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Drop in Global Revenue Could Provide Industry Wake-up Call

BOSTON — At first glance, the results of the 2010 International Health, Racquet and Sportsclub Association (IHRSA) Global Report look promising.

The number of health clubs worldwide increased by 6,000 from about 122,500 in 2008 to 128,500 in 2009. Also, the number of members worldwide increased by 2 million from 117.5 million in 2008 to 119.5 million in 2009.

Yet despite the growth in clubs and membership, global revenue decreased by about $1 billion from $68.2 billion in 2008 to $67.2 billion in 2009, according to the past two IHRSA global reports. Two factors that led to the decrease in revenue are commoditization and a growing fitness counterculture, says Jim Teatum, president of Global Business Systems, San Diego. Teatum's company handles international franchising for World Gym International, Los Angeles.

Low-cost clubs such as McFit in Germany have caused operators of mid-market clubs in that country to drive down their prices through promotions and special offers, Teatum says. Indeed, the biggest revenue decrease in the world occurred in European clubs, which generated $31.3 billion in revenue in 2009 compared to $33.2 billion in 2008. German clubs alone generated $3.4 billion in 2009 compared to $4.3 billion in 2008, a difference of almost $1 billion. United Kingdom club revenue dipped further from $7.1 billion in 2008 to $5.7 billion in 2009.

“It is a danger that we commoditize memberships and acclimatize the consumer to what they perceive is a discount-driven industry,” Teatum says. “Why on earth would you want to discount what is unquestionably the best product in the world — health?”

Teatum also says that younger members worldwide, especially those between 18 and 34 years old, are working out more at alternative facilities, such as those that incorporate CrossFit programs, mixed martial arts and boot camps. These facilities are producing revenue not typically included in industry reports and are taking away revenue from mainstream clubs, Teatum says. The industry would be wise to tap into this counterculture of fitness, as Teatum puts it.

“Do these guys need to discount? Not a chance,” Teatum says. “Memberships at CrossFit run from $85 on the low side to $250 on the high side [per month], depending upon the qualification level of the instructor. The lesson is that as an industry we must value our product and the way in which we deliver it. One size doesn't necessarily fit all, but what we need to do is provide not just results but also an experience.”

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