Economy Notwithstanding

It’s an understatement to say that the economic outlook has been bleak in recent years . . . and that the turnaround has been slow in coming. However, surprisingly, the U.S. health club industry has experienced record growth for the first time in years.

IHRSA figures show that, between 2009 and 2010, the number of club members increased by 10.8%, from 45.3 million to 50.2 million. During the same period, the total number of “health club consumers”—that is, both members and nonmember users and visitors—reached 58 million in 2010, up 10.4% from 52.6 million in 2009.

The obvious question is: How can IHRSA member clubs keep this positive momentum going?

The answer emerges from sound industry research, which reveals promising opportunities both in the short-term and in years to come. A demonstration was provided last March during IHRSA’s 30th Annual International Convention and Trade Show in San Francisco. Melissa Rodriguez, IHRSA’s research manager, participated in a compelling presentation, “Life Beyond 120 Million Members,” that identified research-based opportunities.

Here Rodriguez, leading club operators, and other industry experts mine the latest findings to identify the best ways to continue growing the industry—the economy notwithstanding.

Increasing retention

Data from a new publication—The IHRSA Health Club Consumer Report: 2011 Health Club Activity, Usage, Trends and Analysis—shows that the growth experienced in 2010 was fueled mostly by new memberships, Rodriguez points out. The report is based on a study conducted in cooperation with Sports Marketing Surveys (SMS) and the Physical Activity Council (PAC), a consortium of six activity-related associations, including IHRSA.

"The challenge,” says Rodriguez, “is to encourage new members to attend their clubs more frequently now and for years to come.”

According to the report, if more members increased their usage, becoming so-called “core” members—i.e., ones visiting their clubs at least 100 times a year—clubs could improve retention. “That is, they’d reduce their ‘churn’ percentage, or the number of members who leave vs. those who join,” she explains. “If you look at the total number of health club participants, on average, 22% leave in any given year. Cutting that churn rate to 12% would mean an additional one million members for the industry.

“While members leave for a variety of reasons,” she continues, “clubs can focus on their ‘controllable churn’ by, for instance, providing excellent service and offering programs that target their respective members.”

  

Matthew Bucknall, the group CEO of the U.K.-based Virgin Active chain, which has 250 facilities and 1.2 million members in five territories worldwide, generating $1 billion in annual revenues, agrees, but analyzes “churn” further.

“You can have both positive and negative churn, and it’s imperative to have the controls in place to reduce negative churn,” he says. “If a member has a short-term fitness goal, signs a month-to-month contract, has a very positive experience, achieves that goal, and leaves as an advocate of your club, is that a negative churn statistic? Compare that to someone who’s tied to a 12-month contract with no exit, has a bad member experience, and is a detractor to the business. The former, compared to the latter, will give you a great churn statistic. You have to ask, What’s really best for your club?”

Customer service is the key to reducing negative churn, Bucknall emphasizes. “We call over 400,000 of our members every year—four to six members, per club, every day, 24 hours after they’ve worked out—to get their personal feedback, so we can respond effectively.”

Mining former member data

Intensifying efforts to win back members who have left may also produce valuable rewards. In 2010, more than 30% of former members said they’d rejoin if asked to do so, compared with 10% in 2009. While the reason for the dramatic difference is not known, it’s clear that clubs should search their databases for individuals who’ve remained at the same address and go after those people, specifically.

Roberta Kruse-Fordham, the general manager of Sports, Fitness and Fun in Florida, New York, asked two interns to do just that for her. Her small sales force was loathe to take time away from selling to current prospects to sift through the records.

“It’s was a tedious job, but, over several weeks last summer, the interns went through all of the company’s cancellations between 2007 and 2010 —perhaps 1,000 files. In July, they sent out beautiful 6" x 9" color postcards to alumni prospects, with ‘Alumni Offer—Don't Miss Out!’ Our sales team then followed up by phone. In September, we sent out a second postcard and continued reaching out to our alumni through October.”

By the end of October, 36 people had rejoined in response to the postcard offer, generating approximately $20,000 in new revenues. “Our October 2011 membership unit sales were up 27% over 2010,” Kruse-Fordham notes with enthusiasm, “and now that my database has been scrubbed, I know more about why people left and, more importantly, why they returned. I'm confident that more former members will rejoin as we continue to reach out to them.” (See “Alumni Make a Comeback!”, November CBI, pg. 28.)

