As memberships decrease and attrition increases, clubs will need to do a lot of little things to improve their bottom line in 2009
With the country mired in its current recession, the growing sense is that the economy is not going to get back on track overnight. Companies are going to need to invest time, patience and a little ingenuity to stay afloat or surge ahead.
The club industry is no exception to the challenges of the recession. Last month, Bally Total Fitness, Chicago, filed for bankruptcy for the second time in 17 months. Its filing may not have been due specifically to the recession (considering the company's history of financial issues), but the recession could not have helped. After the bankruptcy announcement, Bally closed several clubs around the country (see related story). Other club companies both large and small closed clubs, made cuts in staff or experienced a decrease in memberships over the course of last year.
January traditionally is the biggest month of the year for health clubs. As the month winds down, there still is optimism that the industry will survive the economic troubles of the country. As outlined in Financial Week magazine, research firm Ibis World lists health and fitness clubs No. 5 among the most likely industries to experience growth in 2009.
"With more people focusing on achieving healthier lifestyles, this industry is expected to increase 2.2 percent in 2009," writes Ibis World. "As Baby Boomers pass through their 40s and 50s, health care costs are forecast to rise dramatically, creating an incentive for insurers to promote preventive practices, like hitting the gym. Corporate fitness programs are also expected to become more popular, further driving growth in the sector."
"The health and fitness business will continue to grow," Schwartz says. "It has nothing to do with the recession because taking care of yourself is a good thing."
So there is hope for the industry yet, but for that hope to become reality, club owners must be proactive in their approach to the economy and take it one step at a time.
Making the Cuts
When a country is in the midst of a tough economy, most business owners look first to cut costs. Almost every club owner has had to make cuts over the last few months, and more are likely to come. The important thing for club operators and owners is to make the necessary cuts that will help them turn a profit. Most industry experts say that every dollar saved is a dollar to the bottom line.
"Most general managers and department heads do not love expense management and cost cutting," says Rick Caro, president of New York-based Management Vision Inc. "It's not as much fun. It requires great diligence, great detail, great work over 12 months, not just one or two weeks. If we can find ways to save some dollars, all of it goes straight to the bottom line, without any offsets. We can't say that about increased revenue because often with increased revenue comes some related expenses."
Caro suggests that operators look at every aspect of a club's operations for possible cost cutting — big issues, such as rent, energy costs and staff salaries, and little issues, such as magazine subscriptions. Club owners should weed out magazines that they don't need to offer in their clubs and examine other hidden costs, such as office supplies and copier paper, Caro says.
Towel service may be another area for cuts. For some clubs, this service is a luxury they can't afford to lose, but for others, it appears to be expendable. In November, Elevations Health Club, which has two clubs in northeastern Pennsylvania, discontinued its towel service. Last month, Bally did the same.
Though, when making cuts, club operators must ensure they aren't making too many cuts that affect the value of their club, says Ed Tock, president of Eddie Tock Health Club Sales and Marketing Consulting, Garrison, NY.
"Part of the challenge is not to eliminate things that members have been comfortable with," Tock says. "Some clubs are probably cutting back too much."
However, Tock urges club owners to overestimate the amount of their cost-cutting measures. If club owners plan to cut back 10 to 15 percent, they should really increase that to 20 percent so that when the economy rebounds, the club will have an extra 5 percent in the bank, Tock says.
In terms of staff, operators need to examine which staff members can multi-task, thus providing a reason to let go other staff members, Tock says. Educating staff is a way to cut costs as well. The better educated the staff is, the better chance they will know how to retain members in their club.
Club owners should not scale back their marketing dollars at this time, Tock says, even though the temptation is to spend less on marketing in the peak month of January. Operators need to think just the opposite, Tock says, and expand their marketing efforts during this month.
"January sets the tone for the first quarter of [this] year. The first quarter sets the tone for the whole year," Tock says. "Short-term thinking should not drive your long-term decisions."
Royce Pulliam, CEO of Urban Active, Lexington, KY, agrees that marketing is critical at this time.
"Do not make huge cuts with your advertising and marketing because new membership sales will be as tough as we have seen in years, so get really creative with those dollars you do spend," Pulliam says.
