State of '08: The state of the industry in 2008 resembles not only a maze filled with barriers such as economic uncertainty and growing competition but also with openings, such as continued growth in personal training and expansion of some of the largest brands in the industry.
As the new year begins, many people in the fitness industry are already wondering what the industry will look like when the year ends. With a slowing economy and growing competition, the path that 2008 takes and its final destination are more uncertain than in years past.
Despite the uncertainties, one thing will remain constant in 2008: the obesity crisis will continue. Whether the industry steps up further to help combat this crisis or whether it continues doing the same thing will have ramifications beyond the industry. Federal and state legislation, emerging technology and continued trends in programming and club models will play a part in helping clubs combat the obesity issue and will help determine what the industry looks like at the end of this year.
One of the main factors to watch in 2008 is the economy. What the economy will do is anyone's guess, and pundits seem to vary on their thoughts. Jim Rogers, a highly regarded investor who co-founded the Quantum Fund in the 1970s and predicted the 1999 commodities rally, has said that the United States has entered a recession.
Federal Reserve Chairman Ben S. Bernanke told Congress in November that the U.S. economy would get worse before it gets better. In December, Bernanke cut interest rates for the third time since September. David Rosenberg, North America economist for Merrill Lynch & Co., said in early December that the earnings recession had already arrived and that the country would see an economic recession in 2008.
However, it's still a bull market as markets closed higher in 2007 — even though the year was the most volatile in several years. Twelve analysts surveyed by Barron's Online expect to see higher stock prices this year. None forecast a recession for 2008, although some of them say the economy will be strained.
“My gut is that we have a tough period ahead — maybe 12 to 18 months, but I wouldn't be surprised if it was longer — maybe two to three years,” says Claude Okin, managing partner of Sportime, a racquet and sport club company with a fitness component in many of its 13 clubs in the Northeast. “We are as close to a recession as I've ever seen, and I've been in the business for 20 years.”
Some worry that the uncertainty could cause people to cut back on their spending related to fitness.
“The housing slowdown, the tightening of credit and the perception of ‘lost net worth' by many Americans is very concerning with regard to individual disposable income spending,” says Bill McBride, COO of Club One in San Francisco. “This could result in less membership enrollment.”
However, Okin maintains some optimism, saying that although the economy may be suppressed, the health club industry has shown growth in tough economic times in the past.
“I believe our industry is one of the most stable that there is,” he says. “One of the last things people give up is their health and fitness. In our area — New York — they do less exotic things with their money instead, such as cut out their trips to Europe or their visits to Martha's Vineyard.”
McBride says that new sales growth will continue to be challenging, adding, “There is an abundance of supply in most major markets outstripping current demand growth for typical club offerings.”
Rick Caro, president of New York-based consulting company Management Vision, predicts flat membership this year. However, the 2008 State of the Industry survey by Club Industry's Fitness Business Pro found that club owners are optimistic about membership growth this year. Of the 271 club owners, general managers and other management-level professionals surveyed at for-profit, nonprofit, university, corporate and military/government facilities, 67 percent expect memberships to increase in 2008, which is the same percentage as last year's survey. Two percent expect a decrease in members this year (again, the same as last year). The rest expect their membership numbers to remain steady during the year.
Seventy percent of club owners expect their revenue to increase in 2008, with an average increase of 18 percent. That is slightly lower than last year, when 73 percent of respondents expected their 2007 revenue to increase, and the average increase expected was 24 percent.
Caro agrees that revenue will increase this year, but he credits much of that increase to expense control. Club owners should focus on key metrics and key drivers at their clubs, Caro says. They need to look at what they can control and what measurements they need to follow. In addition, more club owners will offer performance-based compensation tied to measurable results for department heads and above, he says.
Despite some club owners' optimism about growth this year, few of them expect 2008 to be a banner year for the industry.
“Capital is tight. Borrowing is difficult,” Okin says. “Banks and lenders are more conservative now.”
That will affect both greenfield activity and consolidation, Okin says, because financing those deals will be more difficult. Caro agrees, but he says that large club companies with access to capital will continue to expand this year even as smaller clubs with less capital find it increasingly difficult to get loans for expansion.
The difficulty in getting loans may be one reason only 38 percent of respondents to the State of the Industry survey expect to expand or add a facility this year compared to 46 percent last year. More club owners this year plan growth in the form of expanding an existing location. Sixty-one percent of those planning an expansion this year will expand an existing location compared to 51 percent last year. In addition, 43 percent of respondents who indicated last year that they would expand said they would open a new location, but this year only 38 percent indicated the same.
Even though money will be tight, McBride says that maintaining the physical condition of existing clubs will be a necessity for clubs that are more than three to five years old, especially in competitive markets. Some older clubs will need to make significant capital improvements to compete and differentiate themselves in the market.
