US Health Clubs See Consumer Recovery But May Be Vulnerable

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Posted November 26, 2012 10:56 pm by

 

Demand for U.S. health club memberships is recovering from its recession lows in most areas but gains are uneven and consumers’ willingness to spend money on gyms and fitness centers is subject to the same economic factors that are dampening some other areas of consumer confidence, executives and industry observers said.

While some national or regional chains are seeing continued growth in members, locations, and revenue, others report more people are allowing their memberships lapse amid financial uncertainty attributed first to the presidential election and now to the impending “fiscal cliff,” executives said.

Overall, fitness clubs are increasingly upbeat about their prospects but some have still not recovered member numbers to pre-recession levels.

“There is some optimism in our industry but there is still that unknown of what’s going to happen after the fiscal cliff,” said Stuart Goldman, managing editor of Clubindustry.com, a web site that covers the business.

Despite concern about a possible new recession if tax rises and federal spending cuts kick in as scheduled on Jan. 1, 2013, there’s good underlying demand for health club memberships, as shown by the return of private equity to the market, Goldman said.

In particular, the acquisitions of Lifestyle Family Fitness of Florida, and Urban Active of Kentucky and Ohio by LA Fitness during the last year show continuing investor confidence in consumer demand for health clubs, Goldman said.

“We expect some deals in 2013,” he said. “It’s an indicator of growing demand.”

But sales have been faltering at ClubOne, a California chain with 17 branded locations and around 50,000 members, according to President Bill McBride.

In the fourth quarter, attrition – the rate at which clients allow their memberships to lapse – has risen to 42% from the normal level of 40%, McBride said. While the company normally offsets departing members with new sales, it’s more of a struggle at the tail end of 2012, with sales up only 1 or 2 percentage points, he said.

Clients’ confidence appears to have dropped in the fourth quarter after sales grew in the second and third quarters, McBride said.

“There’s been another dip in confidence,” he said. “There’s still a lot of uncertainty.”

McBride attributed the jittery mood to high unemployment, continued problems in California’s housing market, and the prospect of another economic downturn if Congress fails to agree measures to avert the contractionary tax rises and spending cuts scheduled for January.

In other signs that clients are tightening their spending habits, revenue from personal training sessions is down 5% from a year ago, while there has been an increase in attendance at group fitness classes, which are included in regular membership fees, said McBride, who is also board chairman of the International Health, Racquet and Sportsclub Association, a trade group.

According to IHRSA, overall U.S. health club membership grew to 51.4 million in 2011 from 50.2 million in 2010 while the number of clubs fell to 29,960 from 29,890 amid an industry consolidation. Another estimate by IbisWorld puts the number of health club businesses at 29,365, generating total revenue of $25 billion.

In suburban Milwaukee, the health club business is more robust, and allowed the acquisition in October of a fifth location at Elite Sports Clubs, a local chain that caters to clients making $100,000 or more a year, according to President Kay Yuspeh.

Membership has been growing at about 5% a year and strong demand from the chain’s upscale clients – who pay $99 a month if they belong to a location with a swimming pool – has allowed the company to raise its personal training rates by 10%, Yuspeh said.

Demand for personal training is up as much as 28% from a year ago, depending on location, she said.

Among those with secure jobs and relatively high incomes, spending on health clubs appears to be resistant to economic worries that dampen other areas of consumer spending, Yuspeh said. She acknowledged that Wisconsin’s typically “horrible” winter boosts demand for indoor fitness.

“If they are at home, they are at the clubs,” she said.

She said October was the “best month in two or three years” but acknowledged that membership is not yet back to its levels in 2007 before the recession hit.

At Anytime Fitness, a national chain, the number of U.S. clubs is expected to rise over 2,000 by the end of 2012, while revenue and the average number of members per club has also been increasing, according to Mark Daly, national media director for the Hastings, Minnesota-based company.

While some consumers cut their health club spending, Anytime Fitness has increased its membership by offering services such as an online support system and 24-hour advice from certified personal trainers for a mid-priced fee of $40 a month, Daly said.

“The industry overall has mirrored consumer attitudes,” he said. “But there are segments that are thriving. We believe that many of our newer members are former members of more expensive clubs.”

Consumers’ search for cost-savings has also helped boost Planet Fitness, a national franchise chain that charges only $10 a month and now has about 600 locations across the country.

Eric Vaden, vice president of marketing, said the company’s growth is based on its low monthly fee, its emphasis on general fitness rather than high-impact workouts, and its efforts to exclude the aggressive or image-conscious clients who might deter average users.

“We’re a judgment-free zone,” he said. “We are really for average folks.”

By Jon Hurdle

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