My phone has been ringing off the hook, and my e-mail account has been full of messages from independent facilities. The calls go like this: “Things have slowed down this year for the second year. Sales just aren't there like they used to be. I have more competitors than ever. The economy seems to be hurting my business. What do I do?”
Many clubs are nowhere near their 2005 sales targets. The economy is as slow as molasses in a Minnesota January. At this writing, consumer confidence is at a three-year low, according to the Rasmussen Consumer Index. Most fitness marketplaces are oversaturated with clubs, most of them competing for the same bodies and in relatively the same narrow mid-price range.
Push has come to shove, which means independent operators must look at two things more than anything else: Is there a way to increase sales (particularly higher-margin sales such as personal training or weight management), and how and where can you cut expenses?
If you're like most of the clubs that contact me (ranging from 10,000 square feet to 20,000 square feet and charging $35 per month to $49 per month), you can barely manage everything now much less take on anything else or increase ancillary sales. So you must control expenses, and one obvious place to look is group exercise.
Informal data from my calls and e-mails show:
More than 80 percent of clubs report that their group exercise member-participants amount to less than one-tenth of their membership.
More than 80 percent of clubs are losing money on their group exercise program.
More than 80 percent of clubs offer 30 or more group exercise classes a week.
More than 80 percent of clubs pay $21 or more per instructor-class-hour in wages.
More than 90 percent of clubs report that the overwhelming majority of their child care usage comes from group exercise members.
Almost 100 percent of health clubs do not break even on their child-care operation.
Based on some estimations, I concluded that the average annual cost of a group exercise program plus child care was $133,660. I also concluded that the average annual revenue of group exercise memberships plus child care visit fees was $81,710. The average annual net operating loss for group exercise alone was $29,600, by my calculations, while the average annual net operating loss for child care alone was $22,350. Therefore, the combined annual net operating loss from group exercise and child care was $51,950 (For details on how I arrived at these conclusions, see my calculations at www.fitnessbusiness-pro.com/FromLip_November2005). These figures are true for most of the club operators with whom I have corresponded.
It is likely that seven out of 10 club operators who bundle-price memberships (one fee pays for all uses of the club) are subsidizing group exercise members to the tune of almost $250 per year per member. (If that member also uses child care, the subsidy-per-member increases to nearly $400 per year.)
Based on these assumptions, I concluded that most clubs cannot make money with group exercise bundled into a one-price-fits-all-use scheme. In addition, most fitness facilities are not only wasting precious space that could be used for profitable net-income-producing activities, but they also are wasting management and employee time on a program amenity that appeals to too few users per average club.
While some potential solutions such as pre-programmed group exercise licensing exist, most clubs do not have a sufficient management structure to implement these programs.
What is the message? You should evaluate your group exercise program to see if it is losing money, and you should adopt a business attitude that caters to the majority of your member-users rather than a minority of specialty users.
We all like the energy created by the average group exercise program. But that program and the accompanying amenities that go with it can no longer be paid for by struggling clubs in a competitive marketplace. The old days are gone. New models of business operation need to come to the forefront in many fitness facilities. Evaluating and quite possibly eliminating group exercise is one of those modern business paradigms that many club owners must consider.
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].