Cardio Refresh: After almost two years of reduced spending on new cardio equipment, some club operators are beginning to dip their toes into the buying pool.
Earlier this year, the Jewish Community Center (JCC) of the North Shore, Marblehead, MA, spent $85,000 on new cardio equipment as part of a facility-wide renovation. Several pieces of the JCC's existing cardio equipment reached the end of their life expectancies, and officials decided that updating equipment would help keep the affluent membership base happy and attract new members, says Tedi Markham, JCC fitness director.
People may look at convenience first when they shop for a fitness center, but state-of-the-art equipment also is a high priority, Markham says. That's especially true in her local market, which has several fitness facilities, some of which slashed rates to attract members. The JCC chose to take an added-value approach instead, which meant purchasing new equipment and upgrading the facility.
However, buying new equipment is a low priority for many club operators during the current recession. Many choose to reduce operational costs and cut staff rather than invest in new cardio equipment.
SLOWLY BUT SURELY
For the first time in 20 years, overall sales in the fitness equipment industry declined in 2008, according to “Tracking the Fitness Movement” (2009 edition), a report from the Sporting Goods Manufacturers Association (SGMA). The decline also probably held true for 2009 as well, but SGMA has yet to release those numbers.
“All major manufacturers were off quite a bit last year,” says Paul Bosley, national marketing director for First Financial, Fort Lauderdale, FL, a financial services firm that specializes in equipment leases and Small Business Administration loans. “I talked to a manufacturer at the AB [Athletic Business] show in Orlando last December that was celebrating the fact that sales were even. Most manufacturers saw a 20 to 40 percent drop in sales.”
Mike May, director of media relations for SGMA, says that many club operators decided to wait until 2010 or 2011 to buy new equipment.
“If anything, one of the reasons for the [purchasing] decline is people say, ‘I can get one more year out of this machine,’” May says.
Fitness facility owners are beginning to spend cautiously again, but it's the fiscally healthy clubs that are investing, says Herb Lipsman, CEO of The Health Club Co., a consulting and management firm based in Sugar Land, TX.
“Everyone sort of hunkered down for the past year and a half, and the most successful club operators are going to have to start making purchases, but people are still guarded about their spending,” Lipsman says. “Companies that have been in strong cash positions are strengthening their market positions by purchasing new equipment.”
The International Health, Racquet & Sportsclub Association's (IHRSA) “2009 Health Club Equipment Benchmarking Report” released in February revealed that a majority of for-profit club operators said they would purchase the same amount of new equipment or less this year. Forty-five percent said they planned to spend less on equipment over the next year, while 36 percent said their purchasing would remain the same. Only 19 percent said they planned to spend more on equipment this year.
Late last year, nearly 30 percent of club operators participating in an online Club Industry reader survey said they plan to purchase cardio equipment for their next equipment upgrade (see related chart above). However, they don't plan to spend much. During the next 12 months, 36 percent of single club operators surveyed said they'd spend less than $5,000 on new equipment, 15 percent planned to spend $5,000-$9,999 and 20 percent planned to spend $10,000-$23,999.
Among multi-club operators, 18 percent plan to spend less than $5,000, but 18 percent planned to spend $100,000-$499,999, and 13 percent said they'd spend $10,000-$23,999.
Although club owners are starting to buy cardio equipment again, it's a gradual process, says Bonnie Patrick Mattalian, president of The Club & Spa Synergy Group Consultants, River Edge, NJ.
Clubs still struggling with the down economy are investing in marketing rather than new equipment, she says, but successful clubs are purchasing equipment again and making needed upgrades.
“If clubs are performing where they need to be, they are reinvesting,” she says. “They're buying a couple of pieces of equipment, not replacing the whole cardio deck. Are they doing it to the extent that they did three to four years ago? No.”
Club owners are buying less of everything these days, she says, even retail items for the pro shop because of decreased consumer spending. Many clubs are focusing on cutting operational costs during the recession. One club owner told her that he cut $1 million off operating costs and said he wished he'd done it three years ago.
