Last year, when discussing the IHRSA Global 25, the phrase people used most frequently to describe the industry, overall, was “recession-resilient.” But that was last year.
Now, in reflecting on the industry’s performance in 2013, club operators, analysts, investors, and others seem to have moved on. “Many of the industry’s leaders have put the recession behind them, and are trying to figure out in what ways the sector is going to perform differently going forward,” observes Rick Caro, the president of Management Vision, Inc., a Manhattan- based consultancy.
In short: It’s a new day, a new game, and industry players are trying to sort it all out.
The IHRSA Global Report for 2014, the basis for the IHRSA Global 25 lists, chronicles changes from 2012 to 2013, and, in general, reveals across-the-board increases in a wide range of metrics - both with respect to the U.S. and global industries. Domestically, revenues climbed from $21.8 billion in 2012 to $22.4 billion in 2013, a 2.8% increase; the number of facilities, from 30,500 to 32,150, up 5.4%; and the number of members, from 50 million to 54 million, a solid 8% rise.
CHARTS
Revenue, number of franchises, unit growth and more at CBI online
Taken as a whole, the worldwide industry’s revenues moved from $75 billion to $78 billion (+4%) over the same one-year period; the number of facilities, from 150,000 to 160,000 (+6.7%); and the number of members, from 132 million to 140 million (+6.1%).
More recently, IHRSA reported in April that more than 62.1 million Americans had utilized clubs in 2013, visiting them more than 5 billion times—a record, all-time high. “There’s no question that surpassing five billion visits is impressive,” acknowledges Joe Moore, IHRSA’s president and CEO. “It’s proof-positive that, every day, our industry plays an important role in helping millions of people achieve their health and wellness goals.”
EXPERIENCE AND MATURITY
Club operators’ curiosity about the shifting landscape is informed not only by the scars inflicted by the recession, but also by the evolution and aging of the industry. Though the issue is still being debated, there’s a growing consensus that the health and fitness business has now moved from a “growth” into a “mature” stage, a transition with significant ramifications.
Industry leaders—individuals such as Caro; Stephen Tharrett, the cofounder of ClubIntel, a member and brand insights firm; and IHRSA Chairperson Robert Brewster, the president of The Alaska Club (TAC) - recently have evaluated the development in CBI. “I think we’re experiencing the typical lifecycle of most products,” Brewster observed in the “CBI Interview” last month. “In the second half of the last century, we saw the growth of the ‘health club’ concept. The industry segued into a growth phase, and, now, it’s largely matured,” he explained. “The current phase is a very competitive one, characterized by increasing consolidation, new product extensions, and increasing pressure on growth.”
Some of the factors that contributed to the 2013 results and continue to influence events were clearly identified in March during the 18th Annual Financial Panel, moderated by Caro, at IHRSA’s 33rd Annual International Convention & Trade Show in San Diego. Prominent among the “2013 Club Industry’s Financial Headlines” spotlighted by the panel were:
- U.S. debt markets were much more available and offering more leverage at very attractive rates
“Debt financing exploded last year as existing clubs, tempted by very low interest rates, often refinanced,” reports Caro. “The availability of cash-flow-based lending soared, and with a higher leverage opportunity than we’ve seen previously.”
Sean Naughton, a senior research analyst at Piper Jaffray, a Boston-based investment bank and asset management firm, points out that the benefits afforded by improved debt markets depend, somewhat, on the business model involved. “In the case of asset-light franchise models, for instance, the debt markets have allowed the owners of some small businesses to increase personal leverage, making it possible for them to invest in clubs.
“On the other hand, more asset-intensive models - think Life Time Fitness, Inc. - have benefited from some lower-cost debt, which can improve the return profile when making investments, allowing companies to consider launching new projects,” notes Naughton. “In addition, given strong cash flows, improved balance sheets, and access to public equity markets—all of which presage continued growth—debt institutions are eager to lend to companies such as Life Time.”
Case in point: Last year, ClubCorp, the multifaceted Dallas-based company, which had been privately held since 1957, conducted a successful IPO, issuing 18 million shares of common stock and raising $168.8 million.
The IHRSA Global 25 lists flesh out Naughton’s premise. On the asset-light franchise side, Anytime Fitness grew from 2,035 units in 2012 to 2,373 in 2013 (+16.6%); Planet Fitness, from 606 to 749 (+23.6%); Snap Fitness, from 1,355 to 1,426 (+5.2%); and b-fit, an Istanbul, Turkey–based new- comer to the list, from 216 to 230 (+6.5%). On the asset-intensive side, Life Time managed to grow
from 105 facilities in 2012 to 108 in 2013 (+2.9%); and, during the same period, increased revenues from $1.13 billion to $1.2 billion (+6%).
