Q: For someone who’s never been to a Lifestyle Family Fitness club, give me an idea of what your clubs are like and the look and feel of the facilities, programming and membership demographics.
A: Our facilities are typically in the 32-35,000 square-foot size. When we open in a new market, we would typically open five to 10 clubs, depending on the size of the area, and we would also build a 50,000-square-foot facility in that same area, so that we have the opportunity to provide multi-club access for those members who want to buy that. In our typical club, 32-35,000, typically we have a very large workout area, 10,000 square feet, a large cardio area, with approximately 100 pieces of cardio equipment. Group fitness is big part of what we do, and typically about 4,000 square feet for that area. In our group fitness area, we use all the Les Mills International programs, BodyPump, BodyStep, BodyFlow, BodyAttack. These programs are important for consistent experience across all clubs. Spinning room, we have tanning that we provide. We’re a Florida-based group and tanning is still important to Floridians, so we provide that service. Also, in the general exercise area, we’re providing a separate private training area for our members, where personal trainers and their clients can exercise in a separated area that requires a special key to access that area. We feature the Kinesis wall and more high-end finishes in that particular area. We’ve tested in one club, and we’re introducing it to more of our facilities. Locker rooms, typically we allocate about 10 percent of our total space for the locker rooms, and that would include a sauna and wood-faced lockers and things of that nature. We try to build our clubs with products that don’t show wear and tear. We stay away from carpeted materials that typically you have to replace or steam clean frequently. We try to finish our clubs in such a way that they always look clean and they’re easy to maintain. Our membership types are typically one-club facilities that are not yet fully mature, in other words aren’t filled to capacity, so we’ll have a one-club membership. We have a multi-club membership, which we call a passport, and we have a premier membership that is also available. All of our memberships are month-to-month. We don’t have any long-term contracts, therefore members can pay on a month-to-month basis and terminate their membership at any time with notice.
Q: That’s a big topic in the club industry: the long-term memberships vs. the month-to-month. It seems like the month-to-month contracts are more popular and easier for consumers to handle than long-term contracts. When you were forming your business model, is that something that you looked at and said, “This is what’s going to separate us from other clubs?”
A: I’ve been in this business now for about 35 years. In the first 15-20 years, we used to sell two-year memberships. If anyone’s worked in this business in the back office, you realize what those collectors go through, trying to collect on a two-year membership when a person really doesn’t want to pay. It makes you feel uncomfortable about the industry that you’re in. I’ve always had this dream of letting a member cancel but never had the comfort or the confidence to do that. And then in the late ’90s, as the business continued to grow, the evolution of EFT and the elimination of pre-paid memberships, we felt comfortable enough that our members wouldn’t all leave if we went to month-to-month. We made that shift in 1999 and we haven’t looked back. Certainly, members quit at a much faster rate, but we feel the integrity that we create by going that route is far better. There’s a much greater sense of pride amongst our employees because we let our members terminate when they don’t use the club. Obviously, when you go month-to-month, you have to watch your members a lot more closely. It focuses a lot more attention on customer service. We look attrition reports the way other clubs look at sales reports. It’s a true fact that it costs more to lose a member than it does to acquire a member because you have no commission involved. It’s cheaper to keep a member than to acquire a member is the point I’m trying to make because there’s no commission involved. Not a lot of clubs focus on the quitting member. Members who become inactive after three months, 5 percent of your members are not using it, and that can climb to 20-25 percent after six months. So it puts all your attention on keeping your members active.
Q: Your first club opened in 1982 in Lakeland, FL. Then your company doubled in size in 1991, doubled again in 1995. From 2000 to 2007, you grew from seven clubs to 40 clubs and $12 million to $100 million in revenue. How have you done it, especially the rapid growth in recent years? What’s been your main secret or main part of success?
