Year in Review: The growth of low-price clubs in the industry was the big story of 2010.
The news the health club industry and the rest of the country had been yearning to hear all year finally arrived on Sept. 20, courtesy of the National Bureau of Economic Research: The recession had ended.
In fact, the official recession ended in June 2009 after 18 long months, according to the organization.
That was little solace to the fitness industry, which continued to struggle with a lagging economy in which unemployment remained at 9.5 percent or above nationwide. Although some clubs opened, others closed, and Americans thought long and hard about keeping their club memberships or joining a health club at all.
Whether as a result of the recession or the growth and popularity of $10-a-month Planet Fitness, the industry made a definitive push in the low-price arena, highlighted by new Crunch franchise clubs on the West Coast and Equinox-branded Blink clubs on the East Coast. A chain of North Carolina clubs, ZX Fitness (formerly Peak Fitness), also went the low-price route.
Other brands began offering discounted memberships as well. 24 Hour Fitness, San Ramon, CA, offers a two-year membership to Costco members for $299, which comes to $12.50 a month. Bally Total Fitness, Chicago, offered memberships for as low as $19.99 without the three-year contract it had required in the past. Town Sports International (TSI), New York, introduced a $20-a-month model at one of its underperforming clubs in September.
The surge in low-price clubs was Club Industry’s top story in 2010. On the following pages, we also outline the other top headlines and review the big stories in the nonprofit, university and military sectors.
Low-price clubs are nothing new to the industry, as Crunch CEO Jim Rowley points out. Rowley and Mark Mastrov, co-founders of New Evolution Ventures, Lafayette, CA, have operated New York-based Crunch since acquiring it out of bankruptcy last year. Rowley says he and Mastrov tested a low-price model when they were at 24 Hour Fitness and had a low-price version of Crunch in mind when they took over the brand.
“This low-price thing, everybody tries to act like it’s been around for five years or so,” Rowley says. “There have been low-price offerings for the better part of 25 years in the fitness space. Family Fitness was one of the pioneers of low-price offerings in the 1980s and into the 1990s.”
However, there hasn’t been a period in the industry’s history in which so many low-price options have popped up so quickly. For that reason, and for the reason that the new low-price model is predicated on a high volume of members, it is hard to gauge how long this trend will last or how successful it will be, says industry consultant Rick Caro, president of Management Vision.
“There’s no guarantee that because someone opens up a facility in a different segment, such as the high-volume, low-price segment, that it automatically will work,” Caro says. “Like all businesses, it requires not only the fundamentals—having the proper market characteristics, having proper capitalization, having proper business acumen and systems, and staying differentiated over time—but the challenge also is one of a long-run solution. This segment is still very new to the club industry. This one is still in its infancy. We don’t know what happens after five years, seven years or 10 years.”
NEXT PAGE: TYPICAL LOW-PRICE CLUB MEMBERS
Caro says the low price points are targeted at three types of members. The first type is people who basically “rent” equipment. They work out at their own pace and at their own time. They do not want amenities, such as pools, group exercise classes and basketball or racquetball courts. The second group is people who have a family membership at a multi-sport club with more amenities but who want a second, low-price option convenient to their office or home. The third group is people who have never been a member of a health club or who haven’t been a member in several years.
“It’s an interesting alternative,” Caro says of the low-price model, “but to say it’s a slam dunk [to success] would be a little misleading. Or maybe a lot misleading.”
At least one club operator expresses doubts about how long the low-price trend will last. The operator, who asked to remain anonymous, predicts the trend will lose steam in fewer than five years.
“So many people are going to take losses,” he says, “and then they’re going to close down because everybody’s going to end up on top of each other. The problem is, a second club shows up and splits the marketplace in half, and you’re done. You can’t draw enough members.”
RetroFitness, Colts Neck, NJ, has prided itself on offering $19.99 monthly memberships since Eric Casaburi, founder and CEO, began franchising in 2006. Long known for its 1980s themes, RetroFitness is now branding as a modern gym with a retro price.
Casaburi has his doubts about some of the club companies that offer low-price memberships, saying that they are just following the lead of Planet Fitness and RetroFitness. But, citing McDonald’s founder Ray Kroc, Casaburi says that imitators can copy his plan from last year, but they don’t know his plans for next year.
