Fitness Club Operators Take Seven-Step Checkup as Economic Prognosis Worsens

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As the nation's economic prognosis worsens, fitness center operators must take these seven active steps to ensure the continued health of their facilities.

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In November, the Salinas (Calif.) Athletic Club closed its doors after 15 years, the victim of a recession that economists say will only get worse before it gets better. Owner Steve Hare is far from alone, though. The livelihood of many fitness facility owners is at stake right now. In Florida, for example, state officials reported that 369 health clubs went out of business last year - a near 10 percent jump from 2007 and one that has potential members proceeding with caution. Elsewhere, many facilities - from private clubs to YMCAs and municipal recreation centers - have significantly reduced or waived enrollment fees, or expanded friends-and-family discount programs to the general public. Fitness facilities are just like any other business in that they have fixed costs that exist whether one person is working out or if every machine is in use, and that makes the current economic climate particularly frightening. Historically, the fitness industry has been resistant (if not immune) to the impacts of economic downturns. Tough times, the logic goes, force people to focus on their health and wellness because nobody wants to get sick and lose their job. Bobby Gaudet, general manager of a Gold's Gym in Salinas that competed with Hare's facility, told the local press that the economy might actually be helping his business. But this time, things are different; this is the first significant economic slowdown since the number of health clubs in the United States exploded in the 1990s. In an industry where the rate of new facility growth outpaces the rate of membership growth, it's hard to imagine the fitness industry escaping this recession without a major shakeout. Commercial clubs already are cannibalizing each other in areas where there are too many facilities serving too few members. New membership sales started dropping in mid-2008, and attrition increased as members who either did not use or see value in their memberships began canceling them. People with several clubs in their community to choose from switched to less-expensive facilities, but even the low-cost providers started losing members. Nonprofits could be in trouble, too. Facilities that thrive on charitable contributions are no doubt hurting, and those funded by taxpayer or tuition dollars will likely see some (or more) budget cuts. Few fitness facilities will emerge from this crisis unscathed. In many ways, we - yes, me included, as I own a health club in Pennsylvania - got ourselves into this mess. The fitness industry has allowed and even encouraged itself to become a commodity in which the focus is on price over value. Now is probably not the time to spend extravagantly, hoping an ad blitz will attract new members that may or may not stay. Rather, in order to position your facility as a recession survivor, now is the time to be creative and conservative. Here are seven ways to be both: 1. ONLY spend money on EFFECTIVE advertising. Do you know which of your advertising programs work? Are billboards driving business? Are radio ads resulting in walk-ins? If you're doing something that you know is effective, then by all means keep doing it. In fact, if it's working well enough, you may even avoid the worst of this downturn. But if you simply throw ad dollars up against a wall because it makes you feel better than doing nothing, please stop. Instead, go buy a book on guerilla marketing tactics and find low-budget ways to reinforce your message. For example, partner with a local charity for a fundraiser or similar event; the charity will benefit from your facility's involvement as your business generates community goodwill. Or send staff to meet with students at local schools or members of area civic groups to discuss the benefits of healthy living and provide exercise demonstrations. Or take a cue from other price-slashing facilities and offer members coupons for discounted enrollment fees to share with family and friends. 2. Use the economy to make changes. Everyone wants to cut costs during a recession, so use the current economic environment to your advantage. Are there services or amenities you've been itching to modify, reduce or eliminate but were worried about how members might react? Well, here's that excuse for cutting back on the number of free toiletries in the locker rooms or eliminating classes with low attendance. If you need to lay off staff, as opportunistic as it sounds, now is the time. To your members, you will appear to be making prudent business decisions. 3. Get educated about energy. If your facility's payroll and marketing costs are under control, the next major area in which to identify potential cost savings is utilities. Consult with a local electrician to understand the best strategies for cooling your facility. Most clubs run air conditioning all year, even in colder climates. But perhaps there are spaces in your facility that do not require consistently cool air or in which ceiling fans could mitigate the need for air conditioning. Additionally, learn about the latest advancements in light-bulb technology and go shopping for power-saving bulbs, motion-sensing lights and other inexpensive products that can cut back on your electric bill. In fact, simply understanding the bill can lead to huge savings. In Pennsylvania, invoices for commercial electricity are based not just on consumption, but on peak demand, which is defined as the single biggest spike of usage during any given 15-minute period of the month. Knowing that fact has helped Pennsylvania businesses save thousands of dollars annually. How can you smooth your facility's energy spikes? Start by firing up saunas and steam rooms before the doors open; otherwise they'll kick in when all the lights and other utilities go on later, creating a higher spike. Pool filtration systems and other large consumers of electricity also should be studied to determine the best times for turning them on and off. An energy audit, completed by a professional, will reveal an entire facility's energy behavior and identify additional ways to save - particularly in older buildings. For example, insulation could be increased, hot-water heaters may need upgrading or the timing of outside parking-lot lights could be improved. 