By: Andrew Poitras, AccuVal Associates, Inc.
Fitness clubs have benefitted greatly from consumer trends in fighting obesity, improving health and increasing wellness. Over the past decade, gym memberships have rapidly increased by more than 35%, reaching 40 million in 2010. Increased demand for more variety has also caught the eye of industry players, who have expanded their operations to accommodate more choices. Despite strong positive trends in health and fitness, the industry was not recession-proof. Revenues did fall, but only slightly, and are expected to rebound alongside the economic recovery. The industry is expecting a stronger first quarter of 2011, as traditionally the greatest increase in new memberships corresponds with New Year’s resolutions.
Fitness clubs are concentrated mainly in the Southeast, which makes up 23% of all locations. The industry has a very low overall level of concentration, and the top four firms account for only 12% of industry sales. No one industry player holds over a 5% market share. Some of the top fitness companies include 24 Hour Fitness Worldwide Inc. (4.5%), Life Time Fitness (3.3%) and Bally Total Fitness Holding Corporation (3%). The larger players in the industry have numerous locations across a range of states and must compete against numerous smaller, local alternatives.
Entering the fitness club market has not been very difficult as operators found it relatively easy to obtain financing from a range of sources before the global financial crisis in 2008. Over the past five years, the industry has become increasingly competitive as well-financed operations have entered the industry and existing operators have expanded operations. Firms compete with other commercial fitness centers as well as non-profit recreational facilities, like the YMCA. These non-profit organizations have an advantage because they are allowed to obtain land and build centers at a lower cost. Fitness clubs must also compete with condominium clubs, exercise studios, weight-loss centers, country clubs and the home fitness equipment businesses.
A nationwide emphasis on health care reform is also influencing the increase in fitness and wellness. The American College of Sports Medicine (ACSM) annual survey of fitness trends notes that this trend is fueling an anticipated need for regulation of fitness professionals, along with a greater interest in additional education and experience among those working in the industry.
The economic downturn increased demand for smaller gyms with basic equipment and fewer amenities. This trend has benefitted small franchise gyms that cater to local markets. For example, Planet Fitness experienced significant growth in membership over the past two years, opening approximately 100 new locations in 2009 and expanding to a presence in 41 states. It has been able to grow due to inexpensive gym fees that range from $10-19 per month, depending on the area. Snap, Anytime Fitness and Curves are among other gym franchises that have experienced significant growth. Other gyms have offered flat rates for memberships with no hidden fees and ''pay-as-you-go'' plans that make it easier on consumers.
Despite their benefits, fitness clubs are still seen as a discretionary purchase and, in such, are largely contingent upon disposable personal income. The Bureau of Economic Analysis recently reported that disposable personal income rose 0.3% in October 2010 over the previous month. The industry will need to see much stronger numbers before it can count on attracting many new members with the excess income to afford belonging to a fitness club.
Recognizing that healthier lifestyles and normal body weights are often the best preventative care for expensive conditions like heart disease and diabetes, health insurers are increasingly sharing the cost of fitness clubs with their subscribers. Employers are jumping in, too, by providing more wellness programs and rewarding employees for health conscious decisions or lifestyle changes.
Consumers who have made the decision to join clubs increasingly desire more choices. Tired of weights and treadmills, many members are looking to yoga, Pilates or other fitness classes as a different way to get their hearts pumping, though the ACSM study showed that some classes are falling from favor among customers and are now considered more fitness fads. Clubs have seen this as an opportunity to both meet customer demands as well as create a new revenue stream by charging fees for classes, particularly for new types of classes being introduced to the marketplace. Other gyms have opted for a ''lifestyle'' approach by adding affiliated services like nutrition counseling, massages and wellness coaching.
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