Strengths
Arcades operate with a number of strengths. Foremost, they are able to generate revenue across a number of high margin income centers. Generally, the most profitable aspect of an arcade is the ongoing usage of its games and installations. On a sidenote, many arcades have now taken the approach of using state of the art technology such as virtual reality installations in order to drive a substantial and repeat customer base. An additional strength of an arcade is that these businesses have relatively low startup costs. An arcade can be started for as little as $50,000 too as much as $500,000 depending on the types of games that will be installed on site. These businesses also operate with a substantial degree of economic stability given that it is considered to be a low-cost form of entertainment. As it relates to access the capital, most financial institutions are willing to provide a strong degree of support for these enterprises given their high margin revenue centers.
Weaknesses
As relates to weaknesses, there is usually a significant amount of competition in any local market among businesses operating a similar capacity. These businesses can also have high operating costs as relates to facility expenses as well as personnel costs. An additional weakness is that there are usually a number of substitutive businesses that provide comparative but not identical forms of entertainment. These locations include ice skating rinks, roller rinks, go kart tracks, and other facilities that provide general entertainment. This aspect can be abated by having state-of-the-art virtual reality and augmented reality installations on site to further create a strong differentiating factor.
Opportunities
There are numerous opportunities for arcades to expand their operations. First, what an arcade has reached its maximum capacity – the entrepreneur working easily established additional locations usually within a 20-mile radius of the initial location. Another common trend within this industry is to implement membership-based programs that provide for unlimited or near unlimited use of arcade games and related installations.
One of the major aspects of an arcade’s growth comes from the ongoing expansion of their marketing campaigns. Targeted social media, direct outreach initiatives, and local advertising typically form the basis of how these businesses become well known within their respective markets. Specialized discounts and promotions can be provided on ongoing basis to further drive traffic to the location.
These membership base programs can produce highly recurring streams of revenue, which ultimately lead to a higher degree of economic stability for an arcade. Furthermore, many arcades will aggressively expand their event hosting operations given at this not only produces a significant amount of revenue, but can also substantially increase the visibility of the arcade.
Event based operations are extremely important for arcades as they produce significant revenue while also boosting brand name visibility.
Threats
For threats, these are usually economic nature. Only a severe sustained economic recession typically impacts the operations of these businesses. The substantial contribution margins generated from ongoing game use coupled with the potential to generate significant income from membership driven operations makes these economically stable enterprises.