Caro adds: "There's more pressure on marketing and on the sales staff and the sales functions to succeed. If direct mail and newspaper ads aren't working so well, then I want to shift that to some Web site and online marketing, or I want to shift it to some more targeted promotions in the community, or I'm going to shift it to member referrals. But I'm going to work on the referrers in the club who have referred before, not just go after the entire membership. We're going to get smarter in marketing because we have to."
Joe Cirulli, owner of Gainesville (FL) Health and Fitness Centers (GHFC), was lauded for his work at GHFC in an Inc. magazine cover story last year. Cirulli says he's always looking for ways to improve his business, even in the current economic state.
"This is where you separate the good companies from the companies that just survive," Cirulli says. "It gives us a great opportunity, if we do all the right things, to completely outshine our competitors, who may be pulling back in ways that aren't the best places for them to pull back. A lot of people, if they don't really, really plan, they start operating out of fear.
"It will only be a matter of time before [the stock market] comes back," Cirulli adds. "It always has. I don't think it's the end of capitalism. I don't think it's the end of America. I'm still very optimistic."
By the Numbers
Despite optimism by some leaders in the industry, a comparison of the last two State of the Industry reports conducted by Club Industry's Fitness Business Pro reveals that club operators expect fewer new members and have lower revenue expectations for 2009 than they did for 2008.
In the 2009 State of the Industry report, 58 percent of respondents expect memberships to increase this year, while 30 percent expect memberships to remain the same. Compare that to the 2008 State of the Industry report, in which 67 percent of respondents expected memberships to increase in 2008, while 30 percent expected memberships to remain the same.
Revenue expectations also differ this year from last year. Although 70 percent of the 2008 respondents expected 2008 revenue to increase over 2007, this year's survey shows that only 53 percent of the 2009 survey respondents expect 2009 revenue to increase over 2008.
Respondents in the 2009 report projected their revenue to be an average of almost $950,000, while respondents for last year's survey projected their 2008 revenue would be $1.1 million. Club owners with one club estimated revenue in 2009 would be $638,352, while last year's one-club operators estimated 2008 revenue at $818,611. Club owners with two or more locations expect $1.8 million in revenue by the end of this year. Last year's multi-club operators expected their 2008 revenue to be $2 million.
One constant in the 2008 and 2009 reports is related to non-dues revenue and ancillary revenue. In the 2009 report, non-dues revenue and payroll represented about one-third of gross revenue while EFT-generated funds were an average of 48 percent of revenue. The non-dues revenue came most often from personal training (71 percent), group training (44 percent) and class fees (40 percent).
In 2008, non-dues revenue and payroll also represented about one-third of gross revenue while EFT-generated funds were an average of 43 percent of revenue. The non-dues revenue also came most often from personal training (69 percent) class fees (44 percent) and group training (40 percent).
Expansion expectations dropped slightly from 2008 to 2009. In the 2009 report, 33 percent of respondents indicated that their facilities will be physically expanded in the next 12 months. Of those who planned to expand, 45 percent will expand the existing building, 42 percent will open a new location and 13 percent will acquire another club.
In 2008, 38 percent of respondents said they would physically expand their facilities. Most respondents (61 percent) said they would expand the existing building, 38 percent said they would open a new location and 9 percent said they would acquire another club.
While revenue and membership expectations are down from the year before, optimism still exists regarding health-related legislation that has been pushed by industry lobbyists for several years. Once again, many groups in the industry will lobby for the passage of the Personal Health Investment Today (PHIT) Act and the Workforce Health Improvement Program (WHIP) Act. Last summer, as part of the International Health, Racquet and Sportsclub Association's (IHRSA) Sixth Annual Legislative Summit, fitness advocates met with their members of Congress to urge them to support these bills.
The PHIT Act would allow people to pay for exercise and physical fitness programs, certain exercise equipment and children's sports league fees with pre-tax dollars through their flexible spending account, medical savings account or health savings account.
The WHIP Act promotes wellness in the workforce by balancing current law and allowing off-site fitness center memberships to be a tax-free benefit for employees. Current law allows employees to use on-site fitness facilities free of any tax implications, but when a business needs to outsource this health benefit, employees who receive off-site fitness center subsidies are required to pay income tax on the benefits.
Despite the show of support on Capitol Hill, neither the PHIT Act nor the WHIP Act moved out of committee last year, and it might be a while before those bills become law, Caro says.
