How The Fitness Industry Is Changing And What To Do About It

becoming more competitive
how the ﬁtness industry is changing and
what to do about it
1

Bryan K. O’Rourke, MBA
Bryankorourke@me.com - Fitness Professional & Club Owner

connect with me @

Strategist, technologist, entrepreneur and club owner with thirty years of proven results in a
wide range of roles and industries.

His background includes serving as CFO of Al Copeland Investments former owner of Popeye’s
Fried Chicken and Church’s Fried Chicken brands; CFO and shareholder of Smoothie King
Franchises; and CEO of Applied Realtime Systems, a technology innovation company, among
other roles where he has help build national and global brands.

Bryan advises governmental agencies, non-profits and for-profits both domestically and
internationally and is active in the Mary Bird Perkins Cancer Foundation. He serves as the
Medical Fitness Association’s education committee chairperson and is an author & speaker.

His education includes a BS in Finance from the University of New Orleans, an MBA from SELU
and received the Crescent City Scholarship for the pursuit of a Ph.D. in Financial Economics.

He has focused on fitness and wellness during past 12 years and is a shareholder and executive
in The Health Club for Women, Fitmarc, Integerus, and the Flywheel group..

2

change across all industries How is the Fitness
the ﬁtness industry is no exception
change is not just cyclical its also fundamental Industry is Changing ?
3

<3>
demography technology

globalism

many industries experiencing change
4

Check Out This DVD For More
Information on Technology’s Impact

technology

5

demography globalism

6

Today : How the Fitness
Industry is Changing

1.U.S. Fitness Facility
Marketplace Overview

2.Prevalent Business
Models & Trends

7

in response to rapid change What Should You
industries are reinventing and innovating
creating new opportunities Do About It ?
8

...and
What to Do About It

3.Evaluating Your
Competitive Position

4.Planning A Course of
Action

9

#1 U.S. Fitness Facility Overview
10

1 U.S. Fitness Facility
Market Overview

•Emerging Consumer
Factors

•Emerging Economic
Factors

11

Emerging Consumer Factors
Health club consumer & PRIZM proﬁles

In 2009 IHRSA’s completed a nationwide survey of U.S. households. A total of 15,013 individual
and 26,487 household surveys were completed to create reliable proﬁles of members including
PRIZM segmentation.
PRIZM means “Potential
Rating Index for Zip
Marketers”
2009 Health Club Consumer Report
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Report Includes:

•Trends in Club Membership
•Attendance
•Activity Participation
•Member Profiles
•Typical Consumers
•Profiles By Club
•Profiles By Activity
•Club Fees
•Cluster Analysis
•PRIZM Profiles

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•PRIZM is a geodemographic profiling
system developed by Claritas. Each PRIZM
divides the U.S. consumer into 14 different
groups and 66 different segments. As the
classification is household based, we can
compare different areas according to the
likelihood of joining a health club. For
example, the highest indexed PRIZM
segment is “Blue Blood Estates,” so we can
target “Blue Blood Estates” households
within the health club’s immediate vicinity to
recruit likely members.

•PRIZM analysis is more valuable than
generic demographic data and provides
more meaningful insights into membership
profiles.

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15

Health club consumer PRIZM proﬁles

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Share of Current US Health Club Market

Urban Uptown
Elite Suburbs
Afﬂuentials
33% 11% Landed Gentry
Country Comfort
Middleburbs
13% All Eight Others

7% 10% 6 of 14 Segments
11% 14% Represent 67%
of the Market

17

Share of current US health club market

Penetration Rates = 17% Overall
50.00%

41.70% Combined 6 of 14 Segments
37.50%
Represent 67% of the Market
25.00%
25.10% 25.50%
23.20%
20.70%
16.40%
12.50%
10.77%

0%
Urban Uptown Elite Suburbs Affluentials Landed Gentry Country Comfort Middleburbs All Eight Others

moving this would have big impact

2009 Health Club Consumer Report 18

HH “Upper Income” & education key drivers

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“Price” is main objection or “perception of value”

Too expensive 61

Exercise elsewhere 52

Feel out of place 18

No available club 13

Don't exercise 16

Too crowded 12

Don’t know anybody 12

0 17.5 35.0 52.5 70.0

20

Emerging Consumer Factors - Existing Customers
Report ID’s 5 key clusters
Predominantly Male:
Focus on strength & resistance - 84% Male

