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Deller: State tourism industry doing 'OK' despite recession

By Brian E. Clark
For WisBusiness.com

Wisconsin’s $13 billion tourism industry may be in a slump, but an economics professor says that isn’t surprising considering the overall down economy.

That spending generated more than 310,000 jobs and $2 billion in state and local taxes during 2008, according to the Wisconsin Tourism Federation.

“We have a 9 percent unemployment rate, and people are cutting back,” says Steve Deller of UW-Madison.

A member of the Agriculture and Applied Economics Department, his research focuses on how the state’s changing economy is affecting rural Wisconsin. He also does community development work with the UW Cooperative Extension.

“Given the depth of the recession, it is heartening to see how well travel-related businesses are doing,” he says. “I think it is because of the unique nature of the tourism experience here. Overall, I think we are doing OK.”

He said many areas in the state are struggling with “how do we go from cutting down the trees to make paper and furniture to how we manage the forests to encourage recreation and tourism.

“A lot of $20-an-hour factory jobs are gone,” he said. “If they are replaced with hotel chains, the wages are generally low. But if the businesses are locally owned, then the pay is higher and more money stays in the local economy.

“If a community wants to promote tourism and recreation as an economic development strategy, they are better off growing businesses from within rather than recruiting chain hotels or restaurants,” he said.

According to a recent report from Smith Travel Research, hotel occupancy for the first six months of the year in the state’s three primary destinations – Wisconsin Dells, Door County and the Minocqua area -- were down about 13 percent compared to the same period in 2008.

While that decline is surely pinching pocketbooks of businesses that rely on leisure travelers, Deller said things are worse in other states such as Nevada, where the decline in tourism spending is more than 20 percent.

Because Wisconsin’s tourism is spread around the state, the downturn doesn’t have the impact of the closure of GM’s assembly plant in Janesville, he said.

“It’s more a death of a thousand cuts and more difficult to get your hands on,” he said. “There is no one, big tourist industry location. It’s diverse and diffused around the state. If there is one big area, it’s the Dells. But we don’t have a Las Vegas or Disney World.”

On the upside, Deller predicts that if and when the economy rebounds, travelers will return to Wisconsin and use their credit cards. In the meantime, he said tourists are still vacationing in the Badger State, though they may be shortening their stays and cutting spending.

It may take a year or two to see people feeling good about spending more freely, he said. But when the recession is truly over, visitors will come more often, stay longer and buy more souvenirs, he added.

Anecdotally, he said he found the Dells "jumping" during a recent family visit.

“So it’s not like people have stopped vacationing entirely,” he said.

“One thing that is unique about Wisconsin’s tourism and recreational industry is that it’s really composed of two parts,” said Deller.

“One part is the traditional weekend visitor coming out of the Twin Cities or Chicago area who may go camping, visit the Dells or stay in a B&B in the Driftless Area,” he said.

And while these folks may be cutting back their spending, the state is likely gaining tourists who would have traveled to California, Florida or Alaska in better economic times.

Deller calls it the “substitution effect.”

“We are a very good alternative,” he said. “We are positioned well to capture folks who want to stay local this year.”

Deller said the second major component of Wisconsin tourism is people who own cabins on homes on lakes.

“Those folks spend their money differently,” he said. “The recession would make them less likely to do a remodeling job or replace a ski boat, for example. But they will continue to visit.

“So Wisconsin is positioned fairly well to weather the storm here,” he said. “But we are in a deep recession and people are cutting back and part of that is going on a two-day trip instead of a four-day weekend. That means lost revenue for Wisconsin businesses.”

In 2008, according to the state Department of Tourism, overall visitor spending rose 2.7 percent over 2007.

Deller cautioned, however, that some of that increase could have come in the form of paying for expensive gasoline, which cost upwards of $3.50 a gallon of regular last summer.

One shining spot from the 2008 report was Door County, which posted a 20 percent gain in spending over 2007. Clearly, that boost couldn’t all have come from gas.

“Before the recession hit, we as an economy were doing quite well – thank you very much,” he said. “As people make more money, they have more to spend on tourism and they will make those weekend getaway trips.”

When the economy plummeted, he said two things happened:

“A lot of folks have lost their jobs,” he said.

But what makes this recession different is that people who still are employed feel nervous about spending,” he added.

“It’s called the ‘wealth effect,’” he said. “When you look at your home, which is your primary asset, and suddenly it’s declining in value, you don’t feel as wealthy.

"Or you get your 401K statement and it’s dropped like a rock. That makes you feel poor, even though it doesn’t affect how much money you have to spend directly.”

Deller said the rural areas of Wisconsin that have been hit by the tourism drop have had to tighten their belts.

“There are still tourists and people using their weekend properties, but they are spending less and they may cut a weekend out,” he said.

Likewise, restaurants and resorts aren’t as busy.

So not only are tips smaller for workers, but they may be laid off earlier this late summer than in years past.

“I hope that won’t happen, but it’s possible,” he said. “A lot of college students may be let off a week early or have their hours cut back.”

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