Phenomenal growth curves are readily apparent in fitness and fitness-related businesses. We expect continued double-digit growth in facilities in 2006. We will likely have more than 31,000 listed “health clubs” by the end of next year, and membership should top 44 million by the beginning of 2007.
But with the good news comes the bad news. Members-per-facility continues to drop as competition-per-market continues to rise. Net increases in club revenues are not coming from increased new membership sales but rather from increased retention of present members and heightened sales of non-dues products and services in most clubs.
So, what might we expect, especially in a suspect economic climate and with a perceptible increase in supply and a shortfall of demand? Here's a Top 10 list of the best fitness opportunities over the next 15 months.
10. Progress in subsidized exercise
Why? Savvy insurers realize the relationship between proactive fitness and reduced costs; premiums cannot continue to rise uncontrollably without a “bust” in the health-care system.
Result: Prepared facilities will benefit from partially or wholly subsidized short-term programs; likely not memberships.
9. Elimination of amenity programs by many clubs
Why? Majority of clubs are feeling the crunch of too many, too little attended and too costly group exercise programs and high-exposure, low-return child care, low-margin juice bars and minimal-return pro shops.
Result: Many clubs will lose some members but reduce costs and tighten operations; some will systematize amenity offerings into profitable ventures.
8. A rebirth of group exercise independent studios
Why? The elimination of group ex by marginal clubs and facilities will give instructors the opportunity to open their own studios.
Result: Strong niche businesses will reemerge, some with memberships but more with built-in profitable program offerings.
7. General lowering of profit margins in several sectors
Why? As supply outpaces demand, commoditization of pricing accompanied by less new traffic per club will cause a squeeze on what's left of profits.
Result: Thousands of independent operators will work for a salary and little or no profits.
6. Reductions in service in most facilities
Why? When margins shrink, service payroll generally declines. Key management employees will be asked to provide more of the services that used to come from “line employees.”
Result: Greater impetus to provide service with less personnel and generally weakened customer service levels.
5. Continued growth in the not-for-profit (NFP) sector
Why? In chaotic, troubled and/or uncertain times, Americans usually tend to fall back on “institutions” for stability because they believe that they'll survive in hell or high water.
Result: Smart NFPs will ramp up their marketing efforts and enjoy a windfall of memberships.
4. The beginning of a crest in facility numbers
Why? Too many clubs are already competing for the same members.
Result: Many operators will go out of business in 2006 and beyond.
3. Steady but slower and different growth in personal training
Why? Introduction of personal-training-only studios in marketplaces is taking business and memberships away from clubs.
Result: Diminishing returns on personal training for lots of clubs, increasing returns for private studios.
2. General down-pricing of fitness memberships
Why? Availability of facilities is at an all-time high, entry of lower-priced, low-initiation-fee players is becoming the norm.
Result: Average fitness membership prices are dropping and will continue to drop.
1. An outbreak in the low-priced club sector
Why? Disgruntled club members don't want to pay higher, bundled prices when they don't use all the amenities that a club offers, such as group ex classes or child care.
Result: The number of chain, fitness-only, low-cost-to-consumer operations will skyrocket nationwide.
Michael Scott Scudder is a 30-year veteran of the fitness industry. He is a personal business trainer operating Fitness Focus, a consulting company that offers private workshops on pertinent fitness business matters. Questions and comments are welcomed by Michael at 505-690-5974 or [email protected].