Survival Amid Numerous Other Fitness Facilities Requires Knowledge of Market

Survival Amid Numerous Other Fitness Facilities Requires Knowledge of Market
By Andrew Cohen

Surviving the competition blog

Without reaching too deep, Barry Klein can make the health-club landscape seem about as horrifying as something out of “Night of the Living Dead.” Co-owner of Elevations Health Club in Scotrun and Marshalls Creek, Pa., Klein told a seminar audience at last year’s Athletic Business Conference, “No matter what kind of facility you have, the trends are a little frightening. You thought you had sort of a lock on your market, and now all these competitors are pouring into it. All these storefronts are opening, and taking your customers. And it’s happening at both the high end and the low end — Lifetime Fitness comes in, basically builds a country club and charges $30 a month for it, or on the low end you have all those 30-minute workout places. It’s happening everywhere, and the rate of growth of storefronts is greater than the rate of growth of members. It means that we as owners are dividing the same pie over and over. It’s a very challenging environment.”

Though it falls a bit short of the eaten-by-zombies scenario portrayed in the classic horror film, competition creep within your market nonetheless requires a strategy for survival. Klein’s business partner, Rob Bishop, agrees with the observation that what is particularly striking about competition within the field of fitness is that there are dozens of ways to compete — and lose.

“Sometimes you do everything right and even then it doesn’t work,” Bishop says. “Failure is very easy to achieve, no matter how much enthusiasm you have. The restaurant business is a good parallel. Up the road from us, there’s a location that must have had six restaurants in two or three years, and still they keep coming. After the first five have failed, you have to wonder, ‘Who’s behind the sixth?’ ”

Who, indeed — for one of the most important aspects of mano a mano competition, industry veterans say, is to size up your opponent. Finding out about him or her (or them) is not particularly difficult, but it sometimes requires you to be a bit of a sleuth. Or maybe even a bit of a pest. As Rick Caro, president of the New York-based consulting firm Management Vision Inc., notes, there are various sources of information on would-be entrants into your market — equipment vendors, zoning commissions, real estate agents or the owners themselves (you might hear about a search for an operating partner, for example, or a fundraising drive). From these sources, you can piece together information about the size of the coming fitness facility, which will help you gauge how many people from the community are likely to join. Beyond that, Caro says, “If they already exist somewhere else, you can go study them — visit them, talk to people in their parking lot, maybe join as a trial member or pay a guest fee to work out and experience the club. You want to find out what people like best there, get some real honest-to-goodness inside information, and then try to figure out how that will transfer to your market.”

Answers to some of your questions will come just by knowing what sort of competitor you face. Purveyors of the 30-minute workout (think Curves) who have entered the industry via a small financial outlay — a franchise fee, a leased storefront and a set of leased equipment — will compete for different members with a different slate of program options than a franchisee of a large club chain such as Life Time Fitness, Gold’s Gym or World Gym. The owner of an independent club might well have come from the ranks of experienced fitness professionals at for-profit or nonprofit fitness centers, as a previous owner, a fitness director or a personal trainer. Says Klein, “All of these guys are easy to understand — there’s no reason to be surprised by any of them.”

But not all of them fit neatly into boxes. For example, when a new Gold’s Gym or Planet Fitness comes to town, it’s most often under the leadership of a local entrepreneur. So, while the new gym will be backed up (philosophically, at any rate) by the national chain, and will likely boast an impressive facility from a bricks-and-mortar standpoint, its ownership won’t necessarily be any more muscular than yours. As Klein and Bishop told ABC seminar attendees, a Gold’s franchisee they visited in their community was a roofer by trade, a fitness first-timer. He was, Klein said, “in hock up to his eyeballs, $3 million in. Normally we would say of a person in his situation, ‘He has no business opening a gym.’ But he was a guy with a dream. He had done his homework, he knew all about Gold’s. He drove the black-and-gold Gold’s car, but he was like us, just a local guy who wanted to own a gym. It’s important to keep that in mind when you’re looking to compete with these people: They may look more sophisticated than perhaps they really are.”

