The two independent databases I've worked with for about six months indicate downward new membership sales and increased monthly membership attrition from May through September. In other words, these two critical numbers are upside down. My private searches indicate a steady negative 5 percent difference in same-month 2008 versus same-month 2007 new membership sales. The databases also show a steady 20 percent increase in membership dropouts.
Although individual scenarios vary, it is likely that the middle market with memberships priced between $30 and $49 a month will suffer greatly if the recession is lengthy. Given that most of the independent fitness-only offerings previously worked best at a profit margin in the neighborhood of 6 percent, it is predictable to say that independents already suffering either monthly operating losses or break-evens will have no profit margins whatsoever by the end of the first quarter 2009. Facilities with no cash reserves will not likely be able to borrow funds to stay afloat considering the credit crunch.
I informally polled attendees at my Club Industry 2008 seminars (more than 240 people), as well as dozens of friends and acquaintances that I encountered on the trade show floor. Sixty-five percent of those polled about income and profitability are doing worse this year than last year, 20 percent are doing about the same and 15 percent are doing better. Seventy-five percent are selling fewer new memberships, 60 percent have a higher monthly attrition of members, and 75 percent are selling less personal training and ancillary sales in general. I also found that low-price fitness-only clubs are growing their market share by getting members who left higher-priced clubs. I predict that the low-priced club segment will grow at the expense of others, but that membership attrition in these low-cost clubs will increase, too. In low-mid-price independents, sales are declining, attrition is higher, and lower ancillary sales and profits are being squeezed or are non-existent. I predict that 10 percent to 15 percent of clubs in this sector will close.
Mid-price independents are facing slowly declining sales, increased attrition, a slowdown in ancillary sales and profit margins that are under pressure. I predict that 10 percent of clubs in this sector will close. High-mid-price independents are holding market share. However, new membership sales are slowing perceptibly, retention efforts are working, ancillary income is holding steady, but attrition is creeping up monthly. I predict that this sector will hold steady but suffer seriously decreased profit margins. In the mid-price chains, membership sales are holding steady, attrition is increasing rapidly and ancillary sales are slowing. This will likely cause new building to slow, although funds from corporate will keep some of these company-owned stores afloat in given areas. A few will close.
High-end clubs of all types are experiencing slightly lower new membership sales and ancillary sales but slightly higher attrition. This sector will hold steady, although with decreased profit margins.
The 24-hour key-club and/or studio-type clubs are noticing slower new membership sales, skyrocketing monthly attrition in some regions and few ancillary sales. Dozens of these operators are already in the red. This sector will suffer the highest closings. I predict that 20 percent of this group will disappear by the end of 2009.
New membership sales at not-for-profit facilities are slowing, as are ancillary sales. In addition, serious cutbacks in public funding have occurred. This sector will scrape through with some local closings due to too much red ink.
Most industry experts are forecasting that 10 percent to 20 percent of clubs will close by the end of 2009. That would represent between 3,000 and 6,000 fitness facilities. No one seems to have a handle on membership numbers, although my guess is that U.S. health club memberships will fall to about 40 million — a drop of about 3 percent from present levels.
Wild cards, such as credit crunch relief, a resurgent stock market and a new president, may influence our industry slightly positively, but it's best if you are prepared for a rocky ride in 2009.
Michael Scott Scudder operates MeetingZone, an online-based consulting and training service. He can be contacted at 505-514-0294, on Skype at michael.scott.scudder or by e-mail at [email protected].