The economy has left club operators with some tough decisions about whether to buy, lease or do without new strength equipment.
With the economy in its worst shape since the days of the Great Depression, it should come as no surprise that many health club owners are changing the way they do business in order to, well, stay in business. Perhaps one of the first things that has changed is purchasing habits.
"The overall economy is affecting everyone's purchasing habits, from consumers to businesses," says Jeffrey Keller, president of the Independent Health Club Networking Association (IHCNA), an association for single, independent club operators. "The health club industry isn't immune to this, despite it faring well thus far in 2009. I see many clubs shying away from bigger purchases in 2009."
Instead, Keller says that club operators are spending their money on better programming to attract members, rather than better equipment.
According to the Sporting Goods Manufacturers Association (SGMA), total manufacturers' sales (in wholesale dollars) for the U.S. fitness industry in 2007 grew at an annual rate of 2.9 percent. Numbers aren't yet available for 2008, but faced with tough economic times, some club owners are now putting off or scaling back on strength and cardio equipment purchasing, leasing rather than buying, or purchasing used or remanufactured strength and cardio equipment instead of new equipment.
A January survey of the clubs that appear on Club Industry's Fitness Business Pro's Top 100 clubs list found that of the 18 respondents, only four did not plan to purchase new equipment this year. (See related story, Industry Growth Still Anticipated.) However, of the 14 club operators who said they would be purchasing this year, half noted they would spend less this year than last year. Three of them plan to spend more, and four plan to spend the same.
Keller says that some savvy club operators may not be feeling the pressure to scale back or find alternative methods to purchase equipment because they prepared for this bad economy by purchasing equipment ahead of time. However, club owners that weren't preparing late in 2008 are between a rock and a hard place because most won't have enough capital to make purchases, and credit lines for both loans and leases have dried up for the time being.
Anndee Wright Brown, CEO of Defined Fitness, Albuquerque, NM, says that she understands the hesitancy of many club owners to spend money on new equipment, preferring to keep more cash reserves on hand to offset any downturn in revenue. She does plan, however, to continue to purchase new equipment.
Greg Justice, president of AYC Health & Fitness, Prairie Village, KS, agrees, saying, "Our strategy hasn't changed with regard to purchasing equipment. We prefer owning our equipment. We're very good about maintaining our equipment and getting a long lifespan."
Jeff Jowers of Jowers Training and Tacoma Bootcamps, Tacoma, WA, still plans to buy equipment, but he is buying versatile equipment, such as kettlebells, bands, medicine balls and bodyweight equipment that can be used for more than one purpose.
Some owners are resorting to a unique approach to acquiring equipment. Dee Tidwell, owner of Championship Golf Fitness, Denver, CO, has developed relationships with local exercise equipment stores.
"We are cross marketing and working together to bring new customers in both our doors separately and as a team," Tidwell says.
Because some club owners are putting off large capital purchases right now, some manufacturers and leasing companies are seeing inventory increase, causing them to offer better deals on new equipment than in previous years. In fact, Tidwell says she's received many offers and notices about sales from equipment manufacturers and small product companies looking to "get rid of inventory."
Leasing vs. Buying
Despite the possibility of good deals on equipment, some club operators are turning away from purchasing, since financing those purchases has become more difficult because of the tight credit market. Financing programs are atrocious right now, says Rob Shapiro, founder and co-owner of BodyScapes Fitness, Southborough, MA.
"Before the credit crisis, it was easier to get financing," he says. "Today, it's harder. Everyone has really tightened how much they lend, and as a result, it's become more difficult to finance purchases of strength equipment."
Because of this, Shapiro has turned to leasing.
"You want to reserve that money rather than spend it on purchasing equipment," he says. "I'd rather have monthly payments on a piece of equipment than purchasing it outright."
Leasing equipment leaves club owners with more cash on hand for other expenses, such as advertising or member retention programs, and allows them to avoid additional debt.
Leasing allows club owners to tie the cost of the equipment (the monthly payment) to the life of the equipment, says the president of one equipment leasing company in the fitness industry. Depending on the structure of the transaction and the club's financial situation, leasing can also offer tax benefits.
