Two years ago, America's two publicly traded strip-club chains were thriving, reporting big sales gains, buying clubs on a nearly monthly basis and posting threefold and fourfold stock-price gains.
Then the recession hit, forcing Rick's Cabaret International (RICK, news, msgs) and VCG (VCGH, news, msgs) to curb their ambitious expansion plans and focus on bolstering existing clubs.
For an industry often thought to be recession-proof, the transition has been sobering. In order to adapt, many so-called gentlemen's clubs are shedding their upscale trappings and catering to a thriftier clientele by offering less expensive drinks, waiving cover charges and refocusing their marketing. Since April, Rick's has slashed spending on billboard marketing by two-thirds, and its payroll is down 4.2% this year.
To save cash, the companies have renegotiated payment arrangements with lenders and previous owners. Despite slight rebounds this year, the stocks of Rick's and VCG are down 77% and 84%, respectively, from their highs in December 2007.
Bounty for customers
Strip clubs in Las Vegas have long paid bounties to cabdrivers who deliver customers, but Rick's didn't grasp the payments' importance when it bought the former Scores strip club in September. By February, the Las Vegas club was registering only $257,000 a month in sales.
Moving to reclaim its share of the slumping tourist trade, Rick's boosted its payments to as much as $100 a customer from the usual $30. By April, it was notching nearly $1.9 million in monthly sales in Las Vegas. The club still lost money that month, because it paid the cabbies about $1 million, but the loss was smaller than in previous months.
Eric Langan, Rick's chief executive, blames the bounty inflation on other clubs' recession-induced desperation. "The pie got smaller, and everyone started trying to steal each other's piece," he says.
Customers cutting back
There's no doubt there are far fewer of the high rollers who will spend $5,000 in one night. That has led some clubs to trim the portions they serve and do away with pricey entrees such as Kobe beef and lobster. Sales of $750 bottles of Cristal Rosé are rarer, and more customers are puffing the $15 cigars from the humidors rather than the $150 variety.
At certain of their high-end clubs, Rick's and VCG are considering closing the kitchens and scrapping other upscale offerings to go after a broader, more blue-collar market. In January, Rick's converted its high-end club in Dallas to an all-nude, bring-your-own-beer venue under its XTC Cabaret banner, partly because of difficulties getting a liquor license. VCG may pare amenities at clubs in Denver, Minneapolis, St. Louis and Portland, Ore.
* Video: Recession puts chill on the Vegas Strip
Rick's is also hosting more themed events at many venues, including locals' night, which provides free admission and discounted drinks. VCG's advertising targets a more price-conscious customer by focusing on the chain's entertainers rather than highlighting such amenities as the steakhouse menu and VIP rooms.
At the Lodge, a privately held upscale club in Dallas, management lowered drink prices and extended the club's happy hours in a program marketed as "the Lodge stimulus package." Even so, alcohol sales there were down 10% in the first quarter from a year ago, according to the Texas Bar & Restaurant Report.
Amid the difficult times, club owners say they have found some benefits. Several report that it's easier to hire exotic dancers now that many women are being laid off from more-buttoned-down, white-collar jobs. Among the new recruits at Rick's and VCG are a laid-off fashion designer, a former Bank of America banker, a former paralegal and two Los Angeles real-estate agents.
An entertainer at Rick's Las Vegas club who uses the stage name Buffy says many customers are spending a set amount of cash rather than running tabs on their credit cards. Now 34, she says she is earning only 25% of what she got before the recession. "It's not quite the elite crowd that used to come in," she says.
"Will you make money here? Absolutely," says a 36-year-old whose stage name is Sara. She says she quit her job as a mortgage broker in San Francisco last year to begin dancing at Sapphire Gentlemen's Club in Las Vegas in January. "But you sacrifice your normal life," she says.
This article was reported by Kris Hudson for The Wall Street Journal.
In this historic downturn, even usually recession-proof industries are hurting. But the nation's 2 publicly traded 'gentlemen's club' chains are finding ways to adapt.