Despite difficulties for some in getting loans to add new clubs or renovate, the number of fitness facilities will grow in 2008, and competition will continue to be stiff, particularly in the Northeast where Okin says the market is saturated with clubs. Low-priced clubs such as Planet Fitness show no signs of slowing their expansion. The Dover, NH-based company is also an example of how franchised businesses have helped club companies expand quickly. Caro expects the franchised model to continue to be used widely this year, noting particular growth this year in the all-access or key-card clubs.
However, that doesn't mean all will be well with all franchised models. Some franchised circuit facilities have been facing strained finances, and several franchisors faced class action lawsuits. Problems in this area of the industry will likely continue in 2008.
On the Books
In addition to franchising problems, club owners are also keeping an eye on legislative efforts on the federal and state level. These efforts could affect the ability of some owners to compete.
As states face more pressure to boost revenue, more of them will consider charging taxes on health club dues, says Caro. Those efforts failed in three states last year, but the idea is being pushed in at least one state (Pennsylvania) again in 2008.
The other main state legislation to watch for involves efforts to require fitness facilities to have automated external defibrillators on their premises. This type of legislation has already passed in several states.
On the federal side, the main pieces of legislation to keep tabs on are the Workforce Health Improvement (WHIP) Act and the Personal Health Investment Today (PHIT) bill, both of which have been introduced in several sessions of Congress without passing. The WHIP Act would allow employers to deduct the cost of subsidizing or providing off-site health club benefits to employees, who would not have to pay additional taxes on the wellness benefit. The PHIT bill would expand what can be paid out of a person's pre-tax health investment account (health savings accounts, flexible spending accounts, medical savings accounts, etc.) to include the cost of physical fitness programs and exercise equipment. Each is expected to be reintroduced again this year.
Wellness at HQ
Regardless of whether the WHIP Act and PHIT bill pass this year, more Americans are focusing on their health and fitness as the reality of the obesity issue comes into full focus. A growing number of both small and large business owners are realizing the benefits of healthy employees. More companies are offering wellness programs and fitness incentives, ranging from nutrition classes to discounts on health club memberships to on-site fitness centers. Sixty-eight percent of the 600 companies surveyed by the Society for Human Resource Management offer wellness programs. Twenty-five percent of the companies have on-site fitness facilities.
Because of this increased interest in fitness, the corporate market will be further explored by more clubs as they look to connect with more membership opportunities, McBride says. His company already manages a number of corporate and nonprofit facilities.
“Companies will be more open to promoting healthy lifestyles and have more financial need to do so than ever,” he says.
This is especially true as more business owners realize that the average return for wellness programs is $2 to $3 for every $1 spent, according to Jerry Ripperger, national practice leader of consumer health for the Principal Financial Group.
Get with the Program
If fitness facilities are going to attract this corporate market, they'll need to provide programming that will keep members coming back. Sixty-eight percent of respondents to the State of the Industry survey plan to increase their programming this year, which is down from last year when 73 percent planned to increase programming.
Part of the issue may be that few new types of programming have been introduced, and Caro doesn't see any truly new type of programming around the corner. Instead, he predicts the continued popularity of personal training, group training, fusion classes, functional training, Pilates, yoga and dance-oriented classes.
Adult one-on-one personal training continues to be the most popular training format provided by fitness professionals, according to IDEA's 2007 Fitness Programs and Equipment Survey. More respondents to the State of the Industry survey earn nondues revenue from personal training than from any other programming.
However, group training is also gaining in popularity. That certainly holds true in the State of the Industry survey, where 57 percent of respondents say they will add or expand group training this year. The growth in this area may be due to the greater affordability of group training over personal training and to the possibility of a higher motivational aspect when working with a group of people with similar goals.
More clubs are expected to introduce programming to help fight the childhood obesity epidemic, according to a survey by the American College of Sports Medicine. In fact, 39 percent of survey respondents plan to add or increase children's programming this year. The Calorie Control Council predicts that to help in this area, exercise will become more of a family affair.
Seniors won't be left out. In 2007, the senior market was the fastest growing market in the fitness industry, according to the International Health, Racquet and Sportsclub Association. That trend is expected to continue this year. To address this market's special fitness needs, more clubs will offer programs designed specifically for seniors, including classes that focus on improving strength and balance as well as functional training to make everyday living more enjoyable. The State of the Industry survey found that 40 percent of respondents will add or increase their senior programming this year.
In addition, the American Association of Retired People, which is the advocacy group for individuals older than 50, launched a major fitness initiative in September 2007 aimed at providing a range of affordable fitness services to its 39 million members.
