Like many business sectors, 2004 could be called a mixed bag for the fitness facility industry. It was a year during which we saw chains of various sizes struggle (led by Bally Total Fitness) while at the same time others prospered (Life Time Fitness led the charge there with its public offering this past summer).
With the White House predicting slight growth for the economy in 2005 (although 0.5 percent slower than 2004), which may boost jobs and consumer spending, the chances are that 2005 will turn out to be even better than 2004.
Despite the macroeconomic implications of the U.S. economy, it will really be up to individual companies doing their best business that will determine their — and in the end, the industry's — success going forward.
“It is no secret to anybody that over the past five years we have seen a shift in the industry that has had beneficial results for some and devastating results for others,” says Karen Woodard-Chavez, president of consulting company Premium Performance Training in Boulder, CO. “This will continue at a more intense pace in 2005 and the years to come for some single-site operators and smaller facilities.”
Among the key areas of concentration for success, according to Woodard-Chavez are:
Refining business planning, management, communication and leadership skills
Acting preemptively when it comes to operational decisions on and sound policies that are aligned with a strategic and defined vision and mission
Effectively communicating and training staff well on strategic initiatives
Focusing resources on true differentiation and belonging
Focusing on aggressively managing revenue (both dues and non-dues) and retention growth
A look at exclusive research by Fitness Business Pro shows that many clubs did in fact have success in 2004, but maybe not quite as much as they had hoped for when they rang the year in last January.
For 2004, respondents to the Fitness Business Pro State of the Industry Survey averaged $1.2 million in revenues for the year. When compared to last year's mean revenue of $1.4 million, one sees a decrease of $400,000 per respondent.
In part this decrease may be reflective of the high number of single-club operators who responded to the survey versus those that operate two or more clubs. But a closer look at the numbers shows that multiple-location companies had the more significant impact on the overall revenue numbers.
In 2003, multi-location facilities estimated mean revenue of $2.9 million. For this year's survey, multi-location facilities reported $2.3 million in revenues.
Another aspect of the slight revenue hit — although the industry still proves to be solid, even in the face of uncertain economic times — may be a reduction in recurring dues.
Our survey shows that the average monthly due for 2004 was $41. That figure is down from the $50 average seen just a year ago.
“We have seen revenues that are down for a lot of clubs,” says Bruce Carter, founder of Optimal Fitness Design Systems and president of GetCYCED! “Some of this has come from the pricing competition that many are seeing, especially in more crowded markets. But that pressure is really coming from the industry. It isn't a market-driven slashing. I think many clubs are under-pricing because of cheaper competition. We will have a shake out at some point.”
While recurring revenues from memberships may have fallen a bit during the last year, many facilities are attempting to make up the difference with ancillary services and products.
According to the survey, about 30 percent of gross revenues were attributed to non-dues revenue. Leading the way for facilities was personal training, which made up about 75 percent of non-dues revenue. Juice bar/food and beverage services accounted for 40 percent of this revenue. Interestingly, the survey also shows that single-location facilities saw a whopping increase of 19 percent in gross non-due revenues coming from juice bar/food and beverage services in 2004 when compared to the previous year's results.
This bump in non-dues revenues may be especially welcomed since many facility operators are facing higher costs on several fronts.
“Despite some continuing economic pressures, as an industry we had an impressive bottom line in terms of revenues, members and EBITDA,” says Rick Caro, president of Management Vision. “This is important on a number of fronts with one of them being to handle the increase of fixed costs such as interest costs, real-estate taxes and insurance rates. Also, this helps offset the rise in variable costs such as utilities, which are often tougher to keep tabs on and control.”
While some people may look back at 2004 with tepid enthusiasm, many people feel that 2005 will shape up as a winner when it comes to bottom lines, membership numbers and growth of the industry.
The Fitness Business Pro State of the Industry Survey shows that 70 percent of respondents expect revenues to increase in 2005 compared to 2004. Meanwhile 20 percent expect revenues to hold steady. Only 3 percent are expecting a drop in revenue (7 percent did not respond to the question.). On average, the industry is looking at about an 18 percent bump in revenue, according to the survey.
Part of this growth may come from increased memberships as 77 percent of respondents anticipate an increase of membership numbers in 2005.
Some of that membership may come from the industry thinking — and acting — outside of the box.
“I believe we have ascended as an industry to a point of now needing to look beyond our four walls. We need to follow closely what is happening or what is not happening in our society regarding physical activity, exercise and fitness,” says Ken Germano, American Council on Exercise president and founder of OperationFit Kids. “As an industry, we must decide to put our collective heads together to change and impact the issues of obesity and inactivity. We are never at a loss for ideas, just the people at the end of the day who will do all the work…there are never enough.”
