More Trouble Ahead for Martial Arts Schools?

When we thought martial arts schools could rest easy after the pandemic, we now realize that potentially tough times are ahead. Jeebus, what now?

In short, interest rate hikes.

First, before we discuss interest rate hikes, there are already some troubling signs for consumers in the USA and Canada.

Let’s start with the USA. According to a recent article in the Economist:

Research by Hamza Abdelrahman and Luiz Oliveira of the Federal Reserve Bank of San Francisco suggests that Americans have burned through more than 90% of the “excess savings” they amassed in 2020 and 2021. What little remains, the economists estimate, is likely to be gone by the end of September (2023).

On the plus side, the American household debt-to-income ratio reached a record high of 130% on the eve of the 2008 financial crisis. Since then, it has come down to 92%, still quite high but far better than in 2008.

On the other hand, household debt in Canada is now the highest of any G7 country, according to data by the country’s housing agency. The amount owed by Canadian households is also higher than the country’s entire GDP. The Canada Mortgage and Housing Corporation said high home prices are to blame for the ballooning debt. See this article.

In an analysis published Tuesday, Canada Mortgage and Housing Corp. deputy chief economist Aled ab Iorwerth said that the country’s household debt has been rising “inexorably” due to rising home prices.

Mortgages currently make up about three-quarters of household debt in Canada. While household debt made up 80 per cent of the size of the overall Canadian economy during the 2008 recession, it rose to 95 per cent in 2010 and exceeded its size in 2021, he noted.

CTV News

So, we now have financially stressed consumers in the USA and Canada. It appears that Americans were badly burned by the Great Financial Crisis of 2008 and have worked to bring their debt down to a much more reasonable level than in 2008. On the other hand, it does not look good here in Canada. A huge factor is the housing affordability issue.

Pullback in Consumer Spending

An article in today’s Toronto Star revealed that Canadians are beginning to rein in discretionary spending. According to the article:

Toronto restaurants have witnessed a year-over-year, double-digit decline in the volume of in-person diners, according to new data from OpenTable, which suggests consumers are pulling back on discretionary spending amid the rising cost of living.

Furthermore,

The new data also aligns with other reports, which suggest consumer spending has plunged as Ontarians start to feel the pinch from rising interest rates.

A report released last month by the Canadian Chamber of Commerce showed that Ontario led the country with the biggest drop in consumer spending at 8.5 per cent month-over-month in July compared to a 3.6 per cent drop nationally.

Toronto Star

How will this pullback in consumer spending affect martial arts schools? I’m speculating here, but I don’t think it takes a rocket scientist to know this is not a promising business environment for martial arts schools.

A martial arts school needing 100 students to break even is in trouble if the numbers drop to 95. The most troubling aspect is that most martial arts schools don’t have cash reserves or savings to float them through tough times.

Again, the housing market is squeezing many Canadians. Combine out-of-control prices with rising mortgage rates, and trouble is on the horizon. The drop in consumer spending is bound to affect many businesses, including martial arts schools.

Unfortunately, another factor may make life hell for martial arts school owners. I speak of rising rents.

Many martial arts schools lease their space from commercial landlords. Landlords, in turn, have mortgages to pay. You can see where I’m going with this. As interest rates rise, the mortgages will become more onerous. The rising mortgage costs are passed down to the tenants (martial arts dojos) and their customers. At least, that’s what may happen.

A pullback in discretionary spending and increased rents may stress some or many martial arts studios to the breaking point.

Which ones? I would put my money on schools with smart, creative owners. One may say that MMA schools may be more likely to survive than traditional dojos. That may be true. But, it’s the quality of the school that will determine whether it survives or not. This will likely be a slow-motion wreck as high-interest rates work through the financial plumbing.

We shall see.

On a personal note, I resumed my twice-weekly self-defence class at Durham College/Ontario Tech University this week.

My classes for the spring semester had to be cancelled due to my hip replacement surgery in January. I missed teaching them, and it’s great to be back teaching self-defence skills to young students. One thing I can’t get over is that I’m older than some of their parents. What the fork?! LOL.

My private lessons are slowly picking back up. While I have experienced some fatigue in the operated hip, it hasn’t been all that bad. It’s getting stronger.

In addition, I started teaching a weekly class at the A.B.S. Training Centre in Pickering. A great place with a phenomenal atmosphere!

In sum, things are slowly but surely picking up as we move into the fall. Stay tuned for more!’

Additional Reading

• The Equivalent of a Ph.D?
• Macro Awareness for Self Protection
• Workshop at Canada Bakbakan Headquarters
• The Coming Winter
• Unveiling the Statistics: Violent Crime in Durham Region