Reinvesting in the Club

It may not seem like the best time to reinvest in a club, especially in the current credit crunch, but several veteran club operators swear by it.

Beusman says an average of 7 percent to 10 percent of gross revenues at his clubs over the last three years have gone back into the clubs.

"You now have a competitive advantage," Beusman says. "[The clubs are] current and up to date in terms of look and feel."

Cirulli says that during the last five months, he has spent about $600,000 renovating his Gainesville clubs. He adds that he has always put aside money for renovations and pays for them in cash. The company also has a $2 million credit line that remains untouched, Cirulli says.

"I believe now is a great time to do it because it shows our members we are successful," Cirulli says. "I believe that is the right message to send when the media continually reports gloom and doom. People want to be part of successful companies."

Alan Schwartz, chairman of Chicago-based TCA Holdings Inc., which runs Midtown Athletic Clubs, has also been a bank director for more than 25 years. Companies that have established good credit have a better chance of borrowing money in these times, Schwartz says.

"Banks are more careful about lending, but they're still lending, and they're lending to proven customers," says Schwartz, who adds that 2008 was one of the three best years in TCA's 40-year history.

Schwartz also says his company has not let up on capital expenditures. In fact, Midtown is in the midst of one of the company's biggest years in terms of capital expenditures.

"I believe this recession is causing us to work a bit harder, re-examine where expenses may be excessive, and in general, sharpen our whole operation," Schwartz says.

Beusman says a strong relationship with the bank is crucial for a club company in a recession. Beusman refinanced the company's debt six months ago and secured two lines of credit.

"We've always had a strong cash position in terms of money that we hold back in the bank," Beusman says. "The bank's very much behind us. We give them full disclosure of everything we do. We spend a lot of time meeting our bank covenants. That's really paid off for us now."

Cash flow also is crucial to the club's operations, Beusman says. Two years ago, Saw Mill freed up cash by selling one of its Connecticut clubs, which had become a cash drain on the company, he says.

"We've been in business for 35 years," Beusman says. "You need to meet cash flow needs in the short term. The answer is, don't lose faith, things will turn. But make sure you protect your cash flow at all costs."

Saw Mill has not raised its prices, nor has it lowered prices for memberships. The company has trimmed expenses in several ways, including signing a two-year contract with a gas and electric company that will lower energy costs by 20 percent. Even though Saw Mill had to lay off one of its staff members in the business office and consolidate two roles into one, the company still has employees who have served 10, 15 or 20 years.

Reinvesting in the club is not confined to purchases and expenditures. The member experience is as important now as at any other time, Schwartz says, and that means the industry should not get lean and mean, but lean and friendly.

"Our employees are more keenly aware of the need to go the extra step to exceed the member's expectation, knowing how important it is to keep members happy and increase their own job security in a recessionary period," Schwartz says. "That extra attention to the members is a win-win for the member, the employee and the club, and I hope that same psychology continues to prevail after the recession is over."

Beusman agrees that paying more attention to the club through reinvestments, such as adding services and programs, is akin to paying more attention to the members.

"The holy grail of the business is to have engaged members," Beusman says. "The more engaged members are in the club, the less likely they will leave it."

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