[Related content: stocks, prices, spending, frugal, recession]
By The Wall Street Journal
Then the recession hit, forcing Rick's Cabaret International (RICK, news, msgs) and VCG (VCGH, news, msgs) to curb their ambitious expansion plans and focus on bolstering existing clubs.
For an industry often thought to be recession-proof, the transition has been sobering. In order to adapt, many so-called gentlemen's clubs are shedding their upscale trappings and catering to a thriftier clientele by offering less expensive drinks, waiving cover charges and refocusing their marketing. Since April, Rick's has slashed spending on billboard marketing by two-thirds, and its payroll is down 4.2% this year.
To save cash, the companies have renegotiated payment arrangements with lenders and previous owners. Despite slight rebounds this year, the stocks of Rick's and VCG are down 77% and 84%, respectively, from their highs in December 2007.
Bounty for customers
Strip clubs in Las Vegas have long paid bounties to cabdrivers who deliver customers, but Rick's didn't grasp the payments' importance when it bought the former Scores strip club in September. By February, the Las Vegas club was registering only $257,000 a month in sales.
Moving to reclaim its share of the slumping tourist trade, Rick's boosted its payments to as much as $100 a customer from the usual $30. By April, it was notching nearly $1.9 million in monthly sales in Las Vegas. The club still lost money that month, because it paid the cabbies about $1 million, but the loss was smaller than in previous months.
Eric Langan, Rick's chief executive, blames the bounty inflation on other clubs' recession-induced desperation. "The pie got smaller, and everyone started trying to steal each other's piece," he says.
Customers cutting back
There's no doubt there are far fewer of the high rollers who will spend $5,000 in one night. That has led some clubs to trim the portions they serve and do away with pricey entrees such as Kobe beef and lobster. Sales of $750 bottles of Cristal Rosé are rarer, and more customers are puffing the $15 cigars from the humidors rather than the $150 variety.
At certain of their high-end clubs, Rick's and VCG are considering closing the kitchens and scrapping other upscale offerings to go after a broader, more blue-collar market. In January, Rick's converted its high-end club in Dallas to an all-nude, bring-your-own-beer venue under its XTC Cabaret banner, partly because of difficulties getting a liquor license. VCG may pare amenities at clubs in Denver, Minneapolis, St. Louis and Portland, Ore.
* Video: Recession puts chill on the Vegas Strip
Rick's is also hosting more themed events at many venues, including locals' night, which provides free admission and discounted drinks. VCG's advertising targets a more price-conscious customer by focusing on the chain's entertainers rather than highlighting such amenities as the steakhouse menu and VIP rooms.
At the Lodge, a privately held upscale club in Dallas, management lowered drink prices and extended the club's happy hours in a program marketed as "the Lodge stimulus package." Even so, alcohol sales there were down 10% in the first quarter from a year ago, according to the Texas Bar & Restaurant Report.
Amid the difficult times, club owners say they have found some benefits. Several report that it's easier to hire exotic dancers now that many women are being laid off from more-buttoned-down, white-collar jobs. Among the new recruits at Rick's and VCG are a laid-off fashion designer, a former Bank of America banker, a former paralegal and two Los Angeles real-estate agents.
An entertainer at Rick's Las Vegas club who uses the stage name Buffy says many customers are spending a set amount of cash rather than running tabs on their credit cards. Now 34, she says she is earning only 25% of what she got before the recession. "It's not quite the elite crowd that used to come in," she says.
"Will you make money here? Absolutely," says a 36-year-old whose stage name is Sara. She says she quit her job as a mortgage broker in San Francisco last year to begin dancing at Sapphire Gentlemen's Club in Las Vegas in January. "But you sacrifice your normal life," she says.
This article was reported by Kris Hudson for The Wall Street Journal.
In this historic downturn, even usually recession-proof industries are hurting. But the nation's 2 publicly traded 'gentlemen's club' chains are finding ways to adapt.
[Related content: stocks, prices, spending, frugal, recession]
By The Wall Street Journal