the late-night sector.
“It just goes to show that anybody who thinks the nightclub industry is dead and passé is missing the point enormously. What it is is uninvested. And where we invest, we’ve got great businesses.
“I’ve been in this business 31 years. I’m not saying it’s easy now. This is my third recession. We are very reliant on under-24 year-olds and employment is always an issue with these people. But each time we’ve come out of recession we’ve actually been quite healthy.
“Our businesses are tired and have been charging too much, and where we’ve addressed those we’ve seen a big bounce back. That gives me great hope and belief for the future. I’ve never been more certain we’ve got a good company.”
Innovation focus
Marks highlights four other areas of innovation that the company has undertaken and is looking to build on this year:
1) The app. Luminar’s app, which went live just before Christmas, enables customers to take action such as booking space and jumping queues. The latter function has been particularly popular. “We’ve had people join our queues and buy a queue jump ticket to the front. This is a real leap forward.” One student event in Exeter sells out to 700 people before opening. Customers can also order drinks from their phones in selected venues.
2) Saver tickets. A saver ticket has been introduced to allow customers to buy tickets on a weekly basis. The idea will be extended to monthly tickets, which Marks compares to customers paying for tickets to health clubs on a monthly basis.
3) On-line weekly staff magazine, Luminar Connections. Marks says it was introduced two weeks ago for the firm’s 2,500 employees. It contains “absolutely everything”, from general interest pieces, video content, advice from other managers, health and safety advice, and a blog from the CEO. Senior management will have access to trading figures via the magazine. “The idea is to remove the constant drip, drip of directives out of head office,” says Marks.
4) Training. Luminar has put together 46 on-line training films, allowing the company to track which members of staff have been trained in which areas, which include topics from those relating to the customer experience to issues such as health and safety.
