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Market Watch

Paul Steinbach

Amid unprecedented fitness industry growth, health club operators have had to refocus - and often retool - in order to stay ahead of the competition.

Health clubHealth club When Bill Crowley opened The Mount Auburn Club in Watertown, Mass., in 1974, his was one of only four commercial health clubs to be found in and around Boston. Today, the same market is dotted with 18 Boston Sports Club locations alone. And the news isn't getting any more comforting for Crowley. The Boston Globe reported in late December that Boston Sports is looking to double its market presence in the coming years.

This latest development comes on the heels of a huge jump in the number of Pilates studios and personal-training centers in the area, not to mention Boston's unparalleled concentration of university campuses, plus YMCAs within two miles in either direction of The Mount Auburn Club.

Such is the competitive climate for health club owners in greater Boston - and all over America. According to figures compiled in January by the International Health, Racquet & Sportsclub Association, 29,069 health clubs, YMCAs and other private and municipal fitness centers currently operate within the United States. As recently as 1995, the number was 12,608. And the proliferation has been particularly brisk as of late - with nearly 6,000 new facilities muscling into the marketplace since 2004.

Many industry experts attribute the boom to small, express-workout locations representing such chains as Curves for Women, Cuts for Men and The Little Gym for kids, which have come to infiltrate communities large and small nationwide. In Placentia, Calif., with a population of 47,000, five separately owned women-only fitness centers have tested the waters since 2002, with four operating simultaneously at one point. Only two are afloat today.

But while some franchised clubs are somewhat hamstrung by their own adherence to a corporate-mandated business plan, larger privately owned facilities have been challenged to refocus their programming - and often retool their physical plants - in order to maintain a healthy market share.

"The major challenge to existing clubs has not been the economy or energy costs, but rather new and powerful competition," says Rick Caro, president of the New York-based health club consultancy Management Vision Inc. "Club leaders have reacted differently. Some have spent money on physical plant upgrades, others have added new program offerings, and still others have completely re-examined their hours of operation, length of membership agreement and emphasis on key club strengths." "Clubs trying to be all things to all people are losing market share the fastest," adds club consultant Eddie Tock, a partner in Sales Makers in Garrison, N.Y. "Clubs that offer specific programs based on certain demographics are finding more success."

According to Katie Rollauer, senior manager of research at IHRSA, the emergence of specialized clubs of all shapes and sizes has helped sharpen the entire industry's focus on the consumer. "There are many different types of club models being introduced. It's no longer just a big box with rows of weights and treadmills," she says. "Because each consumer niche has different needs, clubs have to elevate their services and provide what their customers demand. I really think it's going to elevate the sophistication of business models in our industry."

The Mount Auburn Club's metamorphosis from a dedicated tennis center into a broadbased fitness facility catering increasingly to mature users has been a gradual one, driven by the needs of Watertown's aging population as much as anything else. As the popularity of tennis waned, three of six indoor courts gave way to 40,000 square feet of workout space. Group exercise gained momentum in the early 1980s. A swimming pool was added. So, too, was a basketball court, though once Crowley concluded that his male members were "killing themselves," that space was converted into a 2,000-square-foot cardio area complete with TV monitors and a 3,000-square-foot personal-training studio, where dumbbells, resistance bands and exercise balls promote functional strength. Yoga, which Crowley once considered a West Coast underground activity, has joined the Mount Auburn mainstream, and the same can be said of Tai Chi, Pilates and Gyrontonics. Through it all, the veteran club owner has adhered to one tenet regarding longevity in his business: "Change or die."

Survival for any club becomes a function of logical, strategic steps, according to Mike Chaet, owner of Club Marketing and Management Services in Helena, Mont. "You first have to understand what's going on in your market," Chaet says. "You don't just look down the street, see a club and go, `Oh, I'm in deep trouble, I better change.' Maybe you're not in trouble. Maybe you're doing the right thing. Maybe the other club is doing the wrong thing."

Existing clubs can do little about their proximity to new competitors, but they can probably do a better job of gathering intelligence on potential members in their immediate area. "The number-one reason people join one club over another is convenience," says Chaet, whose firm operates more than 1,000 clubs worldwide. "The market for each club is defined by a six- to eight-minute travel time, with 80 percent of members coming from within that travel time."

Chaet encourages club owners to literally clock their market radius using a stopwatch and car. In addition, he suggests club sales staff have every new member pinpoint their home or workplace on a map in the sales office to better define the club's market reach. Area demographics can then be assessed, as well as the program offerings of competing clubs. "Retooling starts with looking for needs in the marketplace, finding a need and filling it," Chaet says.

Perhaps an existing club merely seeks to boost its female membership numbers. This may entail adding or modernizing group-exercise studios, creating new membership categories that allow women to purchase only group-exercise access to the club, or integrating equipment that's more user-friendly for those women who seek both strength-training and group-exercise opportunities. Here, the best intelligence may come from within. "Form a focus group and ask your ladies what they think you should be doing," says Frank Guengerich, executive vice president of fitness consultancy WTS International in Silver Spring, Md. "Establish a line of communication with them: `Here's a new membership category we're working on for you and your friends.' `Here's some new weight equipment we're reviewing.' Get their input and create some excitement and energy."

Health clubHealth club Maintaining buzz within an existing club often comes at a price, with programming adjustments on the low end of the investment scale. New hires and marketing initiatives require considerably greater expense, while new equipment purchases and facility renovations represent still greater financial commitments. "You don't necessarily have to prioritize the laundry list until you see what you're up against," says Chaet. "Let's say I built my club two years ago, and physically it's fantastic. The interior designer did a great job, and my equipment's current. But maybe my pricing is wrong or maybe I'm not providing the right programs for the people in the area. Then I would change my priorities based on what I see in the marketplace. Very often, though, clubs that have been around for a while may not have kept their physical plants vibrant. They're a little stale, a little dated. Then maybe the physical plant goes to the top of the list."

To keep clubs vibrant on a consistent basis, Chaet recommends reinvesting 8 percent of revenues into the facility each year. He suggests replacing cardio equipment every three years and selectorized weight equipment every five - whether it needs replacement or not. Perhaps simply rearranging the fitness floor by equipment category can shake things up. Crowley used to tuck his free weights in a corner, but his club's more recent focus on providing functional training opportunities for a membership that now tops 50 in average age has changed his layout outlook. "Now all the iron is right in front where everybody can see it," he says. "The people who needed it were not only the ones who wanted to build big muscles, but also the ones who wanted functional strength. The floor is much more active now."

Facility owners should also consider applying a fresh interior paint color every year, replacing carpeting every two to three years, and installing new light fixtures every three to five years. A new entrance canopy and window coverings can dress up the building's exterior. "Create your own obsolescence," says Chaet, "because if you don't, somebody else will."

Staying ahead of the competition means differentiating from it. Most industry experts agree that membership price wars are not the answer, but pricing nonetheless should be considered as a means of creating separation. Chaet recalls one client who nearly tripled his club's annual revenue by simply raising membership fees to match the superior service he was providing within his marketplace. As competitors' prices have inched toward his own, that same client is now looking at raising his prices still further and creating an even more exclusive personal-training environment. "He's trying to keep that separation," Chaet says.

So, too, are the industry's giants. 24 Hour Fitness, for example, has made a practice of branding entire clubs around compelling, fitness-minded athletes such as Andre Agassi and Lance Armstrong. Two Shaquille O'Neal 24 Hour Fitness clubs have opened in Florida within the past year, with another 15 to 20 on the way. Two existing clubs are in the process of converting to Shaq clubs - with the requisite introduction of action photographs, autographed basketballs and other memorabilia to the clubs' decor. According to Adam Sedlack, regional director for 24 Hour Fitness, Agassi clubs don't necessarily offer tennis and Shaq clubs don't necessarily offer basketball. "The whole objective here is to make people a better tennis player or a better basketball player by working out in the facility," he says. If it takes the marquee magnetism of a Magic Johnson to pull members through the doors in the first place, so be it. "There's no doubt about it, the competitive landscape is changing in the fitness business," Sedlack says. "So we try to brand ourselves a little bit differently than other clubs."

Corporate chains will always hold some competitive advantages over independently owned and operated clubs. They may boast large, aggressive sales forces, seemingly bottomless marketing budgets and visually striking facilities. "If Bally enters your market, it's probably not smart to try to compete with them head on," Chaet says. "But if you insist on being an adult health club, which is basically what Bally is, you had better provide more for the money in terms of services, because they do have the capacity to outsell you if you're not careful."

But superior service requires resources - namely, human resources. "Unfortunately, to differentiate costs a lot of money, because you usually have a big staff," says Crowley, who manages 60 class instructors, 50 full-time employees and 50 additional part-timers. "A lot of people don't differentiate clubs based on service. They think a club is a club, and it's strictly a matter of price."

To other prospective clients, high-touch service is critical. Therefore, The Mount Auburn Club and other clubs catering to a more mature demographic need to be especially diligent when filling positions on their floor staff. "You really need to have a person who is wired a little differently, someone who really has a high level of patience and doesn't expect big results quickly," says Guengerich, who says the age of the employee is irrelevant. "Some of our best individuals working in that environment are in their 20s. It's a talent. You either have it or you don't."

Most of Crowley's employees are ACSM- or NASM-certified, and thus able to serve as resources of rehab advice. "We're trying to keep very high standards in terms of our training, our teaching and our offerings," Crowley says, adding, "A lot of older folks are just looking for understanding. We think if you can make those kinds of connections with people, they're going to stay with you."

Conversely, standing out from the competition may actually involve scaling back customer service. "I dare say that you have to go into this with an open mind," says Chaet. "You might reposition your club by giving customers no service."

In most cases, according to Sales Makers' Tock, clubs must hire at least enough competent staff to handle day-to-day tasks, such as managing the front desk or running a fitness class, so that owners and operators can concentrate their efforts on community outreach, sales and retention. "It's very easy to get caught working in the business," Tock says, "and you really have to be working on the business."

In fact, the main reason superior service - and particularly a new commitment to superior service - can go unnoticed is inadequate community outreach. "It's important that you send a clear message to whatever market you're going after," says Tock. "If you're going to be a family club, everything you do, everything you say, has to be tailored toward being user friendly for families. That includes your pricing, your staffing, your programs, everything."

Failure to communicate strengths can even adversely influence future business decisions, Tock adds. "You may have the most incredible programs in your club, but if people outside the club - and sometimes even inside the club - don't have an awareness, you may believe that a program is destined to fail, when in fact it's not." If physical plant improvements are in order, a minimum of $100 should be earmarked in a marketing budget for every new member a club hopes to attract with the upgrades. "If you build a new pool or you put in a new circuit, and you want 200 members to cover it, then you spend $20,000 to market it - or more," Chaet says. "If you don't market your changes, you're making a mistake, because you become the best-kept secret in town."

Amid the unprecedented industry growth and the constant introspection of individual clubs looking to remain competitive in their respective markets, the challenge of running a health club hasn't changed much at all, according to Tock. "There are three competencies the club has to focus on regardless of the niche it goes after," he says. "The first is to increase your knowledge of what you're doing - how to run the business. The second is the execution of it - now that you know what to do, are you doing it? And the third is execution on a consistent basis - are you doing it day in and day out? We've worked with 983 facilities, and probably fewer than 10 are in that third core competency of doing things consistently. If you talk to any of them, they will all tell you that they can get better. The best operators are always striving to get one step ahead."

Even at age 60, Crowley thinks about his club coming full circle and servicing families again, just as it had done as a tennis center in the late 1970s. "If I were a bit younger, I might tackle that, because I see that kids really need activity," he says. "We were the largest teaching club for kids in New England 30 years ago. But the demographics changed, kids left our area, and we had to move away from it."

Does he ever envision a day when The Mount Auburn Club abandons tennis altogether? "No," Crowley says. He pauses. "Well, never say never. A lot of us have had to make changes to get to the point we're at now. It's always change or die."

Club Exclusive The commercial fitness industry has become increasingly specialized in recent years, as individual clubs seek to carve out their own market niche. This typically means targeting a specific demographic through program offerings and amenities, or by dedicating the entire facility to the desired membership. According to industry experts, here are some characteristics common to the various types of clubs being popularized today. Gender-specific clubs. Often contained within small storefronts of about 2,000 square feet and serving between 200 and 250 members, these clubs target the deconditioned with an affordable, no-frills approach to fitness. Free of mirrors and the judgmental eyes of the opposite sex, users are allowed to work out in a non-threatening atmosphere. The actual workouts are designed to be quick (a 30-minute model has been widely embraced) and often include a combination of sequenced circuit training and aerobic activity.

Some existing multipurpose clubs have also dedicated space to the privacy of users - usually women - who prefer to work out in a unisex environment.

Family clubs. These are typically clubs with large footprints and a long list of amenities, including strength-training and group-exercise areas, pools and one or more ball sports components. The substantial investment in real estate is offset somewhat by the security inherent to family club memberships. Because more than two individuals are typically tied to the membership, there is a greater likelihood that the membership will be retained - the kids will continue to take swimming lessons, even as Dad's dedication to the weight room wanes.

Family clubs can still service single and childless couples by offering such programming as over-35 basketball and volleyball leagues, and some clubs have even taken measures to segregate the generations by concentrating youth components in one area of the facility.

Elder-friendly clubs. Clubs located near neighborhoods of empty-nesters and other mature individuals may need to tweak their approach when tapping this market. This includes purchasing equipment that emphasizes user safety (Smith machines, slide-adjustable benches) and functional strength (exercise balls, resistance bands). Whereas clubs might normally specify 45 square feet of floor space per piece of equipment, 55 square feet better facilitates use by individuals with walking aids. It also facilitates socialization among older members during their workouts. In fact, socialization is so important, club consultants recommend devoting adequate square footage to lounge areas, where members can gather, relax and converse. Other considerations should include brighter interior lighting and larger type on club signage and literature.