Also from outside the box, many feel that government, medical, insurance and corporate influences may finally help drive new members into facilities.
“I have to believe that there will be governmental incentives and private sector incentives if you live and maintain a healthy lifestyle,” says Stephen P. Roma, chief executive of WOW! Work Out World. “It just makes too much sense.”
The success of the past year and the optimism of a good 2005 along with several other factors — such as the success of express clubs — have finally given the fitness industry an inside line to Wall Street and private investors, which should continue to fuel the industry's continuing success.
“The health club industry has struggled for the last 30 years to define a business model that is profitable throughout aggressive growth,” says Jill Kinney, founder and director of new business at Club One in San Francisco, CA. “Many companies follow the latest trend versus defining their own vision and staying the course over time. We have learned recently that new approaches such as Curves have very successfully opened access to new markets and have opened eyes to the fact that there is not just one ideal club model, but well-conceived clubs that serve a specific market. We have also recently seen a few well-defined business plans that have attracted quality capital partners and public financing, and the future looks brighter than it has been in anytime in our history.”
Management Vision's Caro agrees that the attention being paid to the industry is the highest it has ever been and feels that the industry can successfully build on some of the successes of last year.
“The successful exiting of the industry of Life Time Fitness through a public offering and the sale of Gold's Gym from one private equity group to another have given other investors a firm picture of the value and potential of investing in the industry,” he says. “This should lead to more club transactions in 2005. There won't be a lot of consolidation but more outside private equity companies coming into the industry, leading to growth of large and small club groups.”
The Fitness Business Pro State of the Industry Survey bares this out as 42.4 percent of respondents plan to expand in 2005 by opening a new location. Another 20 percent said they would expand via acquisition. And even if not planning on opening or acquiring new locations, 60 percent said they would expand existing buildings.
Whether predictions for the future come to pass in 2005 is always a fuzzy proposition. No one can foretell the unknowns that might occur to derail best laid plans, but if the industry can build on 2004, it will be good news for everyone.
The American Council on Exercise (ACE) recently announced its top 10 fitness trend predictions for 2005 based on its research, “workout watchdog” studies and its worldwide network of certified fitness professionals. ACE's predictions show a “back to the basics” approach that includes time-efficient workouts and core strengthening.
Balance training grows in popularity. Balance training activities (e.g., Tai Chi, yoga, Pilates, etc.) and equipment (e.g., foam rollers, wobble boards, Bosu balls, etc.) are among the fastest growing and most popular exercise options for adults. Health clubs and trainers are offering balance training programs for virtually all levels and types of participants.
A growing tendency to blend popular mind-body programs, such as yoga and Pilates, with more traditional forms of exercise. These fusion classes and programs will combine the traditional elements of a fitness regimen with many of the key elements of mind-body activities including proper posture, breathing and body awareness. By incorporating elements of mental and spiritual fitness, individuals will take better care of their entire being and psychological self, not just their bodies, ACE says.
Shorter duration workouts continue to become more widespread. Lack of time continues to be the most frequently cited reason that individuals do not exercise on a regular basis. Time-starved Americans continue to seek out effective yet time-efficient workouts pushing health clubs and trainers to offer express circuits and abbreviated routines.
Wellness coaching and nutritional counseling are drawing a larger crowd. These services address a more holistic approach to health and wellness. Wellness coaching helps individuals make healthy, positive choices in all aspects of every day life. Nutritional counseling is gaining popularity as many Americans continue to look for ways to manage weight and maximize performance.
Clubs and trainers offering more flexible workout sessions. Small-group personal training (usually less than five individuals) appears to be on the rise. Such programming is a great way to receive the technical instruction and close supervision of a personal trainer at a more economical cost. This modified approach offers participants more social interaction, which can have a very positive impact on exercise adherence.
Employers are encouraging fitness and weight loss. A vast majority of adult Americans are inactive and overweight, at times causing their employers to lose revenue due to increased rates of absenteeism, higher health and medical expenses, and reduced productivity. Now a growing number of corporations are offering wellness programming to its workers in an effort to encourage physical activity, sensible nutrition habits and an overall healthier lifestyle.
Functional fitness and core strengthening have a strong presence in personal training sessions and group fitness classes. Functional strength training and/or core strengthening activities enhance coordination, strength and endurance in everyday activities. Focusing on exercising several muscles and joints together rather than working a particular muscle or group of muscles better prepares the body for daily activities and recreational pursuits.