Leasing has always been a viable alternative for independent clubs, Keller says, and changing business models to lease equipment might make sense for the short-term, but it doesn't always pay off in the long-term.
Leasing often means club owners pay above the cost of the equipment in rental expense or interest, Keller says.
And with leasing, club operators don't own the equipment, which can cause problems if they run behind on their payments. In addition, club operators, such as Jowers, who are continually expanding, sometimes prefer to purchase equipment because, if needed, they can sell the equipment or take it to one of their other facilities without breaking a lease.
Also, tougher underwriting criteria is making it harder for some club operators to be approved for a lease today than in the past.
"It appears that some manufacturers are less willing to provide leasing, as some of their programs have some liability for the manufacturers," the leasing executive says. "However, we are seeing some manufacturers continue to emphasize leasing as a way to push sales. Use of leasing is changing based on what is happening to the individual manufacturer right now."
Not all club operators are looking at new equipment for their purchasing or leasing needs. A growing number of operators are eyeing used or remanufactured strength equipment. According to the leasing company executive, used equipment sales at his company have increased about 50 percent from previous years.
"In general, there are savings on used equipment," he says. "The price varies. Club owners are looking at 30 percent to 40 percent savings over new equipment, based on the age and condition of the used equipment."
This option is not for everyone.
"In the 12-year history of BodyScapes Fitness, we've never bought used strength equipment, and we never will," says Shapiro. "We feel very strongly about only buying new equipment for our clubs."
Chris Stevenson, owner of Stevenson Fitness, Oak Park, CA, agrees, saying that he's not a fan of using used equipment at a commercial facility due to the volume of use that the equipment has probably had at its previous location and will have at the new location.
Brown of Defined Fitness says that when her company gets rid of its equipment to buy new, the used equipment is quickly purchased by equipment remanufacturers for a decent price.
"It seems used equipment is in higher demand than before," she says. "However, we have not chosen to purchase refurbished equipment."
But for those club owners interested in refurbished equipment, Tidwell recommends that they look on Craigslist online for equipment that failing club owners are selling.
"With so many 'mom and pop' gyms and exercise studios closing their doors, there is a good amount of gently used commercial equipment that is worth buying," she says. "Seriously, go to Craigslist and type in 'exercise equipment' and see how much stuff comes up."
Jowers, who buys both new and used equipment, has purchased equipment such as squat racks, deadlift platforms and barbells from Craigslist at lower prices than manufacturers offer, he says. Since Craigslist connects local buyers with local sellers, shipping fees aren't necessary — although club owners must transport the equipment to their facilities, which may mean transportation or moving costs.
Other club operators purchase the refurbished equipment through suppliers who specialize in that area. Keller advises club owners to investigate refurbished equipment suppliers before they purchase to learn what kind of use the equipment had before it was refurbished.
"Having a really good relationship with the company that purchased [and] refurbished the equipment is essential," Keller says. "Otherwise, the price may be good, but the equipment won't last. One of the worst things a club can have happen is for equipment to be constantly breaking down."
Used or refurbished equipment often is cheaper than new equipment. However, the cost of used equipment isn't necessarily lower today than in years past, says a leasing company president. Prices may drop, though, as more clubs close, causing used equipment inventory to pile up, he says.
"It normally takes a couple of months for closures and removal of that equipment to work its way into the system, so I wouldn't be surprised if used equipment starts to experience price drops in the near future," he says.
The lower price, though, isn't necessarily worth it for some operators. Rather than investing in used and refurbished equipment, Shapiro says club operators should invest in new equipment to keep their clubs more viable. Still, he knows new equipment can be expensive, which is why his club purchases new equipment on a piecemeal basis, rather than buying a lot of equipment at one time.
"In a good leasing environment, you could basically replace all your cardio at once, but now we've just replaced two pieces, and then in four months, another four pieces, and so on," Shapiro says. "The process takes more time in these hard times because we're a little bit more cautious. In our clubs, it's a necessity to replace all the equipment, and we must keep up with that standard."
Keeping up with a certain equipment standard may become more important as club competition intensifies in today's economy. According to one leasing company executive, in the near future, smart club owners will be those who invest in new equipment and use that as a selling point to customers, letting them know that they are investing in the facility to benefit the potential member, while the customer's current gym is not.