In fact, Bishop argues, your competitors may not be all that good at what they do — their business may close just as quickly as it opened, and may not even open at all. (Many chains are more concerned with selling territories than they are with opening clubs.) And yet, both Elevations partners concede that their natural paranoia sometimes leads them to take watchfulness to a whole new level.

“You need to know what’s going on in your market, and you have no choice but to use every resource you can,” Klein told ABC attendees. “Right now, there’s a new development moving forward in our area that’s probably two years away, and I called the developer and told him I might be interested in opening another storefront with him. I’m not, but I told him I was, so now he’s thinking, ‘Hmm, if a gym owner says he may be interested in the development, I’ll call Barry first.’ I don’t know if that location could carry a gym, but somebody might be interested — so I put myself right in the middle of it. Those are the kinds of things I think you have to do to manage your world.”

Could that location carry a gym? By knowing your market, you might be in a position to ignore a potential competitor, simply because you’ve scouted the location already and know what is and what is not possible there. A few years ago, Klein and Bishop got word that a Gold’s was coming to town, but they knew enough about their local zoning laws to know that the empty furniture store rumored to be the new location would never fly because of a lack of available land to expand the parking lot to meet code requirements. “So, we didn’t get too crazy about it,” Klein says. And, had the prospective owner gotten a hearing with the town council to ask for a variance, Elevations would have been there to, in Bishop’s words, “make sure there was a level playing field.” He explains, “We wouldn’t want to give them an economic advantage. We undertook a large expansion a year ago that cost a lot of money partly because of the parking we had to put in to meet zoning regulations. If we had to abide by that, I want everyone else to abide by that.”

Knowing both your market and your competition allows you to face the challenge of a new competitor without panicking. The big chains, for example, typically choose markets based upon population density, so if one chain decides to enter a market, it means others may soon follow. But if your area has no large chains and is relatively stable in population, the dreaded invasion may never begin. As for the small chains, they don’t really do what a full-service club does, so they can’t possibly be looked at as a serious competitor — or can they?

“I consider all the chains competitors, because you’d be surprised — people who can afford your club will often join the cheaper club,” says Joe Shank, owner of Almaden Valley Athletic Club in San Jose, Calif. “They all take a little piece of the pie. If people can afford your club but choose to go somewhere else, that’s competition.”

What your knowledge of your market and your competitors affords you, Caro says, is time.

“You get plenty of warning long before they’re going to open, and a good deal of time before they start to presell,” he says. “You have time to make fundamental changes to your facility and your offerings, to reposition yourself in the marketplace before the competition ever shows up.”

There is little agreement among club owners and consultants about the proper response to new competition. Shank, who sees AVAC as the preeminent club in his market, thinks it’s up to the newcomers to do the worrying. “We do our thing,” he says. “We talk to some of our competitors, find out what they’re doing regarding rate adjustments, that type of thing, so we keep our finger on the pulse. But we don’t adjust anything we’re doing because of our competition, believe me.”

At the same time, however, a new entrant in your marketplace is — or should be — an effective spur toward self-reflection. The trouble is, many club owners have an idealized view of what their clubs do well. As Tony Auriemma, a consultant with CMS Northwest in Seattle, says, “So many clubs don’t view themselves in realistic terms; they aren’t able to step back and look at themselves clearly.”

Auriemma was brought in to run a chain of clubs in California some years ago, and to get up to speed he asked club managers to explain the chain’s positioning. “They said, almost to a person, we’re a family-oriented club,” Auriemma recalls. “I asked in what way, and they said, ‘Well, we’re really friendly and we deliver good customer service.’ I said, ‘What, specifically, makes you family-oriented? What are your kids’ programs? What are your family programs?’ They said, ‘We have child care.’ That was it.”

Caro says that to really understand your club’s positioning, you must compare your facility not just to one competitor, but to your market’s entire competitive framework. Which of the elements of your facility’s operation put you at a competitive advantage or disadvantage? Take women’s programming: Your club offers yoga and Pilates classes that are fairly well attended, but your market includes a popular yoga/Pilates studio, a women-only fitness club, a Curves franchise and a YMCA with specialized women’s programming — along with other full-service clubs, like yours, with women’s fitness components. This makes your club, no matter how successful, just one of many options for women. “We go through a list of 25 components, including member socialization, food and beverage offerings, and various kinds of programming. And often, many of the things that the owner considers as a differentiator are actually seen, upon reflection, as giving them no discernable advantage or disadvantage,” Caro says. “If it turns out that you’re not very different from your competitors, you either have to accept it, or decide what the marketplace lacks that you can focus on.”

Finding areas of opportunity can be tricky, Caro notes. You may find that there’s a real need in the community for a well-run martial arts dojo, but that you lack the abilities — or for that matter, the passion — needed to make it successful. You may also find that as your focus shifts to teaching kids in martial arts, you could be destroying the fabric of what your club has traditionally done well.

Elevations faced just this kind of challenge when it invested $1 million in an expansion that added a pool and almost doubled the club’s size from 8,000 to 15,000 square feet. “Prior to the renovation, we knew who we were,” Bishop says. “We didn’t have any members under 16, and not a lot of seniors. Now, with the pool, we’re attracting members from both groups, and we’ve rolled out a lot of programming to capitalize on that and attract a wider demographic, and we’ve created a lot of different membership categories. The senior market is a very demanding market, and then when you add kids to the mix it gets really difficult, especially for a club like ours that had been adult-oriented.”

However, the expansion was defensible from the standpoint that by 2004, the partners had seen membership drop from 800 to 650 in the face of increased competition. Gradually, they determined that there was a disconnect between how they were pitching their services and how the club was perceived. Klein told ABC attendees of the club’s “really effective” marketing campaign that focused on what Elevations did better than everybody else in the local market — customer service and effective fitness programming — and how qualified its staff was. “And nobody cared,” Klein said to laughter. The fact was that the building itself didn’t scream out “high quality of service,” though the free one-week memberships the club was using as a primary marketing strategy were effective in giving prospects the time they needed to experience it themselves. The partners became convinced that members and prospective members needed to sense from the first moment that they entered the club that they were about to experience “the best part of their day.” The pool, the electronic gadgetry, the curved staircase, the leather chairs in the locker room — all have helped add to a membership that has now cracked 1,200.

“It’s hard for us to even compare pre-construction to post-construction,” Bishop says, “because it has changed so dramatically for us.”

Surviving the competition blog 2

Renovations to Elevations Health Club in Scotrun, Pa., help members sense that they’re about to experience “the best part of their day.”
Bishop cautioned ABC attendees against overreacting to a new competitor. “If one opens next door and you change everything you do to compete with them,” he said at the time, “six months later they could be out of business, and now you’ve got a business that you may not even want or know how to run.”

And yet, Elevations’ other recent change — the addition of the Marshalls Creek location — was made in response to competition that hasn’t yet arrived. “One of the reasons we opened a second club was to protect our territory,” Bishop says. “We saw a growing part of our community and we wanted to get there first, establish a beachhead and be able to grow.”

Shank believes that, along with the ubiquitous customer service and family orientation, this sort of reinvestment in the business is what differentiates quality clubs like his from other clubs in his market. “We reinvest upwards of a quarter of a million dollars into our club on an annual basis,” he says. “Last year, we reinvested three quarters of a million to stay ahead of the curve. It shows.”

Auriemma notes that reinventing yourself doesn’t have to cost that much. One of his clients recently spent about $15,000 on a designer who added murals and carpeted areas to a new color scheme that helped give members a sense of change. Another of his clients hired a specialist in feng shui who walked through his club and gave him tips about how he could make it be more appealing to people. “He thought it was too dark, and pointed out a few areas that were too cluttered,” Auriemma says. “It didn’t really cost them a lot of money to make some positive changes.” Even Klein admits that sometimes the smallest things make the biggest impressions. On the same day that Elevations added five new treadmills, a staff member put potpourri in the locker rooms, which is all that anybody remembered.

