Paul Toback, President and CEO, Bally Total Fitness

With a varied background that includes a stint at the White House, new Bally Total Fitness president and CEO, Paul Toback, believes that concentrating on customer service and fiscally responsible expansion will help boost the value of the Bally name.

Ci: You had a very different career path before joining Bally Total Fitness.

I've had a pretty diversified background, and done a lot of different things, but throughout it all I've always been a bit of a fitness fanatic. I'm a runner and run probably five times a week on average. I've been a corporate lawyer. I've been in government as a manager in big organizations — both in city hall and at the White House. I've run a medium-sized company here in Chicago, and I've been with Bally for the last almost five and a half years. The great thing about this industry is it's an industry that allows you to do well and to do good at the same time.

Ci: How much outside theory and philosophy have you brought to Bally?

I think a lot. I've always believed that there is a benefit in any industry — and certainly in being in either public or private life — to have some experience on the other side of the fence. From my perspective at Bally, I feel I've benefited from a fresh approach to some of the things that the clubs have been doing and some of the things the industry has been doing. A lot of insights in terms of running a big organization, a lot of insights in terms of dealing with a lot of people and a lot of different interests, come from the public sector. This is especially true for customer service because every one of your constituents really is a customer. I think each of the experiences that you gain along the way helps build and give you knowledge that you can use in successive jobs. That has certainly been the case with me.

Ci: Customer service has been one of the nagging problems that Bally has long been associated with. Has overcoming that been a struggle for the company?

I don't think it's been a struggle. I think it's been something that we've been looking forward to addressing, something that we have addressed and something that is a necessity. In today's day and age, with more competition and savvy consumers, in a service business, customer service has got to be a key focus. We now get almost 20 percent of our revenues from internal sales of products and services to our members. They wouldn't be buying those things from us if there wasn't a valued and trusted relationship between the member and Bally as an organization.

A further statement about the strength of us as a brand and as a service organization comes from the fact that we've developed licensed products that we've taken outside our four walls to third-party retailers and have had some strong successes with. None of those things would have been possible if Bally didn't have a strong relationship with its consumers and didn't really stand for something beyond just signing in a membership up front.

Ci: How important is retail for continued success of Bally as a brand and as a company?

I think it's important for us as a company and as a brand. I think the ability to sell inside certainly generates revenue, but again, it solidifies the relationship between the company and the customer. You're not buying products that you put inside your body, whether it be a shake or a vitamin or an energy bar, from a company that you don't believe in and don't trust to be looking out for your best interests. We take the “total fitness” in our name seriously, and we try to provide the resources for everyone to achieve their fitness goals. Whether it be our experts in personal training, our cutting-edge group fitness classes, our private line of nutritional supplements or our cutting-edge facilities and equipment, we form a total fitness relationship and opportunity for the customer.

Ci: Bally tends to skew and advertise to a younger audience, why that philosophy?

In general, our advertising targets the 18 to 34 age group, but because we have such a diversified club base, from being inner city to suburban, to every ethnic market in 29 states and Canada, we cover the spectrum. Clubs that trend older, clubs that trend younger, clubs that trend singles, clubs that trend suburban, we are a club for everyone, it just depends on which particular club and which particular neighborhood.

Ci: Is there a concern then, that the targeted 18 to 34 advertising may hinder some of those other markets?

No. I think that's when many people are prone to joining. Certainly, the sweet spot for people who look for health clubs is there. But as you know, the population of this country is aging, people are looking for health clubs at different stages in their lives, but still the sweet spot is there and that's where we target. From our standpoint, that's the best time to get consumers who want to make a lifelong commitment to fitness and who stay with you longer. It's not unusual to go into a club and see people in their 60s, 70s or 80s who have been active members of Bally for 30 years.

Ci: Is retention where you see the emphasis on customer service really helping out?

Yes. We work in two ways to improve retention all the time. One is customer service and the second is our offering of programs and services. We certainly work hard all the time to keep those programs new and innovative and cutting edge. The Crunch acquisition has absolutely been a huge help in that way. We've been able to migrate some of the classes that Crunch pioneered and make them more mainstream in the Bally system. The other thing that Crunch does is they've also helped us with refining our personal training offerings and growing and expanding that at a better rate.

Ci: The financial market has been hesitant to really jump onboard with the fitness industry. Any thoughts as to why?

Because there are only a few public companies, it is more difficult for analysts to understand the entire industry because they don't have access to all the information on all the companies. I think if there were four or five or six more comparable publicly traded companies in the industry, it would be a little bit easier for them.

Ci: Why has the company made the decision to slow down expansion?

We went through a two-year to three-year period of strong aggressive growth and I think from our standpoint now we're looking at a more stable growth trend that we can maintain and begin to show the market that this company can be cash flow positive.

Ci: Bally's Web site, for this industry especially, is pretty sophisticated. How important do you think online and Web interaction is today?

In today's day and age consumers are looking for convenience and we know from industry's statistics that convenience is an important aspect when joining a club. We've got a great Web site that gets a lot of traffic and is used by consumers looking to join a health club and by our members who are either seeking to pay their bills or get information about group fitness class schedules or who are joining. So there are a lot of different capabilities that you can get online and provide for your customers and we think it is going to be important — it is already an important tool, and we think it is going to be a growing tool for us as well.

Ci: It seems like it may also help to build a sense of community even outside the individual club's four walls.

It does. In the end, the great thing about this industry is that we are all membership organizations not ordinary retailers. That is an important difference because we are a place where people join to be with other people to do an activity that is good for them and they come to us repeatedly over, hopefully, a long period of time, because they like the atmosphere, they like the people, they like the service. There's something different to a membership organization than just an ordinary retail organization, like your local supermarket or Kmart. The more things you can do to make it more like a community than a forced interaction with other members — whether it is giving them fitness tips or giving them access to more information. I think the more that you do the better.

Ci: In looking at the transition from Lee Hillman, is there anything different that members, shareholders and the industry can expect?

One difference, although it is a path that we had begun to go down over the last couple of months, is we are going to be growing at a more conservative pace. Also, we intend to be cash flow positive this year. As I said on our earnings call, I think our international growth, which we had looked to do, or discussed doing with our own capital, we have decided to do through franchising. It would be without making our own capital dollar investment in overseas growth right now. We believe that we can have strong growth through the franchising program.

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