- Net memberships were up slightly: overall industry memberships were flat, with number of clubs increasing slightly
The consumer economy is strongly related to membership spend, and, if 2013 is any indication, there are reasons to hope for some serious growth going forward. Gallup’s U.S. Economic Confidence Index reveals that, in 2013, consumer confidence was up 12 points over 2012, and the Job Creation Index was up by two points. Perhaps most importantly, daily self-reported spending shot from $72 in 2012 to $88 in 2013 (+22%), its highest level since 1988.
If consumers are, in fact, feeling more confident about the economy and spending more, it should show up in the member numbers. For the most part, it does. While last year’s category leader, 24 Hour Fitness USA, Inc. (now No. 2), remains stable at 3.8 million members, almost all of the other companies on the Global 25 “Number of Members”
list reported increases. Anytime Fitness, for instance, went from 1.55 million members in 2012, to 1.84 million in 2013 (+18.7%); Virgin Active, from 1.3 million to 1.34 million (+3.1%); Fitness First, from 821,000 to 912,872 (+11.2%); Health- City/Basic-Fit, from 620,000 to 750,000 (+21%); BIO RITMO/SMARTFIT, from 230,000 to 400,000 (+73.9%) ... and the trend continues.
In a few cases, companies saw their membership numbers slip a bit, but, at the same time, booked rising revenues.
INCOME AND UNITS
The critical economic factors, and the improvement some of them have managed, have produced growth where it matters most—in revenues, and, to a lesser extent, in earnings before interest, taxes, depreciation, and amortization (EBITDA).
That said, overall revenue growth has improved uniformly among the organizations that submitted data for this year’s Global 25. Category leader 24 Hour Fitness grew from $1 billion in 2012, to $1.3 billion in 2013, a 30% increase; Anytime Fitness climbed to $634 million (+31%); Goodlife Fitness Clubs, to $495 million (+19%); Planet Fitness, to $211 million (+32%); Bodytech, to $120 million (+25%); and the Russian Fitness Group, to $176 million (+14%).
The average improvement across the “Revenues” category was more than 29% per company.
The “Unit Growth” category seemed to track revenues, with similar across-the-board increases. Among the many examples were Orangetheory Fitness, which grew by 333%, hitting 65 facilities; BIO RITMO/SMARTFIT, up 57%, with 132 clubs; a relaunched Crunch, up 48%, with 96 sites; and Elixia Nordic AS, up 35%, with 62 locations.
Exempting Orangetheory’s dramatic increase, which would skew the numbers, the organizations represented on this Top 25 list achieved an average growth of over 24% in 2013.
PRESENT AND FUTURE
A leisurely economic recovery, a new phase of life for the industry, metrics that remain steady or inch upward, a grab bag of promising indicators, the industry’s evolution and growing sophistication—nobody may have pinned down the details of this changing industry, but the overriding impression is one of assurance, confidence, and well-informed optimism.
The industry’s promise and potential, it seems, remain whole, undiminished by the challenges of recent years.
Among those endorsing the sector’s virtues is Nathan Chandrasekaran, a principal in the TZP Group, LLC, a Manhattan-based private-equity firm that acquired a majority stake in Snap Fitness in December. “In terms of benefits, TZP sees a growing market with strong industry tailwinds, given the increasing emphasis on healthy lifestyles; opportunities to invest in platforms and in many different links in the value chain; and available third-party financing,” he explains. “Additionally, the increasing diversification of business concepts allows the industry to appeal to a broader base of consumers, ultimately resulting in higher adoption rates.”
Naughton concurs. “We like the industry’s long- term prospects,” he says, “but believe it needs to continue evolving. Right now, it appears that studios and high-volume/low-priced clubs have the upper hand, but, for consumers looking for a place they’d enjoy using every day, the traditional model is difficult to ignore.” He also points to the growing opportunity represented by “pockets of consumers,” e.g., boomers and millennials, as well as the rising importance of technology as a growth driver.
After carefully considering IHRSA’s Global Report data, Melissa Rodriguez, the association’s senior research manager, concludes: “All of the metrics show an industry that’s clearly growing and meeting the needs of consumers. Looking ahead, the industry’s potential for growth seems promising. Supported by existing strong economies and improving global markets, club operators and developers will continue to attract consumers. As global awareness of health and physical activity grows, the club industry will stand to gain by engaging current consumers and acquiring new members.”