Planet Fitness, Newington, NH, expects to have opened 90 clubs by year’s end, better than the 63 clubs it opened in 2009 and the 78 it opened in 2008. The company is well aware that its competitors are dropping prices and are taking a page out of its playbook in the process.
“You could either be flattered by it or be angry about it,” Planet Fitness spokesperson John Craig says of the proliferation of low-price options this year. “We’re not surprised that people would copy a good thing. We’ve got the right model right now, that’s for sure.”
The New Players
Rowley sees the industry gravitating to the low-price model. To spearhead the new low-price Crunch franchise club initiative, Rowley and Mastrov hired Ben Midgley, who learned a thing or two about this model while serving as vice president of Planet Fitness.
“The energy we have now around the franchises is incredible,” says Midgley, the president of the Crunch franchise clubs. “People are really reacting to the brand, whether they’re on the East Coast or the West Coast, or whether they’re independent operators or people who want to get involved in it and be part of it.”
As of press time, Crunch had four franchise clubs open and three under construction with 50 others expected to open in the United States and around the world. Memberships at Crunch franchise clubs are between $9.95 and $19.95 per month. The size of the clubs, around 17,000 square feet, compares favorably to Planet Fitness clubs, which typically are between 17,000 and 20,000 square feet.
Crunch franchise clubs have several pieces of cardio and strength equipment, and many of the programs have the look and feel of Crunch’s 23 corporate clubs in New York, San Francisco, Los Angeles and Miami.
Even though Midgley says the Crunch brand is the same at the franchised and corporate facilities, Rowley says there are distinctions.
“We don’t want member confusion,” he says. “We tried to create several distinction points, and those will be obvious to the [current] members and the incoming members.”
NEXT PAGE: LOW-PRICE CLUBS FROM EQUINOX AND ZX FITNESS
New York-based Equinox, which operates high-end clubs, rolled out its Blink clubs this month in the New York area. Memberships at Blink are $15 for a single club or $20 per month for multi-club access with guest privileges. Members can sign up for no-commitment, month-to-month memberships without sales staff assistance by using a kiosk inside a Blink club.
Before rolling out the Blink clubs, Dos Condon, vice president of Blink, visited several low-price clubs around the country—some of which charged just $5 per month. Although some people in the industry see low-price models as feeder clubs for medium- to high-priced clubs, Condon says he doesn’t necessarily want Blink members to graduate to a higher-end club such as Equinox.
“The opportunity is great to create something that will attract not only the fully engaged exerciser but the people who are currently not members of health clubs,” Condon says. “We’re not looking to compete with other players out there. We’re looking to expand the reach of the fitness industry to the other 85 percent of people who aren’t health club members. We don’t see anyone doing that successfully to the degree that we feel we’re going to be.”
ZX Fitness clubs were rebranded early this year after Fuzion Investment Capital purchased the assets of the former Peak Fitness clubs. With the rebranding came the introduction of a $10-a-month model for the 12 clubs in North Carolina and South Carolina, patterned after Planet Fitness but with 30,000- to 45,000-square-foot clubs, according to ZX Fitness President Ron Poliseno.
The company also began using the loss leader concept often used by retail stores in which they get members in the door cheaply, then upsell them other programs and services.
“Even Planet Fitness has to upsell,” Poliseno says. “Everybody upsells. We have to be able to sell our amenities. The recipe is out there. It’s a matter of making that recipe fit your model and being able to convey that to your community and, more importantly, help them understand the value of what they’re buying.”
Being dependent on that upsell can be problematic, according to Sharon Zackfia, equity analyst with William Blair & Co., Chicago. The visibility for revenue is much lower with this model, she says, than with a model in which the owner knows what the 6,000 memberships at $60 per month will bring in each month.
Other Low-Price Options
Despite concerns about this model, some national chains are playing in the low-price pool without completely changing their model. 24 Hour is staking a claim in the low-price wars with its Costco offer. 24 Hour also has offered a one-year, all-club sport membership for $199.99, or about $16.67 per month.
“At 24 Hour Fitness, our goal is to help consumers find a membership that fits their personal fitness needs,” Wendy Yellin, 24 Hour’s senior director of public relations, says about 24 Hour’s philosophy on pricing. “We believe in transparency and make memberships available for purchase through numerous sales channels at our clubs and online.”
