While writing this column, I wondered whether I should call it “break time” or “brake time.” Certainly, circumstances in both our national business climate and in the fitness industry could justify either portrayal, but I'll stick with the former.
Break time for the U.S. economy: The deepening recession in North America is triggering comparable responses worldwide. We are smack in the middle of skyrocketing unemployment, plummeting real estate and stock prices, and a fear-based scenario that has even the wealthy hunkering down and curbing their ancillary spending. Predictions range from fourth fiscal quarter 2009 recovery to a three- to four-year sluggishness equaled only by the latter years of the Great Depression of the 1930s.
The health and fitness business is a consumer-driven industry, one which has begun to show the effects of less discretionary income on the part of patrons (for the most part, middle-income and upper-middle income America). In times of financial fear, the common person makes serious decisions about that which he or she wants to buy and that which he or she needs to buy. Although we would like to think that health and fitness is a need, substantial evidence shows that the vast majority of Joe or Joanne Averages still consider a club membership to be a luxury purchase. A recessionary economy exacerbates that feeling. We likely won't see a return to normality anytime soon in the membership purchasing patterns of consumers.
Break time for the health club industry: Although many people say we are in the process of consolidation long predicted by experts, I believe we are witnessing separation, which is occurring in three forms.
Well-financed, system-strong, marketing-savvy, big-league players already have emerged in the value-priced, mid-priced and higher-priced segments of the for-profit club business. (At this writing, I estimate that approximately 23,000 for-profit U.S. facilities share approximately 24 million memberships.) I predict that we will see further segmentation, likely into the mature markets sector, the corporate programs sector and certainly into the wellness sector (see No. 3 below). In times of lengthy economic downturns, fiscally sound club companies tend to grow, sometimes exponentially. While Planet Fitness, Fitness 19, Curves, LA Fitness, 24 Hour Fitness, Gold's Gym, Town Sports International and Life Time Fitness now control only about 25 percent of the club market and 28 percent of memberships, within five years, these same players (or merged combinations) could dominate 40 percent or more of the club count and 40 percent or more of the membership market.
In a December 2008 survey that I conducted of 271 North American clubs, I discovered that one out of three for-profit operators are concerned that 2009 is a make-or-break year for them. In other words, marginally profitable clubs, clubs operating at break even and clubs doing business at a loss may represent as many as 12,000 facilities. A prolonged frail, fragile or even docile economy will almost certainly drive a high percentage of these clubs out of business by mid-year 2010, if not sooner. This will present successful operators and larger chains with golden opportunities to take over good locations and/or absorb thousands of memberships.
Nearly one-third of the 40-million-plus U.S. fitness facility members are over the age of 45, a number that will increase over the next five years. Those people, who have already expressed general dissatisfaction with clubs (witnessed by the 40 percent or higher sustained annual industry membership attrition rate), are likely to move to the emerging wellness model now being practiced by a few stellar for-profit operators and a few hundred generally not-for-profit hospital/medically based facilities. The advent of subsidized or partially remunerated memberships and/or programs will only accelerate membership sales in “wellness” facilities, likely at the expense of member rosters in many fitness facilities.
Break time for yours truly: This magazine has allowed me to write regularly for more than a dozen years, better than six of those in a monthly or bimonthly column. I deeply appreciate the ongoing support from this magazine's publishers and editors. I also thank you, the reader, for your sustained interest. That said, this is my last column. I will be devoting more energy to developing my online educational company, fitness research and other endeavors. However, I'll still be around for interviews, occasional articles and seminar presentations at Club Industry conferences. Who knows? Maybe even a book is in the cards.
Michael Scott Scudder operates MeetingZone, an online-based consulting and training service. He can be contacted at 505-514-0294, on Skype at michael.scott.scudder or by e-mail at michaelscottscudder@yahoo.com.