Other club operators are exploring leases to keep equipment up to date, she says.
“Leasing certainly can be an option as long as the club is financially viable,” Mattalian says.
Although equipment leases were on the rise during January and February of 2010, Bosley says that leases are harder to come by.
“Money is tighter, and lenders want to make sure businesses will be around to repay them,” he says. “It's tough for people to get funding approved.”
Leasing is an effective way to keep cardio equipment current, but leases are more time consuming to complete now, says Jay Karl, executive director of sales for Sport Time, a 14-club chain based in New York.
Karl's company generally signs three-year equipment leases, and he says financing companies are making them jump through more hoops now than in the past.
“They're clearly making you have to substantiate who you are because they want to make sure they are going to get paid,” he says.
KEEPING UP APPEARANCES
Regardless of whether club operators buy or lease new equipment, it's important to keep equipment updated and running. Discerning members can tell if a club has let itself go, says Mattalian.
“Older equipment does affect a club's attrition rate, and the more you see those ‘out of order’ signs, it's like a broken window effect,” Mattalian says. “If they don't get fixed, people start to surmise something is wrong, and they don't refer new members — and that's where a lot of new members come from is word of mouth. If you have a line for your treadmills or ellipticals, then you need to take care of that or you can lose members.”
Next Page: Sidebar: What is the Next Category of Equipment You Will Buy
Rick Bouza of RHB Solutions, Mount Kisco, NY, agrees. RHB is a consulting firm that specializes in single-source management for health clubs.
“Generally, the health club member is savvier than ever,” Bouza says. “In most cases, they know exactly how old a piece of cardio is, and there is no question having outdated equipment in your club will make a statement about who you are.”
Depending on a club's market, keeping cardio equipment updated can simply be a good idea or be absolutely critical, he says. The degree depends on local competition, the club's price point, a facility's level of cleanliness and even the quality of service offered.
“Consumers are smarter than ever and they can immediately distinguish between cardio without viewing screens and audio/video features,” Karl of Sport Time says. “Consumers look at it as being primitive if machines don't have it.”
Karl says his company is upgrading not only because members are savvier but also because he operates in the New York market where his competitors are often big companies with deep pockets.
“We absolutely feel that we're trying to give members a five-star experience and feel that there's zero tolerance for outdated equipment,” he says.
Creating attractive clubs with the latest equipment is a market differentiator for Sport & Health Clubs, says Mitch Batkin, senior vice president. Sport & Health is a chain of 24 clubs in the District of Columbia, Virginia and Maryland.
“Customers are pretty savvy, so they're going to shop around for location and to see if a club meets their needs and has nice equipment,” Batkin says. “We have to compete on that. We know members appreciate new equipment, and we continually evaluate their needs and balance them with the obvious expenses. It is paramount to keep our members happy.”
Last year, Sport & Health received $25 million in financing from PNC Mezzanine Capital and CMS Mezzanine Fund. The company made substantial upgrades to at least half of its clubs in 2009, which could be partially attributed to those funds. Sport & Health generally replaces equipment every five years, Batkin says. The company is opening a new club in 2010 and planning two large remodels, in addition to ongoing equipment upgrades.
“We'll really do a lot of spending in 2010, and we think that's a good decision,” Batkin says.
Clubs that invest in updating equipment during the recession will be more competitive once the economy turns around, Bouza says.
“We all know that the economy will turn eventually,” he says, “and the last thing you want to do is to hurt your brand long-term with a subpar product today.”
WHAT IS THE NEXT CATEGORY OF EQUIPMENT YOU WILL BUY?
|One club||Two clubs or more||Total|
|Operational (flooring, etc.)||7.6%||3.9%||6.8%|
Results from the 2009 Club Industry reader survey. Base = 340, all respondents. (One club = 264 and two clubs or more = 76.)