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                MSSNetwork News
                       VOL. XXII, #1 (1/6/2016)

WEB SITE: http://www.michaelscottscudder.net  

     

IN THIS EDITION:

    Winners and Losers in the
   "Health Club Battles of 2016"

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Winners and Losers in the
"Health Club Battles of 2016"

 
(MSS NOTE: This week's edition may seen presumptuous to some readers. But I'm so often asked for analysis of our industry that I thought an "overview" might be useful to start out the New Year. Your comments and critiques are welcome at michaelscottscudder@gmail.com.) 
 
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THE 2016 FITNESS FACILITY BUSINESS IN GENERAL. 
Eight years of data analysis on business results from well over 8,000 clubs suggests that clubs which will predictably struggle to stay alive this year share 5 characteristics in common. 
  • Undercapitalization
    • They either started out with inadequate excess capital and never got past "survival business thinking"...or were unable to develop significant steady ongoing profitability for reinvestment, renovations, and adoption of modern programming and business-assistive technologies.
    • Staff training suffers or is non-existent.
    • TELLTALE: frequent "specials" and "deals" dominate their membership pricing.
  • Trying to be "something to everyone" rather than choosing a "core business identity." 
    • Particular to mid-size, mid-priced clubs between 10,000 to 25,000 square feet and single-member dues between $29 - $49 monthly...these clubs try to offer a "buffet menu" of services...but no measurable expertise in any one area of fitness.
    • Consistently say "we're better" without the delivery systems to back up the claim.
    • TELLTALE: high turnover of members and employees accompanied by generally-lowering prices.    
  • Inconsistency in marketing and sales. 
    • Have never established a company "brand" or "image" in their marketplaces.
    • Try various "messages" (often a new one every month) and confuse their potential-buyers markets.
    • Have not adopted technological marketing (interactive websites, social media presences, wearables integration or branded club apps).
    • TELLTALE: accompany their frequent "price-specials" marketing with "menu of club services" advertising.
  • Increasing marketplace competition.
    • Are usually in markets of 40,000 population and higher. (NOTE: this is changing as national players are now invading smaller markets.)
    • Have at least one "quality budget-club" player in their marketplaces.
    • Are often "tired-looking" and/or aging-equipment clubs with no distinction to consumers.
    • TELLTALE: indiscriminate advertising, no "consumer message" and usually price-based.
  • Ownership/management concentration on working IN their businesses to the exclusion of working ON their businesses.
    • No understanding of nor paying attention to important business benchmarks.
    • Little or no employee development systems...just "fill jobs" as needed.
    • No overall business planning. Abandon goal-setting with the first "bad month" of sales.
    • TELLTALE: employees are uninformed; most important service jobs (i.e. reception desk, child care, group fitness) are underpaid; often held hostage by trainers; ownership/management confusion between "process " and "outcomes" organization; profit margins are sketchy or non-existent.
If your company suffers from 5 or more of the above 18 indicators - it's time for you to seriously look at and change your business practices. And NOW would be a good time to begin! (Check out our MSSNetwork Business Resources below.)
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SPECIFIC CLUB SECTORS IN 2016.
While anyone can claim that there are now many "size, type and offerings" niches in our business, we've consistently broken out 5 by-size categories over the years...and they've generally held pretty true-to-form.
  • 35,000 ft2 and above. 
    • CHARACTERISTICS: "athletic-cub" "full-services" menus; long-time industry leaders in profits and retention; generally well-managed; good reputations in communities; usually "market branded."
    • RISKS: competition from national players at every level (big-box high-price; big-box mid-price; quality budget-price; small-size niche players and studios); not adopting augment-to-services technologies fast enough; aging membership base.
    • CHALLENGES: sometimes tired facilities with "old look;" innovations within the clubs; changing programming to meet changing consumers' needs; maintaining pricing; ownership/management aging and no exit or business-continuation strategies.
    • PREDICTIONS: a need for differentiation; just being big is not enough; will continue to be hacked at by national-brand competitors; profit margins will be under siege; not-for-profits in this segment will suffer most.
    • GRADE: B
  • 20,000 to 34,999 ft2. 
    • CHARACTERISTICS: nearly-full-services menus; the oldest-facilities segment of the industry; branding has been a significant problem; targeted by national players.
    • RISKS: competition at every level (big-box high-price; big-box mid-price; quality budget-price; small-size niche players and studios); generally aging facilities; no market distinction.
    • CHALLENGES: downsizing services without quality suffering; figuring out "who are we" in marketplaces; must establish differentiation to be able to compete; high employee and member turnover; inability to get sufficient membership prices and ancillary revenues; poor technological adoption; lowest profit margins of "large" or "semi-large" facilities.
    • PREDICTIONS: will continue to struggle to stay afloat in many markets; smaller niche players and studios will cut up ancillary sales and add to membership attrition; an unhealthy sector that may get unhealthier if no differentiation.
    • GRADE: C+
  • 10,000 to 19,999 ft2
    • CHARACTERISTICS: generally "gym-type" facilities with fitness, classes, child care and limited other amenities; member attrition escalating; the most-undercapitalized segment; little distinction in marketplaces; those built between 1995-2010 gasping for oxygen; highest percentage of operating-with-no-profits. 
    • RISKS: competition at many levels, particularly quality budget clubs entering markets and targeting this segment; have not been able to get sufficient membership fees; clubs in this segment among highest member attrition.
    • CHALLENGES: growing personal training, group training, group fitness; differentiating facilities from low-pricers; high employee turnover.
    • PREDICTIONS: margins will continue to suffer; competition will increase; the most-challenged segment; many will unbundle or even go strict low-price, possibly as a last resort.
    • GRADE: C-
  • 5,000 to 9,999 ft2. 
    • CHARACTERISTICS: second-fastest-growing industry segment; fastest rise of corporate or franchised chains with niche offerings for specialty markets; half are "program" based and half are "membership" based; pricing not a problem; highest profit margins in industry; retention and ancillary sales growing; technology-adoption leaders.
    • RISKS: now "trendy" but how long will growth last; potential price gouging as more players enter this segment in marketplaces; memberships-based not doing as well as programs-based; caution of undercapitalization for new entries; not growing marketplaces but scalping from existing clubs.
    • CHALLENGES: group fitness among independents; continuing to grow personal training and small group training; staying focused on perfecting core business niches and not trying to do more than they can do.
    • PREDICTIONS: will continue to attract marketplace attention due to uniqueness of facilities and offerings; likely to be the leader in consumer-centricity ("buy what you want;" "you don't have to be a member;" "have it your way" marketing); will augment consumer-friendly technologies more readily; will continue to grow revenue-per-customer.
    • GRADE: A-
  • Less than 5,000 ft2. 
    • CHARACTERISTICS: fastest-growing industry segment; usually a single-focus training facility (PT, SGT, GEX); ability to get higher prices; ease of capital access and "getting into business" fast; mostly program-sales-based, not memberships; in high-population areas, already saturated with increasing unprofitable-operations status.
    • RISKS: overbuilding of facilities; too much competition for the same markets; business-skills inabilities of ownership; inability to re-sell programs at sustainable rates.
    • CHALLENGES: workable business planning and skills; creating new user markets, not scalping members from clubs; entry of more-organized franchise players; supply-and-demand imbalance is multiplying.
    • PREDICTIONS: quality of offerings may temporarily drop as more franchisers enter markets; profit margins in this segment are under attack already and will be a near-term concern; under-marketed, poorly-managed, lack-of-sales-abilities facilities will disappear with increasing frequency.
    • GRADE: B
We'll follow up in mid-February with an updated report on the above after deployment, data-gathering, and analysis from our 2015 Full-Year Fitness Facilities Business Results Survey (deployment approximately January 15).
 
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