The Effect Of Business Cycles On The Fitness Industry

When times are bad, we tend to panic; when times are good, we tend to get really sloppy. Manage by the numbers, and you can't go too far wrong.

By Dr. Gerry Faust

The forecasted state of the U.S. economy is in the news daily. However no prognosticator has a unfailing crystal ball. With that said, the ambient economy has a direct impact on the health club business. Although certain tactics must be employed depending upon whether we are in a boom or bust cycle, there are some systemic practices that should be maintained throughout.

Among the questions that have been asked by concerned, club owners, the ones asked most frequently of the consultants at the Faust Management Corporation (FMI) are the following:

What effects do business cycles have on our industry?

During difficult economic times, we tend to lose more "fringe-market" members (i.e., those who are infrequent users, and haven't incorporated a membership into their lifestyle). Discounting becomes more common as less confident operators attempt to maintain their viability, and as some target prospects for whom price is clearly an issue.

Normal business cycles have an effect on every business, knowing this will arm you in advance.

"Good times increase competition by making it possible for more clubs, including some that aren't well managed, to survive. "

Among the other predictable results: a negative influence on the financial community in general; greater restrictions on the availability of capital; a more conservative attitude towards expansion; and a weakening of those businesses that fail to respond quickly to the slowdown.

Economic Slowdowns Force Improvements

If economic slowdowns have an upside, it is that they force many operators to make the moves--to improve their teams and profitability--that they should have undertaken during a healthier period. Good times increase competition by making it possible for more clubs, including some that aren't well managed, to survive. The early days of a recession perform a weeding-out function, while the later ones provide an opportunity for the best players to build market share. During business downturns, most of the health clubs that we work with at FMI have made major changes in their operating structure. They've upgraded their team (replacing some members, improving training, focusing on "managing for results"); done a better job of controlling expenses; expanded the ways in which they communicate with their market; and increased their nondues revenues. In one survey, 70%-80% of them reported solid, and improving, results.

What sort of strategy would you suggest during business downturns?

The first piece of advice I'd offer is--don't necessarily count on an economic upturn to make things better for your club. Rather, make the changes in your systemic business that will improve its key metrics. Your "strategy" should be to enhance member service, add spark to the programming, and manage the sales effort--particularly the outreach and public relations components--even better.

This is the time to let the community know that you're there, and to aggressively mine member referrals; you may well discover that your core members are now more inclined to offer friends' names.

"…manage the sales effort--particularly the outreach and public relations components"

One word of caution: it's easier to spend money that you've budgeted for expenses than to ensure that your revenues will hit the targeted amount. You should schedule any commitment to new expenditures to lag anticipated revenue increases by at least 1-3 months. people, produt, positioning

Draft the plans and generate the energy that will drive revenues; but increase expenditures only when revenues improve.

What's the greatest danger that health clubs still face today? What one or two factors should they be most attentive to?

The greatest assets that a club has are: (1) its people; (2) its positioning; and (3) its product. That's always been, and always will be, true. Those are the three factors that operators should focus on, and any failure to do so makes their business vulnerable.

You can be great, compete successfully, and win the game, only if you have a good team, and a distinct identity, and offer great value to members. All too often, I see too much attention paid to club activities, and too little paid to the numbers. But, as business cycles show, at the end of the day-it's really about the score.

About Gerry Faust

Go to About Gerry Faust.

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