"I don't think we'll see any federal government legislation that will be favorable to the industry in the near future," Caro says. "I don't think we'll see [the WHIP and PHIT bills] moving very quickly after the first of the year. I think there are too many other priorities."
An IHRSA spokesperson, Kara Thompson, says the organization for for-profit health clubs is optimistic that with the new administration, both bills will be reintroduced this year.
"IHRSA is doing its best to include WHIP and PHIT in its health care reform efforts and as part of its larger strategy toward exercise as prevention," she says.
On the state level, governments are going to pose more challenges to the industry in 2009 through sales taxes or other aspects of a club's business, Caro says.
"[State governments] are going to want to impose either higher sales taxes because the states are having financial difficulty, or we're going to see more interference in our basic operation because they're going to want to impose certain kinds of restrictions on either how we renew memberships or the definition of what is a properly certified instructor, let's say a personal trainer," Caro says.
Mandating automated external defibrillators (AEDs) in health clubs will be another issue on the state government level. Currently, 11 states have laws mandating AEDs in health clubs: Arkansas, California, Illinois, Indiana, Louisiana, Massachusetts, Michigan, New Jersey, New York, Oregon and Rhode Island. Other states are working to pass AED legislation.
Twenty-four-hour key-card clubs, such as Minnesota-based Snap Fitness and Anytime Fitness, may run up against some opposition regarding the AED issue. These clubs have models in which the clubs are not staffed all the time. Many AED states require a CPR-trained staff member at the club during all hours of operation.
Clubs and nonprofits that have pools will have to deal with a complicated issue involving compliance with the Virginia Graeme Baker Pool & Spa Safety Act, which went into effect last month (see related story). As of Dec. 19, 2008, operators of public pools and spas, including health clubs, YMCAs, community parks, hotels, universities, schools, apartments and condominiums, are required to have their pools equipped with drain covers to prevent drain entrapments and eviscerations in pools and spas.
Group Training on the Rise
The new year isn't all about cost cutting, spending, dwindling revenue and memberships, or even legislative issues. Fitness facility operators also are looking at ways to increase revenue through ancillary services, such as group and personal training. Several recent surveys indicate that group and personal training are among the programming trends that will continue to grow in 2009.
Sixty-one percent of respondents to the 2009 State of the Industry survey plan to increase their programming, with group training or personal training among the most popular programs to expand. Weight-loss programs and senior programs are not far behind, according to the survey.
In the 2008 IDEA personal training programs and equipment survey, conducted by the IDEA Health and Fitness Association, 84 percent of those surveyed said they offer partner training, in which two clients share a session.
The program with the most growth potential, according to both the IDEA survey and a survey conducted by the American Council on Exercise (ACE), is boot camp-style workouts. Boot camp sessions balance cardiovascular and high- and low-intensity strength exercises, often attracting members and nonmembers.
Senior programming, like Silver Sneakers, and kids programming are continuing to grow, too. Senior programming is a great way for a club to remain active during down times of the day, says Geoff Dyer, vice chairman and founder of Lifestyle Family Fitness, St. Petersburg, FL.
"Anything that makes your clubs active during off-peak times is a smart use of time," Dyer says. "It costs you nothing. You've got staff already there, teenagers end up buying personal training, seniors end up buying personal training. Anytime you can add members, whether they're free trial members as teenagers or Silver Sneakers members paid for by insurance companies, it's tremendous."
These types of programs can help clubs make money, and they can help clubs think outside the box. More clubs need to reach out to potential members by going out and selling their services, says Carol Kennedy-Armbruster, a lecturer in the department of kinesiology in the school of health, physical education and recreation at Indiana University.
"We can't assume anymore that people are already active," Kennedy-Armbruster says. "The clubs need to go out and get people active."
In a similar vein, Tock says that club owners need to "own the neighborhood" and get creative with packages for prospects that live or work near the club. Maybe it's a package for Baby Boomers who are concerned about rising health care costs. Maybe it's a six-, eight- or 12-week package for prospective members. Maybe it's a program patterned after "The Biggest Loser" TV show. Whatever it is, Tock says, club owners need to stress the importance that these programs will have on their members. "If you position yourself as part of a lifestyle instead of just selling a membership," Tock says, "then I think you'll do fine."
