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Health Club Industry Performance Shows Mixed Results in 2009

Overland Park, KS — Even though a recent annual performance index report showed that 14 of the leading for-profit health club companies in the United States improved their financial performance in 2008 compared to 2007, that improvement was slight. In addition, club operators had mixed results in the usually robust month of January, according to a handful of operators and consultants contacted by Club Industry's Fitness Business Pro.

The IHRSA Annual Financial Index report, released by the International Health, Racquet and Sportsclub Association (IHRSA) last month, found that 14 leading U.S. health and sports club companies (representing 183 clubs) surveyed had a 3.4 percent increase in dues revenue and a 1.3 percent increase in nondues revenue for 2008 compared to 2007. Total membership accounts increased by 1.7 percent in 2008.

“Despite a less than stellar performance in the third and fourth quarters of 2008, clubs were able to improve annual results in 2008 over 2007 due to strong performance during the first and second quarters of 2008,” says Katie Rollauer, IHRSA senior manager of research.

IHRSA doesn't yet have numbers for January, but Rick Caro, president of Management Vision, says that many of the club operators he spoke with reported similar results this year compared to last year.

However, “disappointing” is the way that many club operators described the month to Michael Scott Scudder, owner of MeetingZone, an online-based consulting service. Scudder spoke with about two dozen club operators. Many of them didn't reach their sales targets and had sales targets that were down from January 2008. They also did not have higher membership sales this January compared to January 2008.

Retention, however, was better this January for many club operators, perhaps because some club operators are working harder to “save” people who want to quit by offering them reduced or free memberships if they are having financial difficulties, Caro says.

One 21,000-square-foot club operator in New York, who asked not to be named, had a less than stellar January. He brought in just 35 new members this January compared to 67 new members in January 2008. Revenue this January was down $20,000 from the $120,000 he made in January 2008. Usage also was lower in January this year, with 21,214 workouts compared to 22,328 in January 2008.

Cautious optimism is the term Bill McBride, COO at Club One, San Francisco, used to describe January. Although McBride wouldn't provide actual numbers, he noted that dues revenue, ancillary revenue (including personal training), memberships and usage were lower this January compared to last January. However, retention was better.

“We had net membership gain and saw good improvements on retention. We are cautiously optimistic,” McBride says.

For other club operators, January offered something to be happy about. Life Time Fitness CEO Bahram Akradi told analysts last month that January was a great month for the club company, which sold more membership units in some of its clubs than ever before.

Life Time Executive Vice President and Chief Financial Officer Mike Robinson also said that the company had a net membership increase of about 20,000 this January compared to 10,000 in January 2008. He also said that attrition was relatively stable in January 2009, compared to the last part of 2008.

Planet Fitness, Dover, NH, also had a good January, thanks in part to membership promotions, according to spokesperson John Craig. In late November 2008, Planet Fitness ran a three-day sale in the Boston and New Hampshire market that gained the company 8,000 new members for about 43 clubs. In December, the franchisor ran a weeklong radio/TV campaign in New England (excluding Vermont) and New York for $99 a year that added about 50,000 new members, Craig says.

“The activity inside our clubs is probably higher than it's ever been,” Craig says. “I don't think it's any accident that a low-cost model is really clicking with people right now. It seems like it has extra-special appeal in times like these. Why pay $50 a month when you could pay $10 to $20 a month?”

Scudder says that several Planet Fitness owners told him that one out of every four sales at their clubs came from members of more expensive clubs.

“One can make a case that some part of the membership marketplace is going to stay with fitness but is going to stay conscious of price,” Scudder says. “I don't know if that is consistent with club member behavior as much as it is consistent with retail buyer behavior.”

Price consciousness also helped Curves. The Waco, TX, franchisor's January membership offer of 50 percent off the sign-up fee and 30 days free led Curves to its best January ever in terms of TV and Internet leads, says spokesperson Becky Frusher.

Some regional players also reported a good January. Partially due to a January promotion that offered free enrollment fees and free processing fees, Urban Active signed up more memberships this January than last, says Royce Pulliam, CEO of Global Fitness Holdings, Lexington, KY, which operates 30 Urban Active clubs. Retention also improved, and club usage increased. Membership revenue also increased from $4.65 million in January 2008 to $5.87 million this January.

Caro attributes some of the success to staffs pulling together and working harder.

However, that hard work may not be enough to keep all club operators open. Scudder anticipates that weak players will close in large numbers this year.

“I think we're going to see a massive closure of the weaker players, as we're seeing in retail now,” Scudder says. “There's going to be no place for [weaker players] to find money. There isn't any money out there now.”

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