It is often said that hindsight is 20/20. Well, a look back at 2002 shows that the state of the fitness industry is a little fuzzy and the future isn't much clearer. Depending on with whom you speak or which statistic you look at, a case can be made on the success or lack thereof for the industry.
In general, last year was by most accounts a successful year for the fitness facility industry, all things considered. Despite a roller-coaster ride for the economy — with admittedly far more and steeper drops than climbs — the industry did see some growth and success.
The numbers make that position hard to argue with. With more than 18,000 clubs attracting 33-plus million members (with market penetration of about 13 percent) and $12.2 billion in revenues, according to IHRSA, the industry seems to be planted firmly in the black.
But despite the rosy — and primarily accurate — picture painted by the balance sheet, a deeper look shows that while accurate those numbers weren't easy to achieve in the face of the troubled economy over the past year — although it may have taken half of 2002 for the bad news to catch up with the fitness industry.
“I believe we have gone from being recession proof, to just being unhurt by the recession as an industry,” says Rick Caro of Management Vision. “We were seeing same-store sales being up quarter for quarter about 6 percent, according to IHRSA, but they were up only about 2 percent in the third quarter. So we are up, but it has definitely slowed.”
Steve Schwartz, president and chief executive officer of Chicago-based Tennis Corp. Of America (TCA) agrees that the economic slowdown finally hit the fitness club industry late in 2002.
“Clubs did well relative to the rest of the economy in the first three quarters of 2002 — we looked as though we were going to dodge the bullet. I even heard talk that we were ‘recession proof’ as a business. And we were starting to believe our own press releases,” Schwartz says. “For the last bit of 2002 things got worse; we've come down to Earth.”
Besides a drop in sales, part of that slow-down was attributable to many in the industry choosing to wait out the recession leading to a slow down in new club build outs.
New clubs continued to open in 2002 showing the resiliency of the industry in the face of many other industry's hanging up “going out of business” signs. But, at a 3 percent to 4 percent rate, growth for the industry was decidedly slower than the boom of the late-90s, which saw clubs springing up at about a 7 percent growth rate, according to IHRSA.
“For us and a lot of other clubs, 2002 was a year of not taking a lot of risks. The economy put everyone into a position of focusing on core business, hanging onto what you have and positioning yourself as a successful business,” says Jill Kinney, executive vice president of San Francisco-based Club One Inc. “As far as we're concerned, there still is substantial consolidation going on and opportunity there, but right now it is sit tight and wait for the weather to go by.”
And the slowdown may not be entirely on the industry's collective head. The sluggish economy saw a tightening of the purse strings that fueled the rapid growth of the ‘90s.
“The U.S. debt market really toughened up last year for all business segments, including ours,” says Caro. “Not to mention that there were no new equity players entering the market. There were also some great expectations of some club group going public or selling to a larger company and that didn't happen. It leaves our industry underexposed to the financial community.”
SUPPLY AND DEMAND
Although not everyone believes this slow-down in openings is a bad thing for the industry, citing more important aspects to address.
“Major markets are not under clubbed by any means. Most have three viable options if you count non-profits,” says Bill McBride, senior vice president of sales and business development for McLean, VA-based Sport & Health. “The industry still needs to work on impacting the population and getting more of them into the facilities that are open.”
TCA's Schwartz also sees no sign of short supply of health clubs in most markets.
“There is an oversupply of health clubs. This is a natural outcome of heavy investment in the last couple of years from cheap and easily accessed capital, individual operators adding a second location, misguided hospitals and lots of parks and recreation departments glowing and growing in good times from excess tax revenues,” Schwartz says. “I think things will get worse before they get better and that it will take a year or two for demand to catch back up with supply.”
The lack of supply in 2002 is perhaps the most shocking statement on the state of the industry as baby boomers continue to age, schools cut physical education programs and the nation became fatter.
“One of our biggest challenges as an industry is to attract the never-joiner,” says Caro. “This is not necessarily the deconditioned market just those who have decided not to join a health club regardless of their level of activity.”
A LOOK AHEAD
But out of much of the doom-and-gloom of the past year hanging over the still successful industry, a few key trends emerged that may propel the industry going forward.
