I wish I could sort it out. I haven't been able to…yet. But I can tell you what I'm seeing as I travel around the country.
The industry is filled with more players — large category-killer clubs in major population markets; low-priced, stripped-down, mid-size facilities; the return of group exercise studios; express clubs; 30-minute workout havens; capped-membership, small, exclusive clubs; personal training studios and not-for-profits doing major renovations and additions.
Implications? More for potential customers to choose from. A greater likelihood of failure for undercapitalized ma-and-pa operators and for non-distinct older racquets-based clubs. The need for profit centers and an approach of “revenue per member” as opposed to “sell more memberships.” Stress on controlling expenses at all levels.
In the past five years, the net growth of fitness facilities has far outpaced the net growth of memberships. In the United States alone, there are more than 40,000 organized fitness offerings, slightly more than half of them commercial, for-profit clubs. The advent of express clubs and smaller niche operations has made a deep cut into traditional membership markets.
Implications? If growth continues at the present pace, we are likely to see a topping of membership prices. Additionally, we are almost certain to see a major shake out of clubs in many markets. It is crunch-time for service personnel. The sloppy operators will disappear. The “biggies” will grow bigger. Consolidation of the industry is in its initial phase already. “Vertical markets” for fitness will enjoy a boom like never before.
The recent entry of the “believable” $19-a-month-players has flashed a signal for all to heed. There are already more than a dozen viable “chain” low-price competitors with clubs varying in size from 10,000 square feet to more than 30,000 square feet in almost every major city. They are benefiting from superior marketing not only to new members but also to disgruntled, underserved members of higher-priced clubs and to “I'll-come-back-and-try-fitness-again-at-a-lower-price” consumers. Add to that huge footprint monster clubs with moderately priced bundled memberships.
Implications? In nearly every U.S. service-and-retail industry in the past 20 years, commoditization has spelled pricing thresholds and the need for other sources of income besides the primary product. In many cases, primary-product prices have decreased. In our industry, look for topping out of membership prices in all but the highly affluent marketplaces, and thus more reliance on ancillary income sources to keep the boat afloat for many operators.
The general service level in this industry is mediocre at best. Evidence is abundant in staff turnover at most clubs. Recent information indicates that the average customer is only 78 percent satisfied with service at his/her club. While that number is at an historic high, it is only a C+ rating. Continued high membership attrition rates point to unsatisfactory experiences for more than 40 percent of members.
Implications? Clubs have to begin to spend money on quality service training. It is a must for the average club to send its key staff to conferences, trade shows, regional seminars and the like. Clubs must develop service systems that accommodate changing customer needs at every level. Facilities must understand that most customers are coming in for an experience as much as they are a workout.
Diversify or die are the buzzwords now. Many operators, particularly small and independent ones, will never again make money just selling memberships. The cost per new member is too high and ancillary income in the average club is too low.
Implications? Look for other sources of income, other ways of doing business besides traditionally selling memberships…or slowly fade out of the picture. Profit margins will get crunched down to intolerable levels unless clubs increase their sales in personal training, small-group specialty classes and profit centers in general.
Overall, is all of this bad news for the club industry or is some good coming out of it? We'll talk about that in next month's column.
Michael Scott Scudder Michael Scott Scudder, a frequent contributor to Fitness Business Pro, is a three-decade veteran of the fitness industry. He heads a club management training company based in Taos, NM, offering regional-city intensive one-and-a-half-day workshops and private telephone consultations. He can be reached at 505-690-5974, by email at mss@michaelscottscudder.com or at his web site, www.michaelscottscudder.com. Comments and questions are welcomed and encouraged. Catch Michael at Club Industry 2004 where he is conducting three half-day workshops on pertinent club issues.