Bally spokesperson Pete Marino says that the company’s $19.99 offer, available at only 87 of its clubs, was promoted on the Chicago-based company’s website in August, September and October.
“At Bally, we offer a variety of pricing options based on desired club access level and amenities that are designed to put the member in control of the plan that works best for them,” Marino says. “We have no enrollment fees on most of our plans and got rid of the three-year contract as well.”
TSI CEO Robert Giardina told analysts during the company’s third quarter earnings call that the test model club with the $20-per-month dues increased the number of new members by four times compared to the same period a year ago despite a higher initiation fee than at other TSI clubs. TSI went on to roll out the $20 model in three additional clubs on Oct. 1. Giardina added that he expects 10 percent of his clubs will incorporate the model.
Gold’s Gym International, Irving, TX, tinkered with an express model a year ago and may be on the verge of releasing a new low-price campaign, although Dave Reiseman, vice president of communications for Gold’s, would not comment on that at press time. At least one Gold’s Gym, in Mechanicsville, VA, offered a $9.99 per month membership on its website last month. Reiseman did say that the average Gold’s price is around $40 per month, but he stressed that prices vary based on location and amenities.
World Gym International, Los Angeles, is not drawing up blueprints for a low-price model for its franchisees.
“This [low-price] model lowers the perceived value of a fitness center or health club membership,” says Bill Windscheif, the vice president of gym development for World Gym International. “We don’t necessarily think that that’s a good thing. We certainly don’t believe in the no-amenities concept. What we don’t like to see is this idea that you’re gathering up a bunch of individuals to join a facility, whether it’s at $10 per month or $20 per month, and then [they are] not using the facility.”
However, Windscheif and Helen Rockey, COO for World Gym International, support a group of World Gym franchisees in the Buffalo, NY, area who did drop prices into the $9.99 to $19.99 range for their four clubs. They support this choice because the quality and amenities at those clubs rival those of any fitness club that does not have pools.
NEXT PAGE: MORE LOW-PRICE CLUBS
In addition, the Western New York area that includes the low-price World Gyms was hit particularly hard after a number of manufacturing jobs moved to Asia.
“To be successful in that demographic, you almost have to be price sensitive,” Rockey says.
The key, Windscheif says, to making this model successful is a high population density within a 1- to 5-mile radius of the club.
Other low-price clubs include Fitness 19, which offers $10 memberships at its 150 clubs around the country. Spunk Fitness, Ellicott City, MD, which was formerly a Planet Fitness franchised club, continues to offer $10-per-month memberships at its five clubs in Maryland and New York. It has two clubs in construction.
Then there’s YouFit, St. Petersburg, FL, which has 20 clubs either open or in pre-sale and 12 to 15 more in the pipeline. Owner Rick Berks opened his first YouFit club in 2008 and converted the rest of his clubs, which had been Planet Fitness clubs, to YouFit earlier this year.
“We’ve had tremendous success with them,” Berks says. “It’s a very strong model. We’ve made plenty of mistakes along the way to get there. I don’t know if there’s a completely successful model out there. I’m confident we can be competitive with anybody. I don’t see us going anywhere anytime soon. I’ve got 10 years of history [with the $10-per-month model]. It’s not an overnight sensation for me.”
As the industry rolls into 2011, more and more club operators might try to incorporate the low-price model. That may depend on whether the economy continues to lag and whether unemployment remains high. If, however, the economy gains strength and if more people are working and have discretionary income for health clubs, operators may not have to drop their prices after all.
“It’s a tricky model,” Berks says. “It’s a tricky conversion. There’s more to it than just price.”
NEXT PAGE: SIDEBAR: FOR LIFE TIME, ANYTIME AND SNAP FITNESS, THE PRICE IS RIGHT
For Life Time, Anytime and Snap Fitness, the Price is Right
Three club companies based in the Minneapolis-St. Paul area say they’re sticking to their price models.
Life Time Fitness, Chanhassen, MN, and its multi-sport clubs charge anywhere from $50 to $80 for monthly individual memberships and between $130 and $160 for a couple or family membership. Life Time executives tinkered with the notion of rolling out a lower-price, lower-end version of the brand a couple of years ago, but they decided against it because it would require deviating from the company’s culture of providing high-quality customer service.
“We really do not feel like that is the space that we are in, and we do not need to kind of play by the same set of rules,” Life Time CEO Bahram Akradi said on a call with analysts two months ago.
Snap Fitness, also of Chanhassen, MN, and Anytime Fitness, Hastings, MN, are two 24-hour, key-card concept clubs that offer memberships in the $35 to $45 per month range. Both clubs say they are sticking to their price points.
Patrick Strait, communications manager for Snap Fitness, says the company is developing a home-club-only option that would allow franchisees to charge less than the standard membership rate, provided that the member use only that club.
“We are more interested in finding ways to provide more value to our existing membership, as opposed to just cutting our prices,” Strait says. “We believe that while price is a motivator for new fitness club members, value is the real driver. People are looking for the results they want, and that’s what we’re working to give them.”
Mark Daly, national media director for Anytime Fitness, says Anytime does not want to be the cheapest club in town.
“Rather, our goal remains to be the local club that provides the best combination of service to our members, convenience, friendly club atmosphere and quality equipment in a clean and well-maintained facility,” Daly says. “Our loyal members appreciate the overall value they get from an Anytime Fitness membership. Price is just one element that factors into that equation.”
LA Fitness, Irvine, CA, offered a promotion of $8.95—per week—on its website in November. Like Life Time, Snap and Anytime, LA Fitness, one of the largest club operators in the industry, is not likely to drop its prices into the $10 to $20 a month range, according to an industry insider. –SG
NEXT PAGE: SIDEBAR: TOP HEADLINES OF 2010
Top Headlines of 2010
• Jeff Klinger Leaves Anytime Fitness as CEO
• Trustmark Acquires Health Fitness Corp.
• Med-Fit Systems Inc. Purchases Nautilus
• Robert Giardina Returns as CEO of TSI, Replacing
• Planet Fitness Has Minority Sale Fall Through but
Receives $40 Million Credit from GE
• Sen. John McCain Withdraws Support for Dietary Supplement Safety Act
• Son of Powerhouse Gyms Founder Arraigned on
First-Degree Murder Charge
• Chris Clawson Replaces John Stransky as
Life Fitness President
• Embattled Club Operator Shane Franklin Becomes Gold’s Gym Manager
• National Physical Activity Plan, Healthy Choices Act Introduced in Congress
• Mike Leveque Replaces Steve Nero as
President of Star Trac
• Land America Owner Takes Over Star Trac,
Which Undergoes Layoffs
• Clubs Expand Growth around the World
• Bally Settles with Texas AG in Membership Deceit Suit
• New Tanning Tax Goes Into Effect; Some
Club Operators Exempt
• Crunch Introduces Franchise Model
• Robin Klaus Replaces Jim Mizes as Club One CEO
• Number of States with 30 Percent Obesity Rate
Grows from Four to Eight
• 24 Hour Faces Discrimination Lawsuit in California; Reaches Settlement in Member Contract
• Mark Mastrov’s Bid to Own NBA Team Falls Short
• YMCA Rebrands to ‘Y’
• Club Operator Rudy Smith Dies
• 24 Hour Introduces Fingerprint Check-In System
• Peak Fitness Becomes ZX Fitness
• Bally Agrees to Settlement of Six-Year-Old Lawsuit
• Madonna and Mastrov Partner for Hard Candy Fitness
• Gold’s Gym Franchisees Irked over Political
Contribution by Parent Company CEO
• Equinox Unveils Low-Price Blink Model
• Galiani Brothers Partner with Crunch
NEXT PAGE: SIDEBAR: NONPROFIT FACILITIES 2010 RECAP
New Names in Nonprofit Market
Some of the biggest stories in the nonprofit club sector for 2010 came from two new names. Or, to be more accurate, one well-known nonprofit organization changed its name, while another continued to make a new name for itself within the fitness industry.
YMCA has been a familiar name for decades, but a new branding campaign resulted in the organization officially taking on the nickname everyone has been calling it for years: the Y. A pared-down but colorful new logo also was introduced. At a press conference announcing the rebranding in July, officials from the YMCA of the USA said the move was designed to bring the organization’s image up to date and to emphasize its core areas of focus: nurturing the potential of children and teens, improving health and well-being and supporting the local community.
The Y’s national office began using the new brand this summer, and community Ys across the country are expected to transition fully by 2015.
Likewise, the Salvation Army already was a household name thanks to its thrift stores and holiday red kettle fundraising. However, the organization continued to build on its reputation within the club market with the opening of four more state-of the-art fitness facilities this year in Philadelphia; Dayton, OH; Grand Rapids, MI; and Kerrville, TX.
The facilities were made possible through a bequeathment of $1.5 billion from the estate of Joan Kroc, widow of McDonald’s founder Ray Kroc, which specified that the funds should be used to build community centers in underserved areas.
The four facilities opened this year raise the number of Kroc Centers to 11. The Salvation Army plans to open nine more Kroc centers in 2011. Six more facilities are in the pipeline with unannounced opening dates.
NEXT PAGE: SIDEBAR: UNIVERSITY REC CENTERS IN 2010
University Rec Centers Get Schooled in Nontraditional Funding Sources
What do students look for when choosing a college or university? A diverse choice of degree programs? Great athletic teams to support? Close enough to drive home for the holidays? These days, it’s just as likely that access to superior recreational facilities plays a part.
Schools across the country are counting on it, opening state-of-the art rec centers with the sort of features you might expect to see in high-end fitness clubs, not just to better serve their current students but also as a recruitment tool.
This year saw the opening of several new big-ticket facilities. The University of Iowa’s new $70 million recreation and wellness center is a 150,000-square-foot center with a 20,000-square-foot fitness area stretched over three floors of the multi-level facility. The $77 million facility that opened at Sacramento (CA) State University this past fall incorporates cardio and weight training studios, four basketball courts and access to personal trainers. Ball State’s new $40 million rec center in Muncie, IN, features a 35-foot-high rock climbing wall, five basketball courts and an indoor turf field within its 256,000 square feet.
But while student demand for rec centers of this caliber is growing, funding is not. Budget cuts at state and private institutions have forced schools and rec center directors to find alternative ways of raising money needed to build, renovate or even just maintain these facilities. Much-needed funds come through traditional means, such as bond issues and increased student activity fees, as well as some new entrepreneurial efforts, including community memberships, sponsorships, equipment and facility rentals, and pro shop sales. –LH
NEXT PAGE: SIDEBAR: 2010 IS A YEAR OF CHANGE FOR THE MILITARY
The Military Gets Even Tougher
Increasing waistlines and decreasing fitness levels continued to be a national issue this year—and even the military wasn’t immune to the trend.
In April, Mission: Readiness, a group of retired military leaders, released a report entitled “Too Fat to Fight,” which revealed that during the past five years, more than 48,000 recruits were rejected for military service because they were obese. The problem exists among current service members, too, and to rectify it, the Navy, Army and Air Force have all announced or introduced stricter fitness standards this year.
Effective as of July, sailors who do not meet the Navy’s body-fat standards can no longer receive a passing score on the physical fitness assessment. The Air Force’s new standards—requiring airmen to take the fitness test biannually—were introduced the same month, encouraging airmen to make physical fitness a year-round priority instead of something to prepare for once a year. Also in July, the Army announced its physical fitness test would be amended for the first time in three decades to incorporate functional fitness tests more closely related to a soldier’s specific duties than the previous timed runs, push-ups and sit-ups.
To help its servicemen achieve these new fitness standards, the Navy, Army and Air Force all revised their training programs in 2010. The Navy commenced a new program, Navy Operational Fitness and Fueling Series, which includes physical training programs customized to fit sailors’ particular duty roles, plus a nutritional component. The Army revealed it would be updating its basic training program for the first time in 30 years to help increase the fitness levels in its new recruits, who today are accustomed to a more sedentary lifestyle. Taking a different tack, the Air Force this year became the first military branch to eliminate mandatory individual physical training time during duty hours. Officials said the move would emphasize individual accountability toward physical fitness.
To help with the new fitness standards, make room for an influx of new servicemen and bring aging facilities up to standard, the Navy, Army and Air Force have all received funding to build new fitness centers or make substantial renovations to existing centers this year. The Army opened its largest fitness center at Fort Bliss and began construction on a new $24 million facility at Pearl Harbor. Fitness centers in the Air Force Space Command received $4 million for facility upgrades, including $600,000 for new equipment. The Office of the Secretary of Defense provided $8 million in funding to the Navy to purchase fitness equipment for shore-based fitness centers, plus another $40 million for fitness facility upgrades. –LH