“We saw some very, very positive trends and developments in 2002,” says John McCarthy, executive director of IHRSA. “There were several developments such as the emergence of yoga and Tai Chi, the growth of personal training have surpassed everyone's initial expectations. These are of huge significance for our industry's future.”
Many point to the importance of programming and customer service as they head into 2003 as ways to tackle some of the lingering problems facing them — primarily driving new business and retaining current members.
“The challenges of 2003 are similar to those we faced in 2002. The real opportunity is to give consumers everything they need,” says Howard Brodsky, president and CEO of New York Health & Racquet Club. “In a good economy you need to deliver all services from swimming to Pilates to massage and work on customer service. So in a tough economy — and let's not kid ourselves 2003 is going to be tough — a club that can do this can hit a grand slam this year.”
The table is set for hitting that grand slam as the aging population and the increased awareness of the health risks of obesity and a search for an outlet for stress continue to raise awareness.
“I think the average age of our customers will continue to increase. The people with the time and the money will get older,” says Club One's Kinney. “That suggests that the programs that will be of interest will be health and lifestyle related as opposed to body beautiful programs.”
According to IHRSA, 54 percent of current members are made up of adults ages 35 and up. But the association has also seen membership by those under 18 (8.2 percent) and those 18 to 24 make up more than 22 percent of total membership. Leisure Trends Group, a company that tracks consumer interests in various sports and leisure markets, echoes those findings.
“We are seeing health club members skewing younger,” explains Jim Spring, president of Leisure Trends Group. “There are more 16 to 34 year olds in every region of the country making up the membership of heath clubs — except the north central states.”
That younger or Generation “Y” population (approximately 70 million people aged 6 to 24) may be the key to long-term growth. And many of them may come into contact during their college years as SGMA reports that a building boom is underway in college recreation centers where 25 percent of the 1,546 centers have been built since 2000.
According to many, providing top-notch customer service is going to be even more important in 2003 for retaining members and bringing in new ones, especially as worries about the economy and troubles overseas make people look for greater comforts and service.
“Those willing to go overboard on servicing members like never before will be successful,” says New York Heath & Racquet's Brodzky. “I think it is more important than ever to spend time and energy servicing customers and giving them what they want be it a certain class or just a friendly hello. It will get you more than trying to be trendy and having an attitude.”
In the end, when — or if — the economy rebounds the industry may be poised for bigger successes in 2003. Especially if corporations and insurance providers open their pocketbooks and supplement fitness expenses.
“The economy has been hurting the growth of the fitness industry, especially in areas where corporations have been cutting back,” says Spring. “If the economy turns we think you'd see predictable growth in the industry as people free up some discretionary income and businesses gain easier access to capital.”
Five to Watch
Informal polling of the fitness industry shows that the following five companies are the ones to watch in 2003.
- Bally Total Fitness: “As a high-profile, public company Bally is the company that investors judge the industry by.”
- Curves for Women: “They have hit a cord with women and are growing quickly because of it.”
- 24 Hour Fitness: “May be the next public fitness company.”
- Town Sports International: “Watch for a potential IPO.”
- LA Fitness: “They are flying under the radar, but not for long.”
IHRSA asked clubs to identify their five most profitable programs or services — those programs with the greatest net operating revenue before overhead. The following figures indicate what percentage of clubs cited a given program or service as being among their five most profitable.
Public companies had a rough year.
ACE Looks For Hot Trends for 2003
The American Council on Exercise (ACE) has looked into its crystal ball and made its fitness trend predictions for 2003. Through its research, “workout watchdog” studies, and worldwide network of certified fitness professionals, ACE continues to monitor America's growing interest in fitness. As 2003 begins, ACE's predictions show increases in mind-body workout activities and senior participation, and a positive mind-shift in how exercise is viewed.
