$19-A-MONTH PLAYERS ARE THEY FOR REAL?

Editor's Note: Welcome to From the Lip, a semi-regular opinion column penned by industry vet Michael Scott Scudder. Although you may not always agree with Michael's take on the industry (we sure don't), we hope his razor sharp insights will get you thinking about the way you run your business.

What I have found from extensive personal telephone research with a half-dozen various organizations that are marketing $19-a-month memberships is that they are for real.

Contrary to popular opinion, in general they are not just attracting low lifes, low-end demographic users, gym rats and the like. They are attracting a broad spectrum of members…some of whom have come over from other, more expensive clubs saying, “I don't use all the amenities there, why should I pay so much?”

Also contrary to popular opinion, some of the clubs are not suffering outrageous loss rates. Several clubs are seeing less than 2 percent monthly loss rates on their EFT dues.

The clubs also are reportedly attracting from a wider audience than many of us are. While many of us may be playing for the same 13 percent of the marketplace, they seem to think that they are drawing from an additional 10 percent — those who are budget-conscious or know they won't use a club that often but want to be members and don't mind non-use at a $19 price tag.

AND THE RESEARCH SHOWS…

What appears to me in my research is that all of the clubs count on a few key assumptions:

• A high-population density marketplace within a few miles of their draw area.
• A marketplace that has a lot of current fitness advertising from other clubs.
• The ability to sell hundreds of memberships every month for at least 24 consecutive months.
• A fast-rising receivables base with a high collection percentage.
• A membership base of infrequent users who will continue to hold onto membership because of low price.

What the downsides appear to me to be are the following:

• The ability of the clubs to sell mucho memberships — in the hundreds month after month for about 24 to 30 months in a row — which is a daunting task.
• Setting up the clubs for generally low service with no childcare, no sales force and no group exercise. Will this play in the long run?
• The need for a lot of parking.
• A somewhat high population base, with a lot of competition driving health club membership consciousness.
• Success in marketing — not only to the 18 to 35 market, but also to the over-40 markets who were previous health club members.
• The reliance on a substantial portion of membership not using the clubs, but holding on to their membership because of low price — a suspect assumption.

While there may indeed be a major broad industry play here because of apparent consumers' price consciousness in all areas of retail — not just health club membership purchases — there is also evidence to suggest that up-priced fitness facilities are doing just fine right now.

What may be questionable with the low-price clubs is their ability to harvest continued ancillary income — from areas such as personal training, group fitness and weight management. These three extra-income centers seem to presently be driving not only profitability but also increasing member retention in higher-priced clubs. While the “lowbies” have, in many areas, captured considerable extra dollars from juice bars and apparel sales, these items have not traditionally been exceptionally high-profit nor have they increased retention among members.

I think the wisest thing to say right now is that “the jury is out.” Time will tell…and it looks as though the time frame for judging is about two years from now. Certainly, if this price play does take hold in the broad industry, we are headed for a commoditized membership marketplace in which prices in general will fall. I believe it's too early to say.

Michael Scott Scudder, a frequent contributor to Club Industry, is a 30-year veteran of the fitness industry. He heads a club management training company based in Taos, NM and Fort Worth, TX, offering regional one-day seminars and an intensive 2½-day workshop on personal and group training in home headquarters of the Fit For Life Centers in Texas, of which he is a partner. He can be reached at 505-690-5974, by e-mail at scuddertour@direcway.com or at his web site, www.michaelscottscudder.com.