During the past few years, health club leaders turned inward. Given the pressures from the recession and some unwanted additional competition, club owners shifted their attention to the fundamentals of operations and retention, which led to retention improvement for many. They did a better job of “selling” internal club programs and services. Hence, ancillary revenue has been increasing. Getting new people to join has still been a challenge, with slight improvements but no consistent pattern of increases. In general, club leaders are more optimistic in 2011 about their operations and bottom lines.

During these past years, great attention was placed on daily, weekly and monthly metrics. Earnings before interest, taxes, depreciation and amortization (EBITDA) margins leveled off. Debt and equity funding was difficult. New club growth was often put on hold. But now is the time to start examining the future of the industry and, more specifically, the future as it affects your organization.

Your club’s leadership team needs to start thinking beyond 2011 toward 2012, maybe even looking out three to five years, and to contemplate some of the greater issues for their future. Is the local market growing? If so, which segments? Where are the underserved elements of the market today? Can our club fill them? What types of clubs are likely future competitors? How do we defend against them in advance? What do we need to do to have a physical plant that meets our future needs? What type of capital do we need to grow? What changes must be made in our organizational structure? How should we market and sell in the future? What systems improvements do we need? How can we better serve our members? The list of questions goes on.

As we contemplate the coming years, let’s address some likely changes, trends and realities.

Staff will need to be more educated to meet the needs of older adults, the medical issues of members and the future demands of insurance companies for future tie-ins. Operations will be overhauled due to advances in technology, which will affect all aspects of the club. From marketing to selling, programming, registering and communication, club operators will need to change the underpinnings of their currently limited technological platforms. Real member-to-staff or member-to-club communication and the reverse will be the norm. And member-to-member dialog will be the norm, creating real communities. Internet advances will help the club organize its staff with better and more efficient communication and training. Better tools, dashboards and analyses will allow the club to operate more efficiently, consistently and timely.

The market will likely see the 60-plus age market expand, forcing club owners to make changes to woo and service it. The industry will learn how to attract a higher percentage of minorities and with greater community affiliations. Finally, club owners will learn how to serve the 5- to 14-year-olds year round and help address the childhood obesity problem.

More segmentation will occur, forcing the positioning of clubs away from the plain-vanilla facilities with no clear points of differentiation. This process will be pressured with greater competition from a variety of other facilities, including university fitness centers, corporate fitness centers and, to a lesser extent, member-owned private clubs, municipal recreation centers, nonprofits and medical fitness centers.

Marketing will benefit from connections with insurance companies and their suburban base in greater ways than previously contemplated. Medical referrals with a systematic pattern of physician-directed introductions to clubs will likely develop. Programming changes will lead to increased levels of in-club spending (beyond the regular dues), a much greater set of small-group exercise offerings, a packaged set of nutritional services, a continuance of the development of functional fitness activities, an increase in the variety of programs (including some aimed at nonmembers and different audiences), an increasing emphasis on the use of existing space and more employer-packaged programs, along with a variety of wellness educational offerings.

All financial pundits have projected a meaningful consolidation in this industry. It has not yet happened, but it will. Those who see the future and make plans to take advantage of it will flourish.

BIO

Rick Caro is president of Management Vision Inc., a consulting company that serves the club industry. The company focuses on market analyses, valuations, member surveys, club finances, expert witness testimony and operational analyses.