Five Things the Presence of a New Competitor Has Taught Us | Athletic Business

Five Things the Presence of a New Competitor Has Taught Us

Rob Barry Feature

We've often written in these pages and spoken at the Athletic Business Conference about "the big squeeze." And now, after 20 years in business, we are the orange.

This industry trend, which has been well-documented by many sources during the past several years, has made an endangered species out of mid-priced, mid-sized, independent health clubs. Independent clubs that are about 15,000 to 50,000 square feet and charge $40 to $60 per month are under assault from both the high end and the low end. Being stuck in the middle has you competing on two fronts, and it's not a fun place to be.

The "high end" consists of both boutiques and, for some markets, behemoths such as Life Time Fitness. In our case, we've only had to deal with the boutiques, and even in our small market there are an untold number of studios. Personal training studios, dance studios, cycling studios and CrossFit boxes are everywhere, despite the fact that barely anybody lives in our little corner of the world. It's maddening.

This trend has become so prominent that an Associated Press article from June 2015 about "slim one-room gyms" was sent to us by lots of friends and family members. They all know that this trend has been a significant competitive factor for us for several years.

And now we've got our "low end" competitor. This is a national, fast-growing chain that shouts about $19.99-per-month memberships. That, my friends, is the low end.

The existence of this new competitor has created new challenges but has also been quite interesting. So, as we always like to do in this column, we wanted to share some observations that we hope are useful to other gym owners.

We should note that this new gym is not — for many of our members and prospects — within the typical 8-to-12-minute drive time that often determines which facilities the general public will consider. It's actually in between our two locations and several miles from each, but it is certainly close enough to each that we have lost members to this competitor. We take it very seriously.

So, what we have seen and learned?

The best thing that happened for us was when the new gym opened. Its pre-opening period was brilliantly executed. There was lots of buzz, the gym held events at local restaurants, its use of social media was excellent, and its already low prices were even lower during pre-sale. This is when we were hit by the majority of our cancellations.

Since our new competitor opened, we have hardly lost anyone. Also, during the gym's pre-sale, the phrase "Well, you know, with them opening..." was something we heard every day from members and concerned staff. Once the gym opened, all of that myth-building came to an end. The gym barely gets mentioned anymore, and it became what it is — a nice new gym with low prices that has good stuff and bad stuff.

We knew we'd lose members to our latest competition, but who would they be, and how many would we lose?

Understanding who was leaving wasn't as easy as you'd think. In our cancellation form we ask for the reason, but many people tried to be coy or just lied. (Why? We have no idea.) We had to cross-reference many cancellation requests with each person's attendance profile and their stated reason for leaving, while also talking to staff members to see what they knew. We had predicted we'd lose about two percent of our existing members, and we were very impressed with how accurate we were.

Many of the cancellations weren't a surprise, including several who we knew were consistently unsatisfied with us. Some left for the new facility's longer operating hours, some mentioned price, and for others it was geographical convenience.

And yet, some cancellations were a surprise and quite disappointing. These were long-term, active members who had close relationships with other members and staff. But most cancellations fit a profile that we should have anticipated: They were long-term members, but ones who went missing for long periods of time. These were "gym people" who — understandably — would save quite a bit of money by joining a less-expensive gym.

We also saw that when couples who were active members decided to leave, it was the man who drove the decision. Stereotypically, the man was a "weight room guy," and we knew we'd lose weight room guys drawn to the larger, newer, less-expensive facility. But when they left, they would take their "better half" with them. We heard lots of whispers from those better halves that "I don't want to go, but..."

We have spoken over the years with many gym owners who have blamed a new competitor — usually a low-priced one — for their demise. But this business has never been easy, and if all an owner has to deal with is a new competitor, he or she should be considered fortunate.

Our challenges haven't really changed much. In fact, our biggest challenge is something that is out of our hands, which is that we are located in a community that is bleeding our key demographic of 25- to 45-year-olds. For a time, we thought we were crazy, but our local school enrollments reflect this outflow of people who are our key prospects. They are leaving for better-paying and more-plentiful jobs, in places with lower property taxes and better weather. In fact, "relocation" is, by a 2-to-1 ratio, the most frequent reason cited for our cancellations. That reality has not changed.

So, would we have invited in a new competitor who would take two percent of our members? Of course not. But that is nowhere near our biggest problem.

If we could have dropped our prices, we would have done that a long time ago, so we certainly couldn't do such a thing in response to a new competitor. If we could go out and buy all-new equipment, we would have regardless of competition. But we can't. And we don't need to. What we can do is run our business as best we know how. But...

The presence of a large chain has created an opportunity for us to be something that we otherwise could not be. We are not low-priced. We are not shiny and new. We are not overcrowded. We don't cater to the masses. So, do you know what that makes us? A boutique!

Since the chain location opened, many prospects have told us immediately after visiting them, "I couldn't take the craziness there. This is nice." Suddenly, we're small! We've always known our members' names, and now people are noticing! We have member-friendly business practices like being able to freeze or cancel online! Our members get results!

So, we're embracing our boutique bona fides. We're celebrating our smallness by comparison, and we're going to squeeze our way out of the squeeze. All of the things that a chain cannot be, we can be. Heck, that will even make us hip, and we haven't been accused of being hip in, oh, 20 years.

This article originally appeared in the September 2015 issue of Athletic Business with the title "Feeling the Squeeze"

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