Also growing in 2008 will be weight-loss programming. Forty-five percent of respondents to the State of the Industry survey plan to add weight-loss programs to their clubs this year or expand existing weight-loss programs. That compares to 41 percent that planned to do the same last year. Companies such as Curves, Waco, TX, and Elements, Miami, FL, started online weight-loss sites last year. More club owners may consider doing the same this year.
Clubs Go High Tech
Online weight-loss sites are just one example of the growing importance of the Internet and technology in the fitness business. More members are bringing their iPods, PDAs and other personal devices into clubs to exercise to downloaded music and workout programs. Members also make the most of their time while at the club by checking e-mail and conducting business. In addition, more tracking and data technology is becoming available, which should help improve training for members.
As members become more technology savvy, they are turning to the Internet for much of their purchasing needs, so it's likely that they'll turn more often to the Internet to find fitness facilities. Caro expects more online sales as more club owners realize that people's use of the Internet is translating to more online memberships sold rather than during a personal visit to a club. As an extension of that trend, more club owners will begin to rely on the growing number of online lead-generation companies, he says.
Clubs will also turn more to technology for their backoffice systems. Caro expects more use of sales-prospecting software this year.
“Even clubs that do a good job in sales will be more reliant on these because I think more prospects don't join on the first visit, and there is more need for follow up,” Caro says. “Prospecting software makes that easier and creates a system for further communication, so clubs aren't dropping opportunities and missing out on people who showed initial interest but may take longer to make their decision.”
Caro also expects more owners to use customer-relationship management software as a way to learn more about their members and therefore improve their facility's retention.
Wait and See
As the growing use of technology by members and club owners shows, the industry is changing and maturing. 2008 could prove to be a pivotal year for the industry if a recession occurs and whether or not the industry is able to weather the storm as it has in previous economically lean times. The difference today is that fitness facility owners and managers face more competition from for-profit, nonprofit and corporate facilities, and membership numbers have not grown as fast as the number of new clubs has.
In addition, as a survey of 10,000 Consumer Reports subscribers shows (the survey will appear in the February issue of Consumer Reports), club members don't always see the value of higher-priced clubs when they think that they can get the same basic equipment and services at a lower price elsewhere. Survey respondents, all of whom were members of a club in the past six months, gave higher marks to nonprofits, community centers and corporate fitness facilities than to most of the national chains listed in the survey. Members said the main reason they rated these facilities higher was the value they said they got for the lower price.
This finding may mean that in addition to facing economic uncertainty, more for-profit facilities may need to re-evaluate their business practices in 2008 to ensure that they are offering more for their members and to ensure that they make the value of the membership clear. Otherwise, an economic recession won't be the only thing to be wary of this year.
ACE Predicts Fun for 2008
2008 promises to be filled with water aerobics, boxing clubs and spicy Latin dancing. That's according to an annual survey by the American Council on Exercise (ACE) of its worldwide network of personal trainers, group fitness experts, advanced health and fitness specialists, and lifestyle and weight management consultants. Some trends continue from 2007, including functional fitness, balance training and increased access to personal training for all segments of society. The following represents ACE's listing of the top 10 fitness trends for 2008.
- Out-of-the-Box Workouts
The popularity of TV shows like ABC's “Dancing with Stars” has dance studios popping up around the country. Hip hop, ballroom, Latin and country-line dancing combine high energy and motivating music with unique moves. Outdoor boot camps are gaining in popularity, and local boxing clubs have crowded rings and classes filled with people of all ages.
- Body-Weight and Equipment-Free Workouts
Equipment can intimidate some, and others want to add options and flexibility to their existing workout regimens. These full-body workouts focus on movement patterns, repetitions and plyometric work to target multiple muscle groups. These types of workouts are perfect for those traveling because they require no equipment.
- Event or Sports-Specific Programming
The millions of Americans who participate each year in charity runs and walks often do so after training for up to a year. Clubs are offering training for surfboarding, golf, football and more.
- Boomer Fitness Focus
For the aging population, regular exercise is critical in keeping the body limber, injury free and more youthful. The American Association for Retired People, which is an organization for individuals older than 50, launched a major fitness initiative in September 2007 aimed at providing a wide range of affordable fitness services to its 39 million members.
- Focused Express Workouts
Also growing in popularity are group classes lasting 30 minutes or less that focus on one component of fitness or training a specific part of the body (e.g., core stabilization, upper-body strength, balance and agility, aerobic training/fat burning). Participants enjoy targeting a specific goal within a short-time commitment. Many clubs piggy-back these classes in their schedules in order for members to attend two classes in a row.
- Total Wellness Programming
More people will focus on injury and disease prevention and understand how food, exercise, weight and a healthier mindset must interact for the body to achieve balance and total wellness. It is a focus on what the body and mind need and how to encourage them to work in harmony.