Personal trainers and group fitness instructors share clients. Personal trainers will work with group fitness instructors and vice versa to encourage participants to diversify their workout routines. Even the most dedicated exercisers occasionally get bored with their routines. A new variation on activities such as a cardio-funk class or a “boot camp” workout instead of traditional exercise machines or working with free weights instead of step aerobics will help to reinvigorate stale routines.
An increase in family participation in outdoor fitness activities. More families will look for diverse and creative ways to be active together such as outdoor adventure activities and various recreational sports including soccer, softball and touch football. It's important that parents show children that being active can be a fun and regular part of daily life.
Participation in physical activities for socialization and motivation will become more popular. While not everyone participates to compete, joining a training group to finish a marathon, triathlon or adventure race is a great way to meet people or include family and friends in a fit and active lifestyle.
The world of fitness no longer resides in the commercial club sector alone. During the past decade, spas have become an increasingly relevant cultural force, influencing not only how we manage our health, appearance and stress, but also how we shop, socialize, spiritualize, travel and work. According to Spa Finder, a spa marketing and publishing company, the spa's impact on many of our most important lifestyle pursuits will only continue to grow in the year ahead.
Here are some of the trends that Spa Finder sees ahead in 2005:
Spa Design Comes Home. More spa-goers will find decorating (as well as personal) inspiration during their spa visits and seek to re-create their favorite spa styles at home.
Live at the Spa, Literally. Just as golf communities offer recreation and relaxation for pre-boomer retirees, emerging “spa communities” will provide today's aging baby boomers with their most important lifestyle requirements — namely health and fitness centered around spa-going.
Luxury Becomes Ultra-Luxury. As spa participation continues to explode, the luxury end of the market will become even more luxurious, as spas raise the bar for the superior spa experience. Stay tuned for daily private spiritual and wellness counseling, ruby/diamond/emerald/sapphire massage oils, four-hour massages, three-therapist treatments, underwater spas, private hotel/spa rooms, and a slate of ultra-chic big-name designer spas.
Spas Go Mobile. Mobile spas, complete with therapists, massage tables, pedicure carts and other equipment, will offer roving relaxation in venues ranging from movie sets and airports, to hotel rooms and offices.
Spa-Goers Become Spa “Goal-ers.” Travelers will hit destination and resort spas to achieve increasingly focused personal goals, whether that means quitting smoking, grief recovery, achieving mindfulness or spiritual awareness, improving sexual health or detoxing (which is shaping up to be an extremely popular spa pursuit in our toxic times). Men will continue to seek physical therapy and pain reduction treatments and will also discover that spa-grooming treatments can have a positive impact on their business and personal life.
Spa Travel Virtually Explodes Online. In 2005, major travel portals will enable spa-focused online travelers to book spa vacations (and, soon, spa treatments) as part of their dynamic travel packages, along with rooms, rental cars, etc. The advent of online spa booking will, in turn, fuel further growth in the spa travel segment — already the fastest-growing segment in the hospitality/travel industry.
Spa Rx: A Prescription for a Kinder, Gentler Medical Experience. Medical spas will continue to thrive as consumers seek a nurturing/caring environment and more control over their health regimes.
Stay Spas Continue to “Go Exotic” While Day Spas Get “Back to Basics.” Day spas, which of late had been racing to broaden their menus of services and treatments, will re-focus on massage, facials and other maintenance/therapeutic mainstays. Resort spas, meanwhile, will continue to diversify their treatment offerings with indigenous experiences, with Thai massage, Ashtianga and Indian head massage joining Ayurveda, Shiatsu, acupuncture and hot stone massage as popular treatments.
Spa Cuisine Served up for Mass Consumption. With Nestle's new Spa Cuisine line leading the way, convenient spa-inspired food will became everyday fare in American homes, work places and perhaps even schools.
Eco Spas Thrive in 2005. Eco spas will flourish in the year ahead, providing visitors with a serene, “green” spa experience. These environmentally friendly destinations believe that personal health begins with global health — a belief that extends to the way they create spa products (all organic ingredients), wash dishes (vinegar instead of soap), light their rooms (solar panels and fluorescent bulbs) and process wastewater (bacteria, fish, snails, et. al.).
The Fitness Business Pro State of the Industry 2004 survey was conducted exclusively for Fitness Business Pro. The methodology, data collection and analysis were provided by Primedia Business Magazines & Media Marketing Research Department. Data was collected Nov. 9, 2004 through Dec. 6, 2004. Surveys were e-mailed to 4,841 subscribers of the magazine. One hundred and eighty completed surveys were received.