Converting active nonmembers

To foster continued growth clubs also need to find new niches that appeal to new customers.  The potential is clearly there…if clubs can come up with the right formula. According to the Turning the Corner report, produced by PAC, more than 216.6 million (76.3%) of Americans were considered to be “active” in 2010, but just 58 million belonged to clubs. The report’s findings were based on a survey of 15,086 individuals and 23,656 households.

Respondents said that, in their pursuit of fitness, they walked, ran, and used treadmills and free weights. However, they also reported that they had “aspirational” activities—ones that they’d like to try, but haven’t yet experienced. Five of the 10 activities they identified are offered by clubs.

Club operators might also want to target the vast number of people who exercise at home. The Tracking the Fitness Movement Report, produced by the Sporting Goods Manufacturers Association (SGMA), which examined both home and club exercise, revealed that many of the activities that people engage in at home could easily been done at clubs. Treadmill usage, for instance, was the same in both venues—44% at home and 44% in clubs. Most low-impact aerobic exercise occurred at home (57%), but, in the case of step or high-impact aerobics, the split was again identical.

“Both the interest in aspirational activities and home exercise represent great potential for club memberships, bearing in mind that individuals who work out at home tend to rate their own health and fitness level lower than that of people who belong to a club,” Rodriguez says. “Clubs just have to come up with the right inducements.”

Promising profit centers

What are club members clamoring for right now?

According to the IDEA Health and Fitness Association, based in San Diego, which has been conducting surveys on fitness trends for the past 16 years, personal training and group exercise remain extremely popular. Some 86% of facilities offer the former, and 84% offer the latter.

“The greatest growth, over the years, has been in two-person partner and small-group training, including boot camp,” reports Kathie Davis, IDEA’s executive director. “In terms of group exercise, dance and branded choreography classes have grown the most, while step, boxing/kickboxing, and martial-arts-based aerobics have declined the most. What’s surprised me is the growth of Pilates. In 2011, 88% of our respondents were offering it, a 25% jump since 2002.”

Youth sports programs for the so-called Gen Y and Millenial generations—that is, individuals born between 1981 and 1998—also offer promise. Clubs can reach them effectively via their parents, members of the Gen X generation, who are now between the ages of 31 and 46. (See “Employ Social Media to Engage Kids,” September CBI, pg. 25.)

(Small generational chart from pg. 12 of Turning the Corner report.)

Data from the 2011 edition of U.S. Trends in Team Sport Report, produced by the SGMA, indicates that younger teens are gravitating toward organized sports programs, including baseball, basketball, soccer, tackle football,  lacrosse, rugby, track and field, and ultimate Frisbee.

While some kids and their parents may look to local recreational programs for these sports, the increasing pressure on school and municipal budgets may present an opportunity for clubs to step in to provide them. Clubs can also provide the sports conditioning required for safe participation. The possibilities are borne out by the proliferation and success of brands such as Athletic Revolution, Velocity Sports Performance, and Paris Speed Schools, which focus on athletic performance.

If clubs do more to engage and satisfy this young cohort and the population as a whole, club memberships will continue to increase despite a challenging economic climate.

Rodriguez sums up: “IBISWorld, the largest provider of industry information in the U.S., projects that the health club sector will grow by 2.6% each year between now and 2016. If clubs continue to seize on the opportunities that quality research reveals, then we’ll achieve this growth, regardless of how well or poorly the economy performs.”

Quality Research: For Free!

The Health Club Consumer Report is just one of many reports that IHRSA publishes each year. Other industry favorites include Profiles of Success, IHRSA’s Global Report, and the Employee Compensation and Benefits Report, all of which are available for purchase at www.ihrsa.org/store.

            You can also obtain some of them for free by participating in IHRSA surveys at IHRSA’s Research Portal, www.ihrsa.org/research. Launched in 2010, the Research Portal links club operators to vital benchmarking data in management/operations, human resources, and financial and strategic planning.

            If you decide to participate, simply fill out a survey for any one of these reports—which generally will require 30-60 minutes of your time. Once you do so, you’ll receive the report with the results.

            Of course, your alternative is to purchase a given publication, which range in cost from $99.99 to $299, depending on the report.