A: When we started the company in ’82 until 1999, in those first 17 years we grew to seven clubs. Growing to seven clubs in the early days, I’m sure there’s a lot of other entrepreneurs out there that have gone through the same risks that we’ve had to take. You basically put your life on the line every time you open a club. You don’t have a lot of cash, and it’s difficult to borrow money because you don’t know how. For me, it was all about refinancing my home. Thank heavens I had a house that I could refinance. I refinanced it so many times, it was worth seven times more than I paid for at the end of the 17 years. Raising capital was a challenge in the early days and of course making all the right decisions as far as the clubs you open and trying to keep focused on hiring the right people. All those things were necessary in those first 17 years. In 1999, I had a chance to sell the business but instead went to someone I trusted who was a business builder, someone who had had some successes in the past. He agreed to invest in 2000, subject to me making a commitment to run the company at a much more sophisticated level and also being committed to growth. So I was excited to have the opportunity to get that kind of wisdom involved in my business. I knew I knew the sales and marketing side of it, so I agreed to that investment, which began in 2000. The first thing we did was we hired a CFO, a chief financial officer. When you move from a bookkeeper who was a controller back in that day to a chief financial officer, that was a quantum leap in the way we managed the financial side of the business and the ability to borrow money and grow the business. We had to hire an entirely new executive management team, which we did. We had a $12 million company. We committed a million dollars to the management team, so that was a huge risk and a big investment in people. But those people are really the foundation for taking us from $12 million to the $100 million that we’ll achieve this year. We made a big investment in systems and the way that those systems help us report on the way this company functions, going 100 percent paperless. We’ve spent probably $1 million to $2 million each of the last two years having a paperless membership enrollment system, sales force automation, all the accounting systems. So we tried to create an environment where it’s very easy to open new clubs and get away from a paper-intensive business. We also reorganized our clubs where before we used to have one general manager that ran the club, a very complicated role. I was told that you couldn’t grow quickly with a singular manager that had a very complex position. It would be difficult to find them, difficult to train them and difficult to keep them. So we split the general manager role into two managers, a sales manager and an operations manager. And they respectively had area managers and district managers and VPs to report to. That was a very difficult thing to do. The first year, everyone hated it. The second year, they liked it. The third year, it became a real advantage, a true differentiator for us. We were much more focused on the customer. We had double the career path opportunities for people to grow. And then two years ago, we created a third manager, which was the personal training manager. That became a catalyst for even more growth and better recruiting. We created a whole new side of our company that didn’t exist. That’s enabled us to achieve tremendous results there.
Q: Going from 2005 to 2006, your revenue jumped from $55.33 million to over $80 million in 2006. What was the main reason for that jump, and was it because of your purchase of California Fitness Centers in Ohio? And how does the purchase of the Ohio clubs factor into the future of this company?
A: Our goal is to be over 100 clubs within a three-year period. We knew that we couldn’t achieve that goal just being in the state of Florida. We also wanted to prove that we could be a national brand rather than just a regional brand in Florida. We looked at the opportunity for growth and knew we needed to be in the Midwest and the mid-Atlantic and also in the South and Florida. We already had an existing relationship with the operators of the clubs in Columbus [OH] and were already doing all their accounting and home office functions and had done for eight years. We knew the clubs we were buying. It was great to have such a strong position in Columbus, OH, so that acquisition was easy. And that of course enables us now to springboard into all the cities around Columbus as well as the perimeter states, which we will do. Also North Carolina, we felt that was an area that was ready for our brand. We researched the market, [which had] high education, high income and high single-family home residency rates. So we made a commitment to open in Charlotte and Raleigh. We’ve got four clubs being built in Raleigh right now and two in Charlotte and we’ll continue to build and grow in those areas. So we look at Columbus as being a 25-35 club region in the not-too-distant future, as will the Carolinas, as will Florida. So that was the reason for the growth. We find that with our business model, because we’re not a freestanding building, we go into shopping centers and we can take second generation space or be freestanding. We can build or we can acquire. All of our acquisitions typically are as rewarding for us from a performance basis as well as freestanding. So how do we grow from 2005 to 2007? Certainly, the acquisition revenue helped, but we had same-store revenue growth that was double digits. We’ve been able to achieve double-digit same store revenue growth each year for the last five years. Like all other clubs, we’ve seen personal training continue to climb and we’ve been able to increase our revenue per member every year and as well as continued to increase the offerings. Acquisitions worked, as did new clubs, as did going into new markets. So I hope that answers your questions.
