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 12

Emerging Consumer Factors Health club consumer & PRIZM profiles 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 2009 Health Club Consumer Report 13

Emerging Consumer Factors Health club consumer & PRIZM profiