The 2011 Profiles of Success

Reviewing IHRSA’s Profiles of Success: The Annual Industry Data Survey of the Health and Fitness Club Industry is a bit like gazing at “the face” of the industry.

For the past 30 years, IHRSA has published this annual report, which presents a wide range of benchmarking data that thousands of club operators utilize to compare their business’ performance with that of their peers. Doing so provides them with a sense of their club’s strengths and weaknesses and of the possibilities for improvement.

            A host of equipment manufacturers, market researchers, students, financial analysts, and journalists also consult the report regularly to obtain a clear picture of what’s happening in the industry at any given point.

            “As in previous years, the just-released 2011 edition of Profiles of Success begins with a comprehensive overview of the industry,” notes Melissa Rodriguez, IHRSA’s research manager. “This overview is followed by comprehensive financial performance data categorized in a number of useful ways—by club type; income and balance sheet analysis; figures on membership pricing, programs, and other profit centers; and operating benchmarks for payroll, member retention, EBITDA, and other metrics.”

A joint effort between IHRSA and Industry Insights, Inc., a leading research firm, Profiles is based on an extensive, confidential survey completed last April by 88 club companies that, together, represent a total of 757 facilities. Their responses reflect their business’ experience in 2010. Some 66% of the respondents were operators of multipurpose clubs; 34% operated fitness-only facilities; and 52% managed multiple operations.

The industry portrait painted by Profiles is relatively positive, overall, especially considering the economic uncertainty that continues to lurk in the background. “Worldwide health club membership reached 128.8 million in 2010, surpassing IHRSA’s goal of attaining 120 million members by the end of that year,” Rodriguez points out. “And the performance of North American clubs was solid. Membership increased by more than 10%, reaching 50.2 million, and first-time members contributed to both membership growth and an increase in nondues spending. Revenue for the year totaled $20.3 billion, an increase of 4% over 2009.

            “In the aggregate, the respondents reported nominal revenue growth of 1.5%, and membership growth of 2.9%. Interestingly, small clubs—those with less than 20,000 square feet of space—reported membership growth of 9.9%,” says Rodriguez. “Large clubs—those with more than 60,000 square feet—generated more than $1,000 in nondues revenue per member; those clubs also spent the most on marketing per new membership account.”

What do industry leaders and analysts think of the Profiles results?

“The one figure in this report that matters the most to me is average annual revenue growth in same-store sales for clubs that have been in business for at least two years,” responds John McCarthy, IHRSA’s executive director emeritus. “That number, as would be expected in these tough times, is modest, at 1.5%. This has numerous implications: first, most clubs are working very hard to achieve very modest revenue gains; second, for most clubs, expense control continues to be determinative with respect to bottom-line profits or losses; third, there continues to be an absolute premium on the membership retention of every last member.”

“One bright spot is that net member growth continues to inch upwards,” observes Bonnie Patrick Mattalian, the vice president of community wellness services at MediFit, of Florham Park, New Jersey, which offers mystery shopping services to clubs. “Still, I believe that, as an industry, we need to do a better job of keeping members engaged. Another surprising thing is that club participation is now rather equally distributed across household incomes. It stands at 18% each for the $25,000 to $49,999; $50,000 to $74,999; and $75,000 to $99,999 categories.”

Mattalian also point out that, while independent centers added 639 new membership accounts during the year, the typical multiclub chain added 919 per facility. “This may indicate that the chains are succeeding due to economies of scale in advertising, or because consumers prefer their well-established brands. It also tells us,” she continues, “that there’s still an incredible number of people in our communities who can benefit from the healthy lifestyles facilitated by our fitness centers. However, clubs need to be unique, differentiated, and innovative in their approaches to attracting prospects in their target markets.”

Pete Moore, the managing partner at Integrity Square, a Manhattan-based boutique strategic and advisory firm focused on the active lifestyle, health, and wellness sector, singles out some specific trends identified in the new edition of Profiles for special attention. Some of them, he feels, are surprising or somewhat counter-intuitive.

“The fact that 33% of clubs are now 'fitness-only' is a trend that would have been viewed as highly unlikely 10 years ago,” he explains. “The low-cost/high-volume model is working at prices none of us thought possible in the past, indicating that having the right business model at the right time can produce profits. At the same time, segmentation has clearly occurred, and there are winners in each of the major categories.”

Moore suggests that the data also shows that clubs offering high-quality personal training and fee-based programming are enjoying solid demand, since members with disposable income remain willing to pay for such services. “The strong results posted by Life Time Fitness, a public company, and some other privately held, high-end and middle-market operators across the country demonstrate this.”

Moore also points out that both the “Under 18” and the “18-to-34” age groups now represent the fastest growing segments of the market—not the Baby Boomers, as many think. “The new-entrant growth is occurring at both the low-cost/high-volume and middle-market clubs that offer affordable memberships, which appeal to these individuals.”

Finally, Moore offers a caveat: “The cost of sales and marketing, at $213.28/member, continues to be very high for clubs larger than 60,000 square feet. We believe this is an early warning sign that it’s becoming harder to sell memberships against the low-cost operators. The bigger clubs will need to rethink their pricing strategies. They may want to consider lowering their monthly membership rates to generate more volume, rather than up-selling their ancillary services.”

Considered as a whole, the “face of the industry” looks surprisingly healthy, economic challenges notwithstanding. However, it’s clear that club operators are dealing with unusual circumstances that are putting them and their businesses to the test. The industry, as a whole, is waiting, expectantly, to see what the coming year will bring—and club owners are wondering what they’ll be reading this time, next year, in the 2012 edition of Profiles of Success.