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Interview with Jim Gerber, Owner of Western Athletic Clubs, San Francisco CA

The upscale Western Athletic Clubs charge members a high price for their products and services, but Jim Gerber ensures that his eight clubs also give back to those in need.

An interview with Jim Gerber, owner, Western Athletic Clubs, San Francisco
Interview conducted by Pamela Kufahl, editor

Q: How did you get involved in the fitness industry?
A: Another fellow and I were playing racquetball in 1973-1974 in the Bay area and were looking for more courts, so we built our own. About that much thought went into it. It was really successful. It was called The Court. It was during the boom [in racquetball]. We decided it was a good business. In 1976, we found the location for the San Francisco Bay Club and opened it in 1977.

Q: What made you move from a racquetball club to a health and fitness club?
A: Back then at age 28, I was and still am in the first year of the Baby Boomers. All of us were coming out of college and the service, and we were looking for ways to continue to exercise and to play racquetball or squash or basketball or tennis. It was more about recreation than health and fitness. And that was about the time that aerobics started and group exercise started, and we rode that. It evolved into more of a fitness and exercise place.
The Bay Club was the first co-ed multi-facilitied club in the country. It had a lot of sports. It was a great place to meet people, a great place for Boomers to meet men and women. It was a real club. That’s one way we’ve characterized ourselves—as a place to make friends and meet people.
We also had something fairly uncommon at the time—a financial model that was unusual. We had a country club model, which meant an initiation fee and monthly dues but no contract. You could quit anytime you wanted to. That put the emphasis on us keeping members happy. As a result, we didn’t advertise at all. We sold based on referrals from members. We still don’t advertise. We might take out an image ad once a year in a paper.
Back then, that [business model] was a very distinct difference between our clubs and other clubs in the West. The others were more fitness centers. Because it was more expensive to join, it really focused on a more economically upscale clientele and it always has.

Q: How did Western Athletic Clubs come about then?
A: As soon as we built our second club—which was a result of the success of the Bay Club, which sold out all its memberships before it opened—then, we formed the Western Athletic Clubs, which owns and operates all these clubs. It’s been our opinion that an upscale club was better positioned as a stand-alone club rather than as part of a chain, so Western Athletic Clubs has never been used in the marketing. Members know the name because they have reciprocal memberships at the other [Western Athletic Clubs] clubs, but we don’t advertise Western Athletic Clubs as a name of a club.

Q: How would you describe the Western Athletic Clubs for people who have never been in one?
A: We have two types of clubs. There’s the Bay Club model, which is urban, large and a complete facility with swimming and exercise facilities. And then there is the sports resort model, which we call the Pacific Athletic Club model—suburban, eight to 10 acres, family oriented with swimming, tennis, white table cloth dining, squash, sometimes racquetball and all of the Pilates and yoga.
The suburban members are by definition more family oriented. There’s a slightly younger crowd in the city and fewer children, but we do have kids programming there, too. But basically it’s the same rough demographic profile as far as economic status.

Q: Can you tell me about the deal you announced related to Carlsbad, CA?
A: We announced some time ago that we are building a club in Carlsbad, CA. Now, we are buying an additional six acres next to it and remodeling an existing 80-room hotel and banquet/meeting space to go with it. It might be named Pacific Sports Resort.
We are buying the whole thing and focusing it on the club and marketing it through our membership. Carlsbad is a terrifically dense (in population), light-industrial area. All the golf manufacturers are there and a lot of ski manufacturers. As a result, there are plenty of demands for meeting space, and [these companies will] enjoy the benefits of the meeting space. The club will be 100,000 square feet with tennis, swimming, dining and what our typical resort product is.

Q: Do you plan to purchase/build more clubs in the next two years?
A: Yes, we do. [The Carlsbad location] is still empty land. It will take two years to be up and running. We are also working on another piece of raw land, and we are working on the purchase of another club.

Q: Would you buy a lower-end club and upgrade it, or are you looking only for higher-end clubs?
A: We would. Our focus is to find clubs with enough land and density in the area.
We put $12 million into the Courtside Club to upgrade it after we bought it.

Q: Is expansion important to you?
A: We’ve always focused on thoughtful expansion. Not expansion for expansion sake, but when we find clubs that make sense for us, we expand. We’ve never not tried to expand, but we are also always willing to sell and move in and out of clubs. We sold three clubs in Seattle last January (2006). But we’re expanding into existing markets that we’re in with bigger clubs.

Q: Why are you expanding with bigger clubs in those markets?
A: The question is, why do you want to expand at all? You either expand or shrink. It gives employees a lot more room for growth. We have a low attrition rate for employees. When they are here for five to 10 years, it gives them more job opportunities.
Big clubs make sense for us. They are hard to duplicate. We know how to build them and what demographics we need. Once you do them, they pretty much control a market.

Q: Why did you sell the Seattle clubs?
A: I’m from Seattle and I like that market, but we decided not to build more large clubs up there, and we received an offer on them that we thought was reasonable. It was harder for us to find a suburban sports resort. It was harder for us to find an outdoor product for Seattle that made sense.

