BOSTON — Some consultants in the health club industry are predicting a tough summer ahead for fitness facilities if gas prices continue to rise.
“Summer is the worst time for selling memberships in eight of 10 clubs,” said Michael Scott Scudder of MSS FitBiz Connection. “What may occasion a worse slump is what is likely to happen with fossil fuel prices and consumer prices in general.”
Gasoline prices are expected to increase another 25 cents to 30 cents per gallon this summer with some experts predicting $5 per gallon of gas in the coming months. Also, consumer discretionary income is lower, food prices are higher and interest rates continue to climb, which could flatten the real estate bubble — a concern for the large number of Americans for whom their main investment is their home, said Scudder.
“I don't know at what point consumers will totally react to it, but I'm suspicious that we'll get a consumer reaction, and I think it will be one of cutting back on certain purchases or cutting back on things they've already committed to,” he said.
Membership growth has already stalled, according to numbers from the International Health, Racquet and Sportsclub Association (IHRSA). Memberships remained at 41.3 million in 2005, the same as in 2004. In the meantime, the number of clubs increased from 26,831 in 2004 to 29,061 in 2005. During the past six years, the number of clubs has grown from 15,372 to 29,061, an 89 percent increase.
John McCarthy, IHRSA executive director, suggested that this stall would be temporary. While this is the first period of membership nongrowth in a decade, stagnation has occurred before — between 1989-1990, 1991-1992 and 1994-1995. Even during the recession of the 1980s and mini recession of early 1990s, the industry lagged behind and only slowed when the recession was about over, Scudder said. Nonetheless, IHRSA recently published a booklet, How to Prevail in Competitive Markets, to help its members effectively compete for new clients.
“If gas continues to go up and we see $3.50 to $3.75, it will affect us,” said Bruce Carter, president of Optimal Fitness Design Systems International, a club design firm. “It is a psychological barrier. People will stop and say ‘Whoa, I better hold off here.’ For someone making $400 per week and spending $70 per week on gas, something will have to give.”
However, Carter is still seeing a brisk business in new builds and expansions, saying that interest rates are still low enough that club owners aren't yet holding off on new clubs.
Competition is geographically driven, he added. Areas in which low-priced competitors such as LA Fitness and Planet Fitness are entering are being stirred up, often with pre-existing clubs dropping their prices from $49 per month to $10 per month to compete.
Scudder doesn't suggest competing on price. Value-priced players like Planet Fitness have established their niche — no classes, no salespeople and no child care. Mid-priced clubs who drop their rates yet offer everything can't compete because they can't sell enough volume to make up the differential while their operating expenses remain the same, he said.
“The smart operators are always willing to look at negatives and figure out what to do with them,” Scudder said. “The rest of the marketplace is either unwilling to look at negative statistics or bad news or they are in denial. They think if they keep doing [business] the way we've done it for 15 to 20 years that things will go back to normal. The veterans who have kept up with the news and are willing to look at the current developments will tell you that the industry has changed. It is going in new directions — some of which are hard to see and unexplainable.”
In the coming months the strong operators and business people will survive and the weaker ones will be hurt, Scudder and Carter agreed.