Top 10 Reasons Why the Health Club Industry Has Not Matured


Some observers say that with the recent acquisition activity and involvement of private equity firms, the health club industry is maturing. One analyst says that is not the case.

“The industry has not significantly changed in terms of its maturation,” says Rick Caro, president of Management Vision, New York. “It’s always learning, but the level of learning and the level of action and significant change has not been substantial enough.”

According to Caro, here are 10 points as to why the industry has not matured over the past three years:

1. There are no discernible segments in the industry.

An example, Caro says, is Life Time Fitness, a big-box club that recently bought smaller facilities from Lifestyle Family Fitness.

“Although [Life Time Fitness] may try to instill some programs in there that are similar and are part of their culture, it’s not clear that they really are focusing on a similar story or the same story, and it’s not clear that they’re segmented, either.”

2. There is no greater understanding of local markets and no greater club positioning and differentiation.

Clubs continue to rely on price, physical plant and equipment to separate themselves from the competition, Caro says.

3. The industry is not growing beyond 15 percent of the U.S. population.

There also is no outside benefit from insurance companies, HMOs and the federal government to help grow the industry, Caro adds.

4. The industry continues to face the same challenging debt markets that it has been facing over the last two or three years.

“Nothing has really changed there,” Caro says.

5. Few new private equity firms are either entering or exiting the industry.

“When one talks about the industry growing up and becoming more professional and becoming more well known to other industries and becoming attractive to analogous industries, maybe in the leisure world, we’re not doing any of that because the financial players are not having any new or different role than they’ve had before,” Caro says.


6. The club management software systems by which clubs operate are rudimentary.

“We’re not getting smarter and better at the way we manage in a significant way from what we were like two or three or four years ago,” Caro says.

7. The industry has limited knowledge of its members, what they are thinking today and what they are thinking for the future.

“We’re not using proper research, we’re not getting systematic and significant feedback and we’re not organized to try and create meaningful systems of communication that are significant,” Caro says. “In many ways, we keep making decisions in the absence of key information that we could be getting and learning from the customers.”

8. The financial and IT functions in the industry are still inadequate.

“One of the first things a private equity company does when it comes into the industry is always improve those two functions,” Caro says. “As a generalization, we’re not getting stronger and better in those areas based on how third parties view the industry.”

9. Clubs are using little strategy and long-term planning.

“At best, what we do is one-year planning,” Caro says. “People create budgets, they break them down by departments, they often have good backup assumptions. At best, that’s what we do.

“But if you said, ‘Would you like to bet the farm on where you’re going to be in three years?’ there isn’t anyone who’d raise his right hand under oath and do anything more than create a wish and a prayer and really stick to it. And there’s no real process to really commit. It’s just not part of this industry yet.”

10. Clubs do not measure outcomes and results of their members.

Although some assessments of members are usually done early in their membership and some re-assessments follow, they are done in small sample sizes, Caro says. That is preventing the industry from reaching out more to the medical community and insurance companies, he adds.

“We really don’t have the majority of our people involved in any kind of true goal-setting, process analysis and then outcome analysis and data collection that would really validate how each person’s doing,” Caro says.

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