AMC Theaters will rip out chairs in hundreds of theaters, replacing standard auditorium seating with La-Z-Boy-style recliners, as the central part of a nearly $1 billion, four-year capital investment program.
"Our key strategic initiatives, including recliner re-seats, enhanced food & beverage and premium sight & sound, require significant capital expenditures to implement," the movie theater company said in its latest SEC filing.
Acquired by China's Wanda Corp. last year, AMC says it spent over $100 million in the first half of this year, on top of $140 million spent in fiscal 2012. About one fourth of its screens with recliner potential have been modified; auditoriums with a total 1,500 screens will be done over the next five years, with $600 million spent on the recliners.
Capital expenditures will be approximately $260 million to $290 million for calendar 2013 and will continue at approximately $245 million annually over the next three years, says AMC.
"Recliner re-seats are the key feature of full theatre renovation," says AMC. Theater renovations involve stripping the interior and replacing finishes throughout, upgrading sight and sound, install modernized points of sale and, most importantly, replace traditional theater seats with plush, electric recliners that allow customers to deploy a leg rest and fully recline at the push of a button.
"The renovation process typically involves losing 64% seating capacity. For an industry historically focused on quantity, this reduction in seating capacity could be viewed as counter-intuitive and harmful to revenues. However, the quality improvement in the customer experience is driving, on average, an 84% increase in attendance at these locations," the company said in its filing.
"The most impactful so far, as measured by improved customer satisfaction, economic and financial metrics, is recliner re-seats," said AMC in its SEC filing. "Our customers have responded favorably to the significant personal space gains from ample row depths, ability to recline or stretch their legs, extra-wide pillowed chaise and over-sized armrests."
AMC tested one 12-screen theater two years ago, and as of August 2013 has recliners in 25 theaters, or 271 screens, with another 8 theaters, or 93 screens, under construction.It says theaters open over a year covered the costs of the investment.
So far ticket prices haven't been raised significantly, says AMC. "We believe there is unrealized revenue potential at these theaters as we re-balance the supply-demand relationship created by added comfort from re-seats and our customers' willingness to pay for this improved experience," says AMC. "Over the next five years we intend to invest approximately $600 million in recliner re-seat conversions."
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