Q: Yes, it did. Do you have any sort of timeline in the next few years? Do you have to have this many clubs in this many states?
A: Certainly at the board level, there are plans and projections, but the stars have got to align properly, too. You’ve got to have Life Time [Fitness] and TSI [Town Sports International] performing at the right levels. Fortunately, they’ve both been doing very, very well. The markets have got to be ready. We’re very optimistic that there’s opportunities in the not-too-distant future for us and we have to continue to perform, which we are. It’s an exciting opportunity. Right now, we’re just focused on growing our business. The other thing I’ve learned in the last seven or eight years is the value of having a strong board of directors, which I never had in the first 17 years. We’ve got a seven-member board, and they’re all CFOs and CPAs and they’ve been associated with businesses that have been successful and failed. When you can be surrounded by people that have got a lot more wisdom than I do that tell me what not to do and what to do, it gives you some confidence that you’re making the right decisions. They’ve all been involved in growth strategies with fast-growth companies, so they’re helping provide a lot of direction there. Obviously, this is a path I haven’t been down before.
Q: I’m curious to find out what your thoughts are about the Bally situation. Are there some lessons to be learned from the way they’ve grown and now are struggling at this point?
A: I think you’ve got to continue to change with the industry. There’s a lot of things going on in the industry, and if you want to be at the edge of the industry, you’ve got to be present at these trade shows and conventions and networking with your peers and learning what’s hot and introducing new programs and taking risks and changing things. That’s the nature of our business. It’s not very old. It’s a 25-year-old industry. The problem with Bally was they never changed. The first mistake they made was never reinvesting in their clubs. We’ve all been in a Bally club. You’ve only got to go in the locker room to realize that that’s a sorry situation where there’s been no reinvestment in the physical plant. And if they did reinvest, it was at the end of the day when they should have done it at the beginning of the day. Maintaining a club is an ongoing thing that we have to do every single day, and I don’t think they ever really put that at the top. The other thing is that antiquated business model, 36-month membership. The way it was recorded from an accounting standpoint, it was bizarre. It was financing an enrollment fee of $1,500 was the way it was explained in the accounting system. The investors didn’t understand the business model, and we didn’t understand the business model. Unfortunately, the industry has gone so far past them, they’re an anomaly now. No one does business like Bally did. Yet they still have a phenomenally strong name. Bally is probably the most recognized name in the fitness industry. There is value there. The unfortunate thing is there can’t be a lot of member confidence because the promises have never been kept. To get back to this month-to-month thing, anyone that’s been in this industry as long as I have, and there’s a lot of them, the two black eyes for this industry are the long-term contracts and high-pressure sales. The first step is eliminate the contract and give members the right to pay on a month-to-month basis and earn the right to keep them. And if they want to quit, let them quit. Charge more for it. Don’t charge $5 a month or $19 a month. Charge a reasonable price for the membership. The second thing is get away from the aggressive sales practices. The good news is Bally can probably come out of this bankruptcy and keep their best clubs and re-brand them and reinvest in them and start over with a lot of debt. The unfortunate thing is the other clubs that are underperforming or too far gone will all have to be let go or recycled in the marketplace.
Q: Do you think Bally will keep its name after this restructuring plan?
A: I’m sure it will. I’m sure that it will come out of the bankruptcy with 200 of the best clubs and I’m sure that they’ll probably do well with the right reinvestment. I don’t see the brand going away. It’s too well known.
Q: In your PowerPoint presentation, you have some interesting references under the headings of “Mission Statement” and “Vision Statement.” In your “Vision Statement,” you quote Winston Churchill from 1940 as the world was going to war, but you also in your “Mission Statement” quote Captain Kirk of all people, from Star Trek, the quote “boldly going where no man has gone before.” How of you incorporated those men both real and fictitious into not just your presentation but the way you handle the company?