For all the talk of cutthroat competition in the club industry, there’s a fair amount of collegiality between rivals, especially among independent club owners. In many communities they tour each other’s facilities, or call each other to ask up-front about adjustments to fee structures and other business issues. Part of the respectful tone is the knowledge that other owners are people similarly devoted to fitness, like-minded individuals with a dream. In many cases, a staff member (or even a member) at one club will open their own club right down the road, in essence biting the hand that fed them.

Even that circumstance doesn’t frustrate owners like Bishop. What does frustrate him is the number of club owners who hurt the industry’s public image with poor management practices. Competition with someone like that quickly melts away the friendliness.

“People talk about needing more fitness facilities, and we do, but what we really need is more quality facilities that are well run, staffed by qualified people, and whose owners care about what’s going on in the community, in health and in fitness,” Bishop says. “We just had a club up the road from us close yesterday, and I’m not that unhappy to see them go. It was one of those clubs where the owner made promises about purchasing new equipment, sold memberships based on that, and never had any intention of delivering on his promises. I know him from previous experience, and I knew he was taking cash payments and spending the money rather than reinvesting it in his club. I knew he had equipment that was unsafe and out of order on his floor for months at a time. I knew he was hiring unqualified people, and offering poor service. Why shouldn’t I feel good about him going out of business? It’s better for our industry for him to go out of business.”

At Your Service

Ask 100 health club owners what sets their business apart from their competitors’, and 99 will utter two words — “customer service” — that denote a vital and perfectly viable differentiator yet, nonetheless, grate on the nerves of club consultants everywhere.

The trouble with customer service, according to Tony Auriemma, a consultant with CMS Northwest in Seattle, is that more people say it than actually offer it. “I’ve been in the business 33 years now, and no matter what club I walk into, when I ask them what separates them from the big boys, they all say the same thing — customer service,” Auriemma says. “But when I press them for real examples, the whole definition of customer service becomes kind of gray.”

Auriemma was recently working out in a club alongside an older gentleman who was staring at a piece of exercise equipment, reading the directions and clearly unsure of how to proceed. “I went over and helped him, set his seat position for him, and at the time there were three trainers, two salespeople and a front-desk person in the club,” Auriemma says. “It never ceases to amaze me that these clubs are out there, and their owners and staff don’t seem to recognize that situation as an opportunity for them to demonstrate customer service.”

Rob Bishop, co-owner of Elevations Health Club in Scotrun and Marshalls Creek, Pa., says his business naturally became focused on customer service and retention because of the rural location — “We weren’t doing 50 tours a day, we were doing two,” he says — but it’s no easy task.

“I think people in our industry fail to realize just how much contact we have to have with our customers,” Bishop says. “It’s not like when people go into a store and they may just deal with the cashier. We see our members daily sometimes, and they may have contact with a front-desk person, a class instructor, a personal trainer, a lifeguard or any other employee they run across. So we have multiple opportunities to make a good impression on our members. It’s not hard to do, but it’s hard to do every single day.”

Customer service goes beyond how members are greeted at the front desk. It’s how prospective members are given a tour, how membership prices are presented, how paperwork is filled out, how follow-up and marketing are handled, how staff people are trained — and literally hundreds of other situations, too. “It can’t just be one thing; it has to be pervasive throughout everything you do,” Bishop says.

Auriemma adds that too often customer service is seen by club owners as friendliness, while it would be more beneficial to view it as understanding your members.

“I think what really separates our business from a lot of businesses is that almost everybody who steps into our door walks in with a lot of failure behind them,” he says. “A question a lot of them will be asking themselves is, ‘What’s going to be different about this club?’ ”

Your entire program of offerings will ideally be set up to answer that question, Auriemma says. “Making sure members achieve their goals, not just saying you have a program,” he says. “That’s a good definition of customer service.”

Share This :