The question I have been receiving most often of late is, “How is the fitness club industry doing around the world?” My answer is it is mixed at best. Having been in Europe, Asia, South America, the United States and Canada in the past few months, I've been able to see firsthand how the markets have been responding to the pressures of the economic downturn, so I thought I'd pass along a few highlights from what I have seen.
In the United States and Canada, we are seeing pretty steady guest traffic led by heavy price cuts in most markets. However due to these drops in price, we're also seeing cutbacks in services and personnel and a reduction in sales staffing and marketing efforts. Member traffic is up, and most good clubs/companies are still hitting their ancillary lines (personal training, retail, etc.). But many clubs have taken the approach that these areas will not be achievable and have made cuts with long-term personnel, which will, in my opinion, hurt them long term.
Most surveys show that fitness is still important to consumers, who note that they will not drop their fitness investments because they are valued as a priority for them. The real question for U.S. operators is how low can they go and still maintain profit margins? As we all know and see now, the compression in pricing has in effect turned our “offering” into a commodity. By this, I mean that price has become the choice over quality of service and offering. I believe the average non-urban fitness price is around $25 per month on EFT (as opposed to urban markets like New York, Washington, DC, San Francisco, etc.). This is led by the major chains (LA Fitness, Bally, 24 Hour Fitness, Gold's, etc., at $19 to $29 per month on average) and the quickly growing low-price offerings (Planet Fitness, Snap Fitness, Anytime Fitness, Powerhouse, Fitness 19 and countless others at $10 to $19 per month on average). With low or no joining fees all the rage, consumers are benefiting, and thus the increase in guest traffic.
The question is, can we as an industry survive at these low rates long term? How will it affect attrition and retention? Will existing members continue to opt out of their current memberships and “downgrade” to these lower price offerings? Is price now more important than convenience for consumers?
Time will tell, but my hunch is that it is going to be very hard for operators to move those prices back up quickly should they need to do so in the future. Therefore, these cost cuts now in place may need to be permanent for the foreseeable future.
Canada has been solid from what I have seen and heard. Member and guest traffic remains steady as most groups are reporting solid growth and performance. The Canadian economy has not been hit as hard as the U.S. has been, and the competitive landscape there has not caused large price drops. This has helped the Canadian operators continue to perform well in the first quarter. Expansion for 2009 and beyond has slowed just like it has in the United States, but, overall, that will help, as limited new entries should allow everyone to focus on building member bases and developing staff.
The hardest hit markets have been the Asian markets. Fitness is still early in its development in Asia, so consumers have not yet made it a part of their lifestyle. That means that attrition has been at an all-time high for almost all of the Asian operators, and with guest traffic low, you have a recipe for disaster. As Asian consumers cut costs, they've put fitness on their list of non-essential items to be cut. Club groups are working hard and staying aggressive, but markets like Hong Kong, Taiwan and mainland China have been hit hard. New club growth has slowed considerably with almost all groups on hold for the time being. Club groups have been aggressively trying to renegotiate rents and have cut costs in a fashion similar to what we have seen elsewhere. The real questions are, when will these markets turn around, and can operators sustain during this downturn?
Singapore, the Philippians and Malaysia have been bright spots to date because their countries have solid financial structures and mature fitness markets where consumers consider fitness to be important.
India has seen the entry of several major club groups of late (Fitness First, True, Celebrity), but their timing was a bit off as the market has slowed there as well. Although it is still early, growth has shut down for the time being in India. Like mainland China, India is mainly a pre-paid market with no monthly EFT dues programs in place.
Although fitness member penetration is still developing in South America and only one non-franchise chain crosses borders on this continent, club groups are mature and seem to be performing well overall. Fitness is viewed as important to consumers in most South America markets, with many of each country's platforms being more than 10 years old. Member bases are growing, and pricing has been stable. Ancillary revenue also is growing and performing well to date. Most club groups are still building in the smaller 15,000- to 25,000-square-foot range. This footprint size has allowed them to weather the storm to date. EFT for dues has been growing in some South American countries in the past few years, which has made the business predictable, but many club groups still collect cash up front or bill manually for monthly dues.
Depending on where you travel, Europe seems to be facing struggles similar to those in the United States. Again, workout traffic is up in most countries I visited, guest traffic is steady, and aggressive pricing and marketing efforts seem to be in place. The United Kingdom and Germany seem especially strong given all that has transpired. The large groups there have done a nice job of cutting costs and improving sales efforts. Penetration in the United Kingdom and Germany are approaching U.S. levels now.
Many of the clubs in Europe have been built within the past decade and are high quality, which has helped sustain member usage and guest traffic. Spain has been struggling, as has Russia and some of the Eastern Bloc countries where the financial markets have been hardest hit. Russia, for example, has raised its small business bank loan interest rates from 12 percent to 18 percent in recent months. Although the three large players there (Planet Fitness, World Class and Orange Group) have grown substantially in the past few years, I think they will slow their new product openings substantially in 2009.
Overall, I have been impressed with the work done within our industry to date to weather the storm. Last month at the International Health, Racquet & Sportsclub Association convention and trade show, I had a chance to meet with a number of industry leaders worldwide, and the general mood was good. January was solid for most, and February was a bit off track, but March seemed to be good to date.
Fitness people are a resilient group, and having been through several of these slow periods over the past three decades, I just have to say that we will again perform well in the months ahead.
Mark Mastrov, founder of 24 Hour Fitness, is now an investor in various business opportunities. You can reach him at [email protected].