The Changing Nature of Fitness
Personal Training 50.5% Massage Therapy 28.2% Pro Shop 26.2% Aquatics Programs 24.3% Tennis Programs 20.5% Food & Beverage Sales 11.7% Tanning 9.7% Physical Therapy 7.8% Summer Camps 7.8% Kids Programs 6.8% Martial Arts 6.8% STOCK MARKETS THREE-YEAR PERFORMANCE 2002 2001 2000 Dow Jones -16.0% -7.1% -6.2% NASDAQ -31.5% -21.0% -39.3% S&P 500 -23.4% -13.0% -10.1% YEAR-END TOTALS FOR SELECT FITNESS STOCKS Name Symbol Exch. Close 12/31/02 52-week hi 52-week lo Bally Total Fitness BFT AMEX 7.09 24.10 5.70 Brunswick BC NYSE 19.86 30.01 18.30 Cybex CYB NYSE 1.40 2.50 1.00 Health Fitness Corp. HFIT BB 0.50 0.76 0.31 Nautilus NLS NYSE 13.31 45.89 12.40 Sports Club Co. SCY AMEX 2.30 3.45 1.00 Leading companies for public offerings in 2003, according to industry insiders, are Town Sports International and 24 Hour Fitness.
Pilates will continue to grow as one of the nation's most popular fitness trends. Based on the century-old teachings of Joseph Pilates, will continue its move into the mainstream.
More and more fitness classes will focus on core strength workouts. To achieve balance, strength and stability of the core (i.e., the body's center of power), exercise classes that use stability balls, medicine balls, core boards, etc., will continue to gain popularity.
“Active relaxation” is on the rise. Gentler forms of exercise that promote better sleep, longevity, reduced stress, increased energy and an overall sense of well being will continue to compete with traditional strength, weight loss and other forms of exercise programs.
Sport-specific training will continue to guide athletes and the general public into fitness facilities. As the number of marathon runners, tennis players and athletes increases, so does the importance of sport-specific training. On today's playing fields, the athletes are bigger, stronger and faster than ever before. A sport-specific training program involves focusing on the specific skills associated with an activity while improving cardio endurance, muscle strength and flexibility.
Seniors' awareness of the importance of strength training will increase. Approximately 25 million Americans have osteoporosis and 80 percent of those are women. Weight-bearing exercises are best for preventing it and can help control cholesterol and blood sugar levels, manage arthritis pain and reduce the risk of disabling falls.
Online personal training will continue to gain popularity. Training online saves money and time, overcomes barriers to facility access and helps encourage individuals to stay active. Many of these programs offer practical tips on exercise, one-on-one fitness consultations with certified fitness professionals, coaching and training tools, and portable exercise tools that help individuals incorporate fitness into their busy schedules.
While online personal training is valuable it is not as effective as having one-on-one contact with a certified professional. The need for personal training will increase. It appears, unfortunately, that most Americans lack the commitment, motivation and/or knowledge of fitness to stick with their exercise routines. In fact, it is estimated that seven out of 10 individuals who start an exercise program quit within the first six months. Many individuals have found that just a few sessions with a well-trained, certified fitness professional helps them refine and recommit to their workout programs. The net effect is that they are more likely to safely achieve the results they desire, boosting retention.
Circuit-training classes, which combine cardio with strength training, will become more popular. The focus of these classes is to combine cardio and strength training into one workout to meet the needs of so many Americans who are “time starved” and want to get the greatest training effect in the shortest amount of time.
Exercises will increasingly become a family affair. Given the growing epidemic of childhood obesity, there is a tremendous need to identify ways to encourage kids to become more physically active. The name of the game is to offer activities that each member of the family can enjoy, regardless of age, fitness level or athletic ability.
Corporations will continue to urge employees to participate in wellness exercise programs. The “bottom line” is the bottom line for companies. With the state of the economy and the increased pace of technology, there is a growing epidemic of stress-related diseases among Americans in the workforce costing companies billions each year. Employers who offer wellness programs and incentives may benefit from reduced healthcare costs, absenteeism, injury rates and turnover and improved job performance, productivity and morale.
There was a time that all that could be counted on in a health club — called gyms in the good old days — were heart-pounding music and clanging iron. Today, club-goers are looking for a different experience. Here are the top five business trends for 2003 according to an informal survey of fitness industry members.
Community Building: “More than ever people are looking for a social place to get away from the worries of the real world — an oasis.”
Customer Service: ‘To compete today clubs need to go all out to keep members happy.”
Diversification: “People are looking for an all-inclusive experience. Clubs will need to offer spas, pools, leagues, children's programming and more.”
Improved IT Operations; “Club owners will need to track things during the course of a month and react quickly. They will also need to improve on customer relation management (CRM) utilization.”
Community Outreach: “Even if it doesn't impact the bottom line immediately, the value of long-term relationship building will be worth it.”