4. Know who you are. It's one thing to save as much money as possible; it's quite another to look with fresh eyes at your fitness center and determine its value proposition. As stated earlier, too many facilities have become commodities, and if you and your staff cannot justify to members (and potential members) what makes your facility different and why they should give you their hard-earned dollars, you need to refocus. Are you truly the low-cost provider in your community? If yes, good for you. Now make sure everyone knows it. The same goes for a women-only club that offers 30-minute express workouts, or a 24-hour club. What happens to the value proposition of your facility in the face of lower-priced competition? But be careful not to create false value. A muscle gym should not position itself as, say, a place for families with children. It's not, and families with children will not succeed in such a facility. Consequently, neither will the facility. Fitness facilities with a well-defined value that operate in communities with enough people to appreciate that value are the most likely to emerge from this recession. Others may simply perish. 5. Be creative with money. If you are under the illusion that you'll never run out of money without warning, have a chat with the former bosses at Lehman Brothers, Bear Stearns or one of the other failed investment houses. Traditional lending sources have all but dried up. Industry stalwarts such as Life Time Fitness are slowing the rate of club openings, and tapping friends and family members for investment dollars seems to be the best business advice many financial planners can give these days. That's why it pays to educate yourself about alternative means of obtaining money that don't involve banks. Many companies that offer cash advances are thriving, thanks to the vacuum in lending created by the housing crash and banking crisis. A "business financing" search on the Internet yields countless vendors ready to provide cash advances - but at a steep price. If you need the funds, though, price may not matter. Many cash-advance companies provide an advance based on monthly credit card activity, and then withhold a percentage of every credit card transaction thereafter (typically 25 percent or higher) until the advance and the service fees are paid off. The greater the cash advance, the higher the fees. A $25,000 advance, for example, might actually cost more than $35,000. Other cash companies provide advances and then simply withhold a small, fixed amount from your checking account daily or "buy" your future receivables in a process known as "factoring." Essentially, those companies pay you 60 or 80 cents on the dollar upfront for the value of specific membership contracts, and they then own and collect on those contracts. 6. Understand your numbers. How do you know if your facility is being impacted by the recession or by a competitor? Are members quitting for financial reasons or because your staff isn't taking care of them? Facility owners and managers need to know their operation's statistics. For example, how do you track attrition? Industry guidelines involve a formula that averages the monthly number of members and divides that figure into the total number of cancellations each year. But also consider calculating your monthly attrition percentage (the number of members lost in a given month divided by the number of members on the first day of the month). Doing so will help gauge average membership lengths and the number of days between a member's last workout and cancellation, as well as help anticipate monthly attrition rates. If new memberships and cancellations of existing ones are happening at the same monthly percentage rate, then there might not be a problem. But if membership is flat and cancellations are becoming more common, you'll need to do some investigating as to why. 7. Increase your retention efforts. The silent killer in this recession will not be the reduction in new memberships, but the membership cancellations that counteract the value of each membership sold. As you trim necessary costs, are you still giving your members what they need? Is your staff executing as effectively as it should? Are you connecting with new members in the form of a dynamic orientation process? Are you helping them build relationships with fellow members and your staff? Are you communicating with them in the format they most desire (say, e-mail instead of direct mail)? The current state of the economy will likely cause a significant decrease in the number of days that pass between a member's final visit and his or her cancellation. So don't hesitate to communicate with members more frequently, offer them incentives and provide reasons for them to consistently take advantage of your products and services. While many cancellations are out of your control, some memberships can and should be saved. There's nothing you can do about a member who relocates to a new residence, but do not accept the "financial reasons" excuse at face value. Remember, people won't necessarily quit your facility because they cannot afford it; they will quit because they stop using it or no longer prize their membership. The nature of the products and services fitness facilities offer hasn't changed, but the environment in which they operate is wavering. As a result, owners and managers have been tossed into a pressure-cooker that will provide instant judgment on practically every decision they make. In fact, it's safe to say that this recession is forcing facility operators to function at a heightened state of awareness. Those fitness centers and health clubs run by administrators and employees who know why their facilities exist, what clientele they serve, what their members perceive as valuable and how their costs can be controlled will likely survive and enjoy the strongest market position when the economy rebounds. Weaker facilities with no distinct value or direction, the ones that try to be everything to everyone, may not.

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