A: All companies have to have a mission and a vision and a purpose. The responsibility of the CEO or the entrepreneur or the owner is to identify what that purpose or mission is and what that vision is, and then tell the story to the employees. As you get bigger, the mission statement of the company becomes more important and so does the vision, or the Big, Hairy Audacious Goal (BHAG) was the way I put it. If you read the book “Good to Great,” it talks extensively about having a big, hairy audacious goal, or BHAG, a goal that’s achievable yet probably won’t be met. Back in 1995, we had three clubs, and we wanted to be the biggest coed chain in the Tampa Bay area and only offer month-to-month memberships. Well, that was a ridiculous goal that I didn’t think we’d ever accomplish. I always wanted to be month-to-month but didn’t think we’d ever get there. Then lo and behold, five years later, we had accomplished that goal. We were rated by the local newspaper as being the largest coed player, and we’d already moved to month to month. So then we set a new BHAG and that was in 2000 and we only had seven or eight clubs. The goal was by the end of this year, 2007, we’d grow to 50 clubs, $100 million in revenue, 25 percent revenue from other ancillary services. It’s a goal that we feel confident we’ll achieve this year. What’s a BHAG? A BHAG is setting a goal that seems too far-reaching, not likely to be met. But it’s a goal nevertheless that gets your employees excited and the executive team should create that. The mission statement is your purpose for being, and the mission statement of Lifestyle is to fulfill our members’ needs and build lasting relationships through a fun and friendly experience. And that really tells all of our employees what their job is. Fulfill the members’ needs is pretty clear. Lasting relationships means we have to know everyone by name. And a fun and friendly experience means have fun at the job. People wear that mission statement, they memorize it and they’re expected to live by it. The final thing is the core values. Every one of us individually is known for something. He’s an honest guy, he’s caring, he’s loving, he’s a hard worker…we all stand for something. But what does your company stand for? If your executive team can identify one of the core values of the company and you put them in writing, it lets everyone hold each other accountable to live by the core values. In our company, that’s honesty, integrity, commitment, consistency, opportunity to grow and to provide a fun and friendly atmosphere. There are books that talk about core values, core vision and BHAGs. The BHAG book is “Good to Great” by Jim Collins and “Built to Last” [also by Jim Collins]. I think they’re very important to have and they’re more important as you get bigger. When get bigger, you’re always got to remind everyone what it was like when you were small. What made you strong? Because there’s always the tendency to drift away from that because people forget where you came from.
Q: I want to get to where you came from originally. I understand you’re from New Zealand?
A: I’m actually from Australia. I’m from Melbourne, Australia. I came over here when I was 22 and got a job working as a fitness instructor in Oklahoma City making $100 a week and overstayed my visa and eventually got a job in Florida. But no, Melbourne, Australia, was where I was born. A better place than New Zealand.
Q: I hope I didn’t offend you by mentioning New Zealand.
A: No, no. In this business, I’ve learned to get to know and like a lot [of New Zealanders]. Phil Mills is from New Zealand. Mark Smith is from New Zealand. There’s a couple of other fellas from Australia. I feel very lucky to be in an industry where the Aussies and the Kiwis have been able to play a leadership role. It’s been exciting and fun.
Q: In launching your second campaign into fighting teen obesity recently I read that you battled with weight as a child. Did that help A) get you into the fitness industry and B) create this campaign of fighting teen obesity?