Q: Do you remodel your clubs on a regular basis, like every five years?
A: We do, but it’s not on a formula. We change [the clubs] as they need to be changed. About 10 years ago, we did a major facelift on the Bay Club, repositioned the locker rooms, added a day spa. More recently, we added 11,000 square feet that we call the Mind Body Studio. In that club, we have a first-class yoga program that we can hold up against any yoga facility. It is beautiful. It is used by Yoga Journal for photographs. In 1983, the Bay Club offered Pilates. Back then, Pilates was mostly [used as] rehabilitation for San Francisco ballet dancers. So we’ve been in the yoga and Pilates business for 25 years.
The Decathlon Club in Santa Clara (CA) in the middle of Silicon Valley has had a lot of homes built around it where before it was light industrial. So we are going to reposition it to make it more family friendly with more kids programs and pools.

Q: Is it better to lease or own your facilities?
A: We own the large sports resort properties out of town. The city clubs are leaseholds. It’s just worked out that way. It’s easier to lease space in a building than to buy the building. On the other hand, it makes more sense to build a $440 million club on space you own.

Q: What changes do you foresee for Western Athletic Clubs during the next five years?
A: The only thing that I know we are going to do is add more of a medical component to our clubs. As our Boomers age, I think there’s more interest in using our clubs as upstream health care or preventive health care and having a medical component. Staff working closely with personal trainers and behaviorists and nutritionists on staff will add a continuum of care.

Q: What will the medical component include?
A: It’ll include a doctor in house who is a believer in the healing qualities of exercise and nutrition. We won’t be the first ones to do this, but we’ll do it well.

Q: Will it affect pricing?
A: Most of these doctors are available on a part-time basis. It will be a profit center of its own, I hope. It’ll stand on its own.
Places that offer fitness and nutrition and well-trained personal trainers have a responsibility to take the upstream role that they are being given and let the community know about it. What is different now from the 1970s is that the population is so much smarter about their health, and we have to be smarter. Now, our trainers almost have to be physical therapists. All through the 1990s and early part of the century, we were the only club co-authorized by the American College of Sports Medicine (ACSM) to teach and certify trainers with the ACSM certification. We required then that all of our trainers have an ACSM certification, which we consider to be the gold standard.

Q: How has the industry evolved since you’ve been in the business?
A: I sort of touched on that with the fact that our members are smarter. The industry has gotten a lot more professional. Fewer contract clubs are closing their doors. Because the market has matured intellectually and from an age standpoint, I think their [members’] needs are a lot different. It used to be a lot of people came in to meet people and improve how they look. I think that’s still a component, but now a lot more people are interested in improving their health and living longer although nothing will ever replace the vanity aspect of working out.

Q: What should be the biggest concern for club owners and managers today?
A: Because the market is so much more educated, I think the biggest concern we all should have is to maintain our staff’s education about what our product is and what we should be offering. We’re always concerned about quality rather than offering a commodity.

Q: Your club company has a philanthropic mission and raised $2.25 million last year for charities. Why is that important to you and your club?
A: Why wouldn’t it be? We think it’s every business’s responsibility to be involved in the community as it is with every individual. We have a mission statement and six value statements, and one is to be involved. Every club has a community outreach director who champions that.
We picked three areas of involvement. One is healthy aging, so we are involved in lots of senior exercise programs in the community. The second is disadvantaged children in our area in need of opportunities—not just fitness-related needs, but usually it’s focused somehow on what we do, so we can leverage our skill sets with money to create some programs. Jeremy Howell, our director of philanthropy, is also a professor, so he has access to students interested in doing their internships. So we have funded the first lacrosse team in Hunters Point—an all black team—and a skating program with Brian Boitano, bringing kids while in school to learn how to skate; but then also more meaningful programs like getting out the importance of exercise and eating right.
The third area is disease prevention and care. We offer a program that links an oncologist with his patient and a person we put in the oncologist’s office. We focus on breast cancer. One of the things we found out is that when a patient and oncologist talk about treatment programs, one [program they talk about] is to exercise. We offer that at no cost, and we pay for the trainer. We’ve taken 350 women through that. It’s a six-month program for free and then a low-cost program beyond that. Women have raved about that. It helps them during chemotherapy and radiation.
Tied into that is continuing education for our staff. If we “spot” them free training in something—like the cancer training program—then it’s implied that they have to go out and do community outreach to pay us back. So it’s been a great, successful venture on our part.
Of that $2.25 million, we raised about $1.1 million and matched about that much. So we are involved in cash but also in doing fundraisers. We raised $400,000 for the American Cancer Society last year.

Q: What are your thoughts on competition in the market today?
A: There is a lot of competition, but I think we learned a long time ago to focus on what we do best and maintain our own niche and keep our own focus and not worry too much about other competition. It keeps us keen but focused.

Q: A lot of low-priced clubs have entered the market. You charge a lot more than they do. What are your thoughts on setting the right price?
A: Our mantra is to charge enough to provide our members with the best-quality service and products that we can. We have to deliver. So our members say charge me what it takes, but deliver me a great product.

Q: The obesity issue gets a lot of media attention. What are your thoughts about how the industry can deal with this issue?
A: It’s a huge problem. The diabetes that follows it is the real issue. I don’t know how our clubs are going to address it without a ton of public support from food manufacturers and advertising. The whole mindset needs to change.
Unfortunately, the people who really need to come in don’t darken our doors. It’s intimidating to be so out of shape and come into a club. Also, someone who is so overweight that they are going to develop a lot of medical problems isn’t taking control of themselves enough to come in. Clubs like Curves and entry-level places might be the groups most effective in reaching the overweight. In a number of our clubs, we have women-only areas, and those areas seem to attract the people who are trying out memberships.

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