Approaches for Doing Business in 2009
Bill McBride, the chief operating officer of Club One, San Francisco, offers some tips on ways for clubs to do business in 2009:
Promote value and necessity vs. luxury.
Reduce barriers to entry and spending, making it easy for members to join, spend and stay. Create special retention programs for members with financial hardship.
Be extremely communicative with staff and members.
Take care of your "A" players.
Take a fresh look at your payroll model/structure. If you were opening today in this environment, how would you staff the club?
Review and discuss your vendor pricing. Renegotiate with suppliers where appropriate.
Do small gestures to show your members (and staff) that you care.
Focus on your core: sales, retention, ancillary revenue and payroll/expense control.
Keep your club pristine (clean and fresh).
Be proactive, not reactive.
Boot Camp, Budget-Friendly and Back to Basics Workouts Will Be Popular in 2009
Boot camp-style workouts will remain the top fitness trend in 2009, according to a survey from the American Council on Exercise (ACE). Boot camp-style workouts were also the most popular fitness trend in 2008. The annual survey of ACE's worldwide network of personal trainers, group fitness experts, advanced health and fitness specialists, and lifestyle and weight management consultants noted several other fitness trends for 2009.
- Boot Camp-Style Workouts
Boot camp workouts remain extremely popular because they provide a total-body workout that's varied, fun and challenging. Up to 600 calories can be burned during a boot camp session, which is going to facilitate weight loss. But in addition to a great cardiovascular workout, muscles are strengthened through high- and low-intensity exercises, such as push-ups, squats and lunges. You don't typically experience significant muscle fitness benefits in other aerobic exercises. (For more on boot camps, see related story.)
- Budget-Friendly Workouts
With today's economy showing no signs of strengthening, more people will cut costs to stay in shape. Of the ACE-certified professionals surveyed, 48 percent said that gym memberships will decrease in 2009, and 52 percent said fewer people will hire personal trainers. Look for more people to use the resources around their homes as their gym and equipment.
- Specialty Classes
While yoga and Pilates will remain strong, dance-based classes are all the rage this year. Zumba, a fitness program inspired by Latin dance, combines South American rhythms with cardiovascular exercise. Bollywood, ballroom, Afro-Cuban and other exotic dance styles are growing in popularity, thanks to shows such as "Dancing with the Stars" and "So You Think You Can Dance."
- Getting Back to Basics
Despite the fact that many exercises and equipment are becoming more advanced and trendy, trainers will continue to focus on basic movements and techniques with their clients again.
- Circuit Training
Studies have shown that interval training combining strength training and cardiovascular activity at different intensities provides a more time-efficient workout than participating in traditional aerobic and weight-training sessions. With an increase in popularity of circuit training, many gyms are setting up their own circuits to allow their members an easy path to fitness.
The reason for the surge in kettlebell training is that it gets back to basic training that requires functional, whole body fitness. Kettlebells require an individual to focus on whole-body conditioning because lifting and controlling a kettlebell forces the entire body, particularly the core, to contract as a group, simultaneously developing strength and stability. Kettlebell workouts engage multiple muscle groups, making it a great way to get a whole body workout in a relatively short period of time.
- Boomer Fitness
Individuals 50 and over have the means, motivation and desire to enhance their quality of life through physical activity — and the number of seniors is only increasing. The 50-and-over audience continues to redefine our expectations about age, vitality and life, which has highlighted the importance of physical activity as we age. Since September 2007, the American Association of Retired Persons' (AARP) fitness initiative for Boomers — aimed at providing a wide range of affordable fitness services to its 39 million members — has been going strong.
- Technology-Based Fitness
From iPods to Cardio Cinema to exergaming, the latest in technology will continue to infuse itself in all aspects of fitness. Look for 2009 to provide more interactive video games that provide fitness benefits, as well as new inventions to make exercising a more engaging experience.
- Event or Sport-Specific Exercises
Despite the emergence of new and trendy workouts, sports or recreational activities will remain a popular way to stay in shape. Participating in a friendly game of basketball or volleyball, training for a marathon, or taking a day-long bike ride are just a few ways that people are staying in shape and having fun doing so.
- Mixing It Up
Traditional programming is changing from what we called linear progression to undulating, as research shows similar if not better results. For example, mixing low-intensity cardio with intervals on some days, and mixing high-volume, low-intensity weight training with low-volume, high-intensity training on alternate days.