A: When I was in Australia at the age of 17, I weighed about 245, so I was an overweight teenager. I was reclusive and didn’t like sports because I didn’t fit in. It was just an awkward part of my life. The peer pressure going to school when you’re obese or fat, it just wasn’t a fun experience at all. I ended up joining a gym at the age of 18 and I lost all the weight in three months and realized what a great feeling it is to be fit and look right. So I came over to America, and I stayed in the fitness business and got a job as a fitness instructor because I enjoyed that experience, and I loved being around people. About two years ago, we sold about $100,000 worth of teen memberships. This board member joined our board and he said, “Geoff, what do you do for the community? I’m a big, big believer in giving back to the community.” And I realized we didn’t do a whole lot. We supported the American Heart Association or the Diabetes Association, but we really didn’t stand for anything. I felt that if there was something we could stand for, why not be an expert in the teen fitness area and make that our mission. First of all, it made sense because it was the right thing to do for the community. Second of all, it is the next generation of members. I remember that old IHRSA statistic: Someone’s five times more likely to join if they’ve been through your club than if they haven’t. Last year, we introduced our free teen summer membership, a two-month membership. And the requirement is the teen has to check into the club before 3 [p.m.] and leave the club before 5. They have to come in with a parent. The parent has to register them because they’re a minor. And last year, we had 2,200 teens go through about 36 clubs. This year, we’ve had about 4,000 register across 44 clubs. But we really haven’t started yet in North Carolina; the schools are just now getting out. So we think we’ll finish this summer with about 5 or 6,000 teens registered. It’s a fantastic program. Certainly, you lose that $100,000 worth of summer revenue, but you’re doing something that really is a statement to the community. We’ve had a ton of good press, TV, radio and newspaper. They all think it’s a wonderful thing to do. We are truly becoming an expert on teen fitness. We’re doing lectures. We’re going out to schools. The local governments are getting us to co-host special events. And the members love it. The teens have not been a problem in the clubs. They’ve been embraced by the members. Members come in with their teenaged kids. We don’t track how many join because I don’t want anyone to think it’s a sales generation program. The first thing it is a free membership for the teens. We’re pretty excited about it.
Q: You really target 12- to 17-year-olds in this campaign. How do they interact with the other adults or even the senior adults at your clubs?
A: If you ask someone in this company or a member what Lifestyle Family Fitness means, they’ll say it means everyone in the family fits in. We’ve got a heavy program with Silver Sneakers and Humana. We’ve got about 8 or 9,000 seniors that use our clubs. So why not go for getting the teens to come in? The good thing about the teens is they come in during the day when it’s slow. I like a club that’s busy and active. You walk in and the teens behave themselves. The members certainly feel prouder about the company because we do this. I haven’t seen a problem between a senior and a teen yet, so I haven’t seen any downside yet. It’s all been very positive.
Q: You mentioned group fitness and the emphasis of group fitness and personal training. Do you mean group exercise or group training? You mentioned Phillip Mills, founder of Les Mills. Do you use his techniques?
A: We do. We used BodyPump about eight or nine years ago. We really liked that. And then about two years ago, we chose to open up to all of the Les Mills programs. The reason being, in our board meetings, we always discuss what makes Lifestyle Family Fitness different from another club. Even month-to-month [memberships] is really not a differentiator because anyone can duplicate it. But what’s important is when a member goes from one club to the next club to the next club that they have a consistent experience. We feel that a world-class group fitness experience is a critical part of the club experience. When you look at it statistically, about 90 percent of the women that go into the club do group exercise. We want to be appealing to women. Les Mills programs are the best group fitness experience that you can provide. The programs are new every quarter. New music. New choreographed routines. The instructors love it. They’re caught up in it. It’s creating a new career path for our people to grow within that side of the business. We feel the Les Mills programs provide us an edge over other clubs that don’t offer that. As far as pre-paid groups, we’re evolving in that area but we haven’t really had a lot of success yet. Some club owners are having a lot of success. But that’s a big upside for the industry. If we can get groups of six, eight, 10 people paying $10 a head to be led by a top trainer through a group exercise pre-paid program in four-week periods, I think we’re going to retain more members and involve more people and get better results.
Q: What other purchases are you planning? Where else are you looking at to put Lifestyle Family Fitness clubs?
A: Unfortunately, we have a rule in the boardroom that until it’s a signed deal, we’re not going to speak about it. So I can’t actually disclose where the next trade area is that we’re going to go to. But we try to cluster our clubs. It’s easier to manage them and easier to market them. Right now, it’s safe to say that we’re going to continue to grow in Charlotte and Raleigh, NC, and continue to expand upon Columbus and then of course the markets that we’re in in Florida, which are Tampa Bay, Jacksonville and Orlando. There are no new markets that I’m able to disclose until we’ve executed agreements to open there. As far as systems development, we continue to spend a lot of money developing internal systems and we’ve got a few things we’re working on there and just going out and doing our job every day. Every day you learn something about this business you didn’t know yesterday. Keeping your ear to the ground and listening to your employees and listening to your members pretty much tells you what kind of a job you’re doing running the company.