Kid-friendly clubs. According to the U.S. Centers for Disease Control and Prevention, 62 percent of children ages 9 to 13 engage in no organized physical activity outside school, and 23 percent of children in that age group engage in no free-time physical activity at all. It's a market that holds huge potential for club owners, and many are answering the call. Some kids-only clubs welcome children as young as four months, and most set an age limit of 12 years. Kids clubs may emphasize motor-skills development through basic martial arts, gymnastics, ball tossing and obstacle courses. Even a few Gold's Gym locations have launched programs designed to teach kids proper form when doing push-ups, sit-ups and squats, as well as provide guidance regarding nutrition and cardiovascular health. Moreover, manufacturers are now sizing strength-training machines to fit smaller bodies.

Ahead of the Curves Contrary to popular belief, the Curves for Women franchise did not invent the gender-specific health club model. It has been around for decades. But with more than 9,000 Curves locations worldwide, not to mention more than a dozen corporate clones, the emergence of Curves - with its no-frills, 30-minute circuit of machine-based strength training interrupted by brief bursts of cardio activity - as a market force is undeniable.

But how much financial impact or programming influence, if any, the Curves approach had on existing, multipurpose fitness facilities is the subject of some debate. "Theoretically, the typical member of one of these express facilities - whether a Curves for Women or a Cuts for Men - is someone who would have never joined a typical health club," says Katie Rollauer, senior manager of research at the Boston-based International Health, Racquet and Sportsclub Association. "So in many ways Curves has been able to tap into a market that wasn't yet being addressed by the health club industry."

At the very least, the industry couldn't help but notice Curves' explosive growth - from its inception in 1995 to 1,000 locations within its first three years to 9,000 locations by its 10th anniversary. "Clubs knew about them," Rollauer says. "But research over the past 10 or 15 years has indicated that people cite lack of time as the reason why they don't join a club or why they quit. The 30-minute express workout addresses that specific concern."

Today, even multipurpose clubs have created their own variations on the 30-minute theme, though they may stop short of crediting Curves as the catalyst. Two years ago, 24 Hour Fitness, a chain of more than 340 clubs in 16 states and three Asian countries, launched its own 30-minute circuit program called Xpress ZoneT. "It would have evolved anyway," says Adam Sedlack, 24 Hour Fitness regional director, when asked if Xpress Zone represents a direct competitive response to Curves. "We were actually already looking at the process when Curves was still a small company, because we knew that time was a big deal" to would-be exercisers.

More recently, 24 Hour Fitness has spun off smaller, self-contained Xpress clubs, which even Sedlack admits are "very similar to Curves." "Obviously, it's good for our brand," he says. "It puts a lot of our clubs, a lot of our signs out there in more locations. We're allowed to penetrate markets a little bit more at a lower overhead. It's worked out well for us."

Other clubs have at least given thought to competing with women-only clubs head on. "Let's say 200 women go into any one of them, but there may be six in my area. That's 1,200 women who were my potential members," says Bill Crowley, owner of The Mount Auburn Club in Watertown, Mass. "We've talked about whether we have the space and if we could have a separate, private entrance. Could we reconfigure the equipment or put up a wall so we could attract those people? We think about those things, because we like to think that we could satisfy that market."

According to consultant Eddie Tock, a partner at Sales Makers in Garrison, N.Y., the long-term future of the Curves franchise is still in doubt. "They're making it easier for business owners to get into the industry," he says. "But probably a third of the ones that call us are on the verge of bankruptcy. They think, `I've bought it, I opened it, I'm done.' "

When asked why her club has survived in a community where three other women-only facilities have opened and closed since 2002, Karen Goss, manager of the Curves for Women in Placentia, Calif., echoes the Curves corporate mantra. "We practice what we preach," Goss says. "We try to make every woman comfortable no matter why she's here."

Spa Days Spa services represent an increasingly popular means by which clubs can distinguish themselves from nearby rivals. Appealing to an older, often affluent clientele, club-based spas nonetheless represent a substantial undertaking. "It's not a quick fix," warns Eddie Tock of Sales Makers, a Garrison, N.Y.-based club consultancy. "It's a good business to get into, if you have the right market, but understand it's labor-intensive - more labor-intensive than the fitness industry."

Moreover, establishing a spa will require a far greater financial and intellectual investment than, say, targeting women exercise enthusiasts with expanded class schedules. Spas typically involve facility renovation, as well as the hiring of expertise.

Frank Guengerich, executive vice president at WTS International, a spa, fitness and leisure consulting and management firm headquartered in Silver Spring, Md., recommends that no fewer than 2,000 square feet be devoted to the spa, and that between $150 and $600 be spent per square foot to properly finish the space. He also suggests employing spa professionals who are dual-licensed in both massage therapy and cosmetology to administer a variety of services. "To really do it right, it needs to be more than just locker-room massage," Guengerich says. "There need to be certain components that you're investing in."

That includes investing in management skills that aren't easily imparted on existing club staff. Says Guengerich, "You should be looking for someone to fill a leadership position who has extensive education in spa management and who understands that business, because it is different than the health club business."

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