Mixed Low Use:
59% use club less than 1 time a week - Less afﬂuent
25% non-members - Even male female mix

Predominantly 50+:
Slightly more female - most afﬂuent - 60% over 50 years of age

Super Avid Hi Spend User:
67% female - Highest participation especially group exercise

Female Low Spend:
80% female - 67% participate in group exercise

21

Emerging Economic Factors
Mixed low usage largest market share of members

11%
18% Male Strength
7%
Mixed Low Usage
50+ Group
22% Super Avid High Spend
Female Low Spend

42%

largest group of existing consumers
least afﬂuent and least participative
2009 Proﬁles of Success
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Emerging Consumer Factors - Michael Silverstein
Treasure Hunt - Inside the Mind of the New Consumer

Compa nies will thrive ,
Silverstein a rgues, by
catering to the penny-
pinching impulses of
consumers, or by "spanning
the poles" and appealing to
both the high and low ends
while avoiding anything else-
there's only "death in the
middle."

23

Emerging Consumer Factors - Michael Silverstein
Treasure Hunt - Inside the Mind of the New Consumer

The “New Consumer” Seen in All Industries.
Important to Understand “Value”
24

Alternative ﬁtness options - digital technologies

Consumers are getting accustomed to the
“long tail” affect - anytime, anyplace, anywhere.
Estimate 2 million in US utilize some type.

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Prevention - monetizing the wellness

The emerging health care mess is creating new customer needs
to reduce costs of traditional care via prevention

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Consumer’s don’t trust advertising

The Days of Traditional “Sales” and “Marketing”
in Health Clubs is Coming to An End

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Trends - Emerging Economic Factors

Proﬁles of Success 2009

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National growth has stalled for several years now

2009 Stagnant As Well

2009 $19.9 Billion
2009 45.3 Million Members

2008 $19.1 Billion
2008 45.5 Million Members

Related to economic factors
Limited supply increase
Restricted ﬁnancial
environment

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Customer retention key to revenue sustainability

Attrition Rates

Lifetime 38.20%

TSI 39.60%

Profiles of Success 30.60%

15.00% 21.25% 27.50% 33.75% 40.00%

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What are customers telling us ?
24% Left the Industry
50,000

46,668 45,570
37,500

25,000

12,500
10,268
0
-11,386
-12,500

-25,000
Total 2007 New 2008 Left 2008 Total 2008

31

Michael Silverstein
Treasure Hunt - Market “Bifurcation”

“I have seen that
consumers will always
trade down and buy the
cheapest product in a
category if suppliers fail
to deliver a stream of
innovation and build
loyalty based on product
superiority.”

32

#2 Prevalent Business Models & Trends
33

2 Prevalent Business
Models & Trends

•Growth Scenario

•Core Economics

•Competitive Landscape

•Emerging Segments

34

Business Models & Trends - Growth Scenario
US facilities - rapid growth since early 90’s

35

Facility growth has slowed

2009 Proﬁles of Success 36

Growth mostly in top MSA’s & Sun Belt - Regional

37

Business Models & Trends - Core Economics
Average membership dues ﬂat since 1980

Today = $49.95
1980 = About $40.00

2009 Proﬁles of Success 38

Average membership dues fairly ﬂat since 1980

Car Today = $28,400 | Car 1980 = $7,210

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Development & operating costs nearly quadrupled
since 1980

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ROI in the “average” model under pressure

What drives growth in any industry are ROI’s
that sustain growth and attract capital

The “average” is feeling most pressure
this is driving “bifurcation trend”

41

Economics has driven discounting for certain brands

capacity strategy
42

Business Models and Trends - Competitive Landscape
Face Off of Top 100 Clubs - Club Industry - July 2010