- Hybrid Programming
Fusion of mind-body techniques like breath work and meditation into traditional modalities continues to be popular. Workouts like Spin-Yoga and Pilates Fusion combine strength, flexibility and endurance, and offer the equivalent of an all-in-one exercise experience.
- Personal Training
Ninety-three percent of ACE fitness professionals surveyed say personal training will be more accessible in 2008. Personal trainers offer clients guidance, motivation and positive accountability.
- Technology-Based Workouts
Consumers are using downloadable programs on their iPods and PDAs that offer fitness programming with illustrations and/or streaming video. New technology also allows more precise measurements of a variety of physiological responses and documentation of training-program results.
- Functional Strength Training
Incorporating functional training into an existing exercise program enhances strength, endurance, balance and coordination in everyday activities. Individuals will increasingly search for workout programs that will help them more safely and effectively perform their activities of daily living, work-related tasks and recreational or sports-specific activities.
The YMCAs Focus on Activity
With the YWCAs getting out of fitness and focusing on other issues, the nonprofit sector is being left to the YMCAs and the Jewish Community Centers (JCCs). In late December, the YMCA of the USA's President and CEO Neil Nicoll announced that the Y would use its Activate America program to focus on holistic development of children and youth, strengthening family, and health and well-being for all.
To help with this effort, the Ys are partnering with Kimberly-Clark Foundation and a diverse range of expert advisors, including the Stanford University School of Medicine.
The organization's Pioneering Healthier Communities (PHC) initiatives, which were launched in 2004 as part of Activate America, drives policy, new programming, structural and environmental change in communities to promote healthy lifestyles. Each year, the Y selects a new group of communities to take on the task of transforming their hometowns into healthier environments, something they will do again in 2008. PHC is rooted in the principle that a multifaceted, community-based approach that includes policy strategies is needed to create sustainable and lasting change. The Y has added 18 communities to the program this year, bringing the total number of communities participating to 64. Each community team receives a grant from the Centers for Disease Control and Prevention for its team members to travel to Washington, DC, for a Pioneering Healthier Communities Conference. The team is then eligible to receive a one-time grant to assist in the implementation of activities.
PHC teams have already implemented changes, including reinstating physical education in schools, changing school vending and snack policies, improving city-wide trail systems and bike paths, and creating local walking clubs.
Trends in the spa business for the year will focus on Feng Shui, wellness, sleep and seven other areas, according to SpaFinder, a spa resource company. The New York-based spa marketing and media company released its list of trends to watch in 2008, which is summarized below.
- Feng Shui
Waterfalls and fine art along with soul-stirring design and ambience will be popular this year.
- The Star Therapist
Rather than being dazzled by just the features and services at a spa, savvy spa-goers will begin to seek out and reward talented therapists.
Wellness may become the next trillion-dollar revolution, and it's becoming increasingly central to the spa experience. It includes alternative practices such as energy medicine, reiki and traditional Chinese medicine.
- Luxury Detox and Boot Camps
Detox programs and weight-loss boot camps have long been associated with deprivation, suffering and penitence. However, many spas are beginning to treat them less as “punishments” and more as celebrations.
- Spa Real Estate Mania
Since 2004, the number of residence communities with a spa/healthy living component has grown from a handful to more than 250. That number will surpass 300 before the end of the year, according to SpaFinder. This trend will continue despite the downturn in real estate as developers look to differentiate their offerings and target more affluent buyers.
- Taking Sleep Seriously
Recent studies have highlighted the importance of sleep for improved productivity at work, cardiovascular health and weight loss. Spas will respond by adding sleep directors, offering sleep programs (including medically guided sleep analysis) and adding snoozing zones.
- Fertility Tranquility
Spas are beginning to offer treatments and diet regimes designed to boost fertility. Fertility-oriented acupuncture is becoming especially popular as a natural alternative for couples worried about the health effects of fertility hormones.
- Hydro and Thermal Super-Experiences
The European tradition of alternating hydro/thermal experiences is catching on worldwide and being interpreted in new ways. Spa goers can experience a rain-mist shower, samarium, monsoon, grotto steam, affusion shower, ice igloo, pelotherapy chamber, bucket-drench shower, sole therapy or tropical shower.
- Urban Spa Explorer
Increasingly, young urbanites are taking a “rough guide” approach to spa going, moving beyond high-end spas to explore the melting pot of largely immigrant-run spas — from Russian and Korean baths to Thai massage parlors that are popping up in many U.S. cities. They offer authentic, indigenous treatments.
- Plug-in or Unplug
Spa goers can now choose whether to stay plugged in and use their Blackberries during treatment or get unplugged and get away from it all while at the spa.