Beyond Our Borders: More U.S. operators are expanding internationally, keenly aware of the cultural and economic barriers that lie ahead.
It's after 1 a.m. local time, yet Michael Sanciprian cannot contain his excitement over the phone as he discusses his World Gym Taiwan clubs. Sanciprian has traveled many miles and sacrificed countless weeks and months away from his wife back in California to focus on the growth of his clubs in Taiwan.
When Sanciprian first arrived in Taiwan in 2007, the country had three World Gym Taiwan clubs. World Gym Taiwan was created by John Caraccio in 2004. Today, Caraccio and Sanciprian are partners and operate 15 World Gym Taiwan clubs. The latest club, which was scheduled to open late last month, is on the sixth floor of Taipei 101, one of the world's tallest buildings.
The two have succeeded, in part, with roll-up-the-sleeves guerilla marketing as well as “gorilla” marketing, relying on the famous World Gym gorilla to attract the Taiwanese to a U.S. brand. Sanciprian says his clubs generated $49 million in 2009. By the end of 2011, he expects revenues to hit $100 million, with an additional 20 locations.
“I do it the old-fashioned way,” Sanciprian says. “I still do marketing stuff that we did in the late 1980s because it's still so new [in Taiwan].”
As the U.S. economy continues to lag, resulting in banks restricting lending to potential operators, and as some big-box club operators continue to struggle to pay the rent on their high-priced leases, international possibilities may be an attractive option for U.S. operators. However, creating successful club operations around the globe is not as simple as creating a club in a veritable fitness oasis. U.S. operators must wade through some difficult terrain before achieving success overseas. Besides economic hurdles, there are language and cultural barriers as well. For example, the 125,000-square-foot Gold's Gym in Jeddah, Saudi Arabia, is built so that men and women exercise separately.
“International business is a code word for paperwork,” says Helen Rockey, chief operating officer for World Gym International, Los Angeles.
The Taiwan clubs represent one example of American operators looking outside U.S. borders for growth and prosperity. Recently, Gold's Gym International, Irving, TX, landed what potentially could be the largest franchise agreement in the company's history. A group based in the United Arab Emirates, Al Ahli Holding Group, agreed to operate 26 new Gold's Gyms in four Arab Gulf countries and has the option to operate an additional 66 clubs in 13 countries.
Last month, Anytime Fitness, Hastings, MN, announced a master franchise agreement for the United Kingdom and Ireland. Anytime Fitness, which has 1,250 clubs open in the United States and about 100 clubs open in Canada, Australia, New Zealand, Mexico and India, could boost its total club count to 2,000 by the end of the year with the recent franchise agreement.
Clubs in countries outside of North America generated revenue three times greater than North American clubs, according to the 2009 International Health, Racquet and Sportsclub Association (IHRSA) Global Report. North American clubs generated $22.7 billion of the$68.1 billion in revenue worldwide. European clubs produced $33.3 billion in revenue, a 16 percent increase from the previous year. (The 2010 IHRSA Global Report is scheduled for release this month.) And there is room for growth. The 2009 IHRSA report says that European club units rose by 8.6 percent, and membership grew by 4.6 percent from the previous year.
“It's not the kind of barren wilderness that a lot of people suspect it is internationally,” says Jim Teatum, president of Global Business Systems, San Diego, which handles international franchising for World Gym.
China remains one of the most attractive opportunities for the club industry. Only 4.5 percent of the 1.3 billion people in mainland China belong to a health club, according to the 2009 IHRSA Global Report. Despite that low penetration rate, mainland China's impact in the industry is beginning to grow, says Mark Mastrov, founder of 24 Hour Fitness and now the co-owner of New Evolution Fitness Co. (NEFC), Lafayette, CA. China's restrictions, however, can make life difficult for club operators, he adds.
“Investing money and bringing money into countries and then pulling money out is probably one of the harder challenges,” Mastrov says. “If you're bringing funds from abroad — no matter what country you're in — into China, there are regulations on how you bring the money in and how you bring the money out. There's a lot of tax work.”
Few club operators know the potential growth opportunities and the frustrations in the international market quite like Mastrov, who has opened clubs in more than 25 countries. He made California Fitness, a wholly owned subsidiary of 24 Hour Fitness, successful in the Asian markets. California Fitness opened in seven Asian countries, targeting the novice fitness club members, and included the backing of some big-name celebrities, such as movie star Jackie Chan and basketball star Yao Ming.
Mastrov says international markets are interesting but difficult.
“I've seen a lot of people lose their shirts internationally investing,” Mastrov says. “There's thousands of sad stories versus lots of winners. How many Americans have gone abroad and performed well and made money? Not too many in the 30- to 40-year history of our industry.”
Mastrov says the downturn in the economy around the world means that banks overseas are just as cautious as banks in the United States about lending money to potential club operators.
“As the U.S. goes, so does the rest of the world,” Mastrov says. “If it's difficult to borrow money in the U.S., it's not going to be easier to borrow in Australia or Beijing or Hong Kong. It's going to be more difficult.”
Karen Woodard-Chavez, president of consulting company Premium Performance Training in Boulder, CO, and Ixtapa, Mexico, says that credit is typically not as available overseas as it is in the United States.
“When credit is more difficult to acquire and the standards are more stringent, you see a very different type of person starting their own business,” Woodard-Chavez says. “Very often, businesses are not started with any credit at all but instead the individuals own capital, and then credit may be used to grow the business.”
Real-estate costs also vary from country to country. In Asian countries, real-estate values are sky high, especially in Hong Kong, where a lease could cost $300,000 to $400,000 per month, Mastrov says.
Real estate isn't the only area of caution. Some business aspects of the club industry do not translate overseas, says Joel Tallman, senior vice president of franchising and global operations for Gold's Gym International. For example, some countries' banking systems do not support an electronic funds transfer (EFT) method of payment for members, instead operating in a cash environment with paid-in-full memberships.
However, Sanciprian overcame the reliance on the cash model, and now about 95 percent of the World Gym Taiwan clubs' billing is EFT (all through checking accounts — no automated clearing house drafting), with 5 percent pre-pay for those who do not have a credit card.
Once the World Gym Taiwan clubs went to an EFT model, personal trainer revenue increased 600 percent, from $15,000 a month to $90,000 a month, Sanciprian says. He also negotiated a rate for the clubs' rent at about 80 percent less than his competitors and convinced the buildings' landlords to help with the build-out of the clubs.
Despite World Gym Taiwan's success, a U.S. brand name alone won't seal the deal for overseas franchisees. One of the most important aspects to franchising in other countries is to choose the right people for the master franchise agreements.
Business acumen and financing are just some of the qualities Gold's Gym looks for in a potential overseas partner, Tallman says. Gold's Gym spent about a year in negotiations with the Al Ahli Holding Group before announcing the franchise deal.
“We choose our partners very carefully,” Tallman says, “We spend a long time picking the right people. In years past, we've looked for people just to occupy the position of franchising in that country. The quality of the operation, the quality of the product, the facilities are very, very important now.”
The recent Anytime Fitness deal in the United Kingdom and Ireland involves people with international fitness industry experience. The master franchisee group includes Justin McDonnell, who already is the Anytime Fitness master franchisee for Australia and New Zealand.
Building successful international clubs involves more than building relationships with local franchisees. It also involves building relationships with the people who manage and run the clubs. Woodard-Chavez says staff members overseas value their positions and contributions to the club more than staff members do in the United States. They also see their positions with the club as a profession rather than a job.
KEYS TO SUCCESS
At the end of the day, according to many club operators and consultants, the values and work ethics that separate the good and bad clubs in the United States are what determine successful clubs overseas. Those traits include hard work, market differentiation, attention to detail, qualified staff and business savvy.
“The overall business practices of clear strategy (vision, mission, core values, market differentiation), transparency in communication and operations, strong financial drive and control, and delivering more than you promise are applicable,” Woodard-Chavez says.
If U.S. club operators are considering opening clubs overseas, licensing and franchising are the avenues that will work best, Mastrov says.
“For Western people to go down, live and operate, get in the culture, it's very, very difficult,” Mastrov says. “Going out and trying to put your flag down abroad is almost impossible unless you've got local operators or local partners that you've got long-standing relationships with. That's why you don't see many Americans get out there and move to Sydney, Australia, and build clubs. It's very difficult. It takes a lot of capital and a lot of patience and a lot of skill. You've got to pretty much be a Ph.D. in fitness, a Ph.D. in finance, a Ph.D. in tax accounting. It takes decades to figure all of this stuff out.”
Sanciprian, so far, is among the minority that has succeeded overseas.
“The whole point of using World Gym was just one pure strategy to go to the Taiwanese, go to our landlords and establish that we are a Western-style gym,” Sanciprian says. “It did work. Every single day, we're working our tail off, but it did work. If you ask anybody in Taiwan, ‘What is fitness?’ they're going to say, ‘World Gym.’”
ON THE WEB
For past articles on U.S. clubs in foreign countries, visit our website at www.clubindustry.com.
PROS AND CONS OF INTERNATIONAL BUSINESS
Sean McGarry, founder of Franchise Direct, an Atlanta-based company that serves as a portal for franchise and business opportunities, outlines five advantages of operating overseas:
- An increased revenue stream
- Contributions to headquarters costs
New ideas and new approaches by international franchisees
By adapting to the international market and developing language skills necessary to operate there, the franchise will strengthen its brand
- Helps to build the brand globally
Two of the obstacles of operating overseas, according to McGarry, are:
- A lack of understanding of local customs and laws
- The language barrier
LANGUAGE AND CULTURAL BARRIERS
Language and cultural barriers are one of the biggest obstacles for U.S. club operators in foreign countries. Mark Mastrov, the co-owner of New Evolution Fitness Co., Lafayette, CA, suggests U.S. club operators target an English-speaking country for their initial expansion overseas.
“If you don't speak Greek, if you don't speak Russian, if you don't speak Finnish, you've got no shot,” Mastrov says.
Michael Sanciprian, the CEO of World Gym Taiwan, says he spent a half-million dollars to build a software program that translates English to Mandarin Chinese, the native language of Taiwan. Sanciprian's partner, John Caraccio, the president of World Gym Taiwan, has been in Taiwan for 15 years and speaks fluent Mandarin.
“He understood the ins and outs,” Sanciprian says of Caraccio. “He had that backside for me to understand the Chinese and Taiwanese market. I came with the front side. We developed our partnership based off that. We respect all the holidays, we respect the staff, we have the Chinese way, but when it comes to running the company, it's 100 percent Westernized.”
The Taiwanese like to exercise in groups, Sanciprian says, so group exercise classes are popular in World Gym Taiwan clubs, complete with a rock concert feel. Other Taiwanese clubs have a swimming pool, steam room, sauna, Jacuzzi and a cold pool. Those cost money and maintenance, Sanciprian says, which is why he is building some newer clubs with only a sauna.
“What you do is you make that member lazy [if a club has several aquatics options] because what happens is you can't get them out to the fitness floor for them to understand they need to buy [personal training],” Sanciprian says.
Club operators have to be mindful of the differences in culture as it relates to exercise involving men and women. In the 125,000-square-foot Gold's Gym in Jeddah, Saudi Arabia, the club is split down the middle. Men work out on one side of the club, and women work out on the other side. The home page of the club's website, www.ggarabia.com, has a link to the men's gym and a link to the women's gym.
“In the Muslim world, preventing women from being seen by men is closely linked to the concept of Namus,” says William Holford, CEO for the Gold's Saudi Arabia master franchise. Namus is a gender-specific ethical category of relations in Middle Eastern Muslim culture that involves, among other values, modesty.