http://clubindustry.com/
forproﬁts/top-100-health-clubs/
index.html

Club Industry July 2010
By Editor Pamela Kufahl 43

Prevalent Business Models & Trends

1 $1.4 Billion 4 $812 Million

2 $1.0 Billion 5 $485 Million

3 $837 Million 6 $344 Million

Club Industry July 2010 By
Editor Pamela Kufahl 44


7 $134 Million

8 $130 Million

9 $110 Million

Club Industry July 2010 By
Editor Pamela Kufahl 45

Bifurcation of the market - Ray Algar Model

http://www.oxygen-consulting.co.uk/
46

Prevalent Business Models & Trends - Emerging
Ray Algar - UK Budget Market

47

Bifurcation of the market - Ray Algar Model

48

Budget competitors emerging

49

New niche trends - engaging personal experience

“drop-in” fees unlimited $89 -
$17 - $40 $140 month

50

Hospitality brands reﬂect market bifurcation

51

http://futureofﬁtnesswhitepaper.ning.com/

52

On line retail continues surge - ﬁtness models follow
"People are just shifting their dollars to the
Web," said Sucharita Mulpuru, vice president and
principal analyst for Forrester Research Inc.
Online retail sales will grow 10% a year for the
next ﬁve years, accounting for 53% of all U.S.
retail sales by 2014, according to Forrester
Research.

53

Wellness Model - potential to dwarf extant ﬁtness

•Huge $2.7 Trillion Opportunity
•Health care spending is
unsustainable.

•Prevention as a strategic position
for employers and ultimately
governments is inevitable.

•Key is outcomes and integration.

54

Growth - new emerging niches and models

requiring new ways of doing things....

55

Recap Of Trends
Consumers:
•Value perception is key barrier to increased membership
•Most affluent & educated have greatest penetration levels
•Low user cluster is largest segment - they are least affluent & least engaged
•Consumers increasingly trading up and down
•Consumers are becoming accustomed to digital delivery
•Advertising is distrusted by most consumers
•Wellness is growing need
Business models:
•Several large well financed competitors continue expansion
•Over 20% of market controlled by 9 key players nationally
•Top 30 MSA’s are key expansion markets - regions vary
•Discounting widely being applied in market
•Average ROI pressure - prices stagnant while costs increase
•Market is “bifurcating” moving upward and downward along value scale
•Emergence of budget model, hi-end and medical niches
•Technologies providing increasing options
•Requiring existing players to do new and different things to compete

57

What are your going
to do about it ?
#3 Evaluating Your
Competitive Position - Think Strategically
58

3 Evaluating Your
Competitive Position

•SWOT

•Internal - capabilities and
resources

•External - market
opportunities and threats

59

Evaluating Your Competitive Position
Conduct a SWOT analysis of your club business

Internal Review:

•Current position
•KPI’S - member execution
•What is your niche?
•What is your technology
platform ?

•How are you marketing ?

60

Evaluating Your Competitive Position - Internal SWOT
What is your niche ? Where are you positioned now ?

•Price
•Features
•Competitive abilities
•Wellness Option

61

Compare numbers to industry ﬁgures - benchmark

62

What is your technology platform ? customer focus !

Technology Platform:

•CRM or just billing ?
•Cloud based ?
•Web site integrated ?
•Mobility ?

63

How do you market ? Social media !

The “NEW” Marketing:

•Social media strategy ?
•What is your spend ?
•Campaign effectiveness ?

64

Evaluating Your Competitive Position
Conduct a SWOT analysis of your club business

External Review:

•Calculate Demand
•Calculate Supply
•Evaluate Pricing
•Review Existing Members

65

Evaluating Your Competitive Position - External SWOT
Determine Demand - www.sitereports.com

Eliminate your “gut” - quantify !
66

Drive time psychographics - www.sitereports.com

Forget “radius” use drive time !
67

Market assessment drive time - www.sitereports.com

Drive Times

Run 10 minutes
Might want to adjust

68

By utilizing PRIZM you can better estimate demand

69

Estimate Market Demand - Use IHRSA research !

Fictional Trade Area
Households
Estimated
Urban % of HH National % IHRSA % 2009 Households HH Demand
U1 - Urban Uptown 6.81% 8.30% 25.10% 7,000 1,757
U2 - Midtown Mix 21.37% 4.33% 16.90% 5,000 845
U3 - Urban Cores 25.46% 4.96% 7.10% 3,000 213
Total Urbans 53.64% 4.96% 17.40% 15,000 2,610

2nd City
Use the IHRSA 2009 Consumer C1 - 2nd City Society 6.24% 4.63% 30.10% 15,000 4,515
C2 - 2nd City Centers 7.04% 7.85% 11.70% 7,000 819
Report to calculate estimated C3 - Micro City Blues 4.16% 6.64% 9.00% 3,000 270
demand Total Second City 17.44% 19.12% 15.59% 25,000 3,898

Suburbs
This provides you a good S1 - Elites 2.60% 5.21% 41.70% 8,000 3,336
estimate for your market S2 - Afﬂuentials
S3 - Middleburbs
6.86% 7.71% 23.20% 7,000 1,624
7.23% 6.15% 20.70% 4,000 828
potential S4 - Inner Suburbs 12.21% 4.53% 8.50% 2,000 170
Total Suburbs 28.90% 23.60% 32.76% 21,000 6,880

Total Estimated Market 13,387

70

Estimate Market Supply - Under-serviced ? Change ?
Shop the Competition
Web Research
Estimate Memberships
Evaluate Offering

Demand = 13,387
Supply = 5,075
GROWTH POTENTIAL !

Brand Location Estimated HH Percentage of Adjusted Trade Estimated
Trade Share
24 Hour ABC Drive 2,645 50.00% 1,323 26.06%
Anytime Sierra Lane 820 75.00% 615 12.12%
Anytime Veterans Blvd 735 50.00% 368 7.24%
Snap Fitness Jone Road 640 50.00% 320 6.31%
Bally’s Laredo Ave 1,300 50.00% 650 12.81%
Jane’s PT Studio MPT 300 100.00% 300 5.91%
Your Club Your Club 1,500 100.00% 1,500 29.56%
Total Total 5,075

71

Who are your existing members ? PRIZM
Membership Mix by Psychographic Segments
by uploading household addresses

U! Urban Uptown 170

U2 Midtown Mix 80

U3 Urban Cores 75

S! Elite Suburbs 497

S2 Affluentials 249

S3 Middleburbs 107

S4 Inner Suburbs 104

C1 Second City 397

C2 City Centers 127

C3 Micro-City Blues 25

T1 Landed Gentry 80

T2 Country Comfort 12

T3 Middle America 8

T4 Rustic Living 6
0 125 250 375 500

72

Who are your existing members ? PRIZM
Membership Gains & Losses by Psychographic Segments
by uploading household addresses

U! Urban Uptown
U2 Midtown Mix
U3 Urban Cores
S! Elite Suburbs
S2 Affluentials
S3 Middleburbs
S4 Inner Suburbs
C1 Second City
C2 City Centers
C3 Micro-City Blues
T1 Landed Gentry
T2 Country Comfort
T3 Middle America
T4 Rustic Living
-15.00% -11.25% -7.50% -3.75% 0% 3.75% 7.50%

73

#4 Plan & Take Action
74

4 Plan Your Course
of Action

•Develop Your Plan

•Resource & Execute

75

Plan Your Course of Action
SWOT gives many answers
If you decide to
reposition doing it and
SWOT Delivers This executing it is hardest

76

Plan Your Course of Action - Where do you want to be ?
What must you add or take away ? Analyze ROI
•Proforma
•Capital
•Realignment
•Expertise

77

R=G - Prahalad - Use global resources

There are a large number of
experts, products, services and
solutions from vendors able to
support and advise
you on your ﬁtness business.

“Executives are constrained not by
resources, but by their imagination.”
-CK Prahalad, Ph.D.

78

Seek guidance from experienced professionals

79

Recap - What to Do About The Changing Market
Evaluate Your Competitive Position:
•Use SWOT approach
•Use IHRSA, RMA, FDD, SEC and other resources to benchmark
•Evaluate your current market offering including pricing, features, service
•Assess your technology platform - customer facing & integrated
•Assess marketing practices - spend, return and the “new” methods
•Calculate market demand in trade area using IHRSA and PRIZM
•Calculate market supply in trade area
•Evaluate current base of membership and changes
•Think strategically
Plan & Act:
•SWOT generates road map
•Conduct in-depth proforma analysis
•Prioritize actions - do nothing or reposition
•SEEK HELP - IHRSA, global vendor pool, expertise
•Implement and execute

80

In Closing - Our Industry Holds Great Promise

“Without change there is no innovation,
creativity, or incentive for improvement. Those
who initiate change will have a better
opportunity to manage the change that is
inevitable.”
C. William Pollard

““Learning and innovation go hand in hand. The
arrogance of success is to think that what you
did yesterday will be sufﬁcient for tomorrow.””
C. William Pollard

81

Thank You

Bryan K. O’Rourke, MBA
Bryankorourke@me.com
www.bryankorourke.com

82

How The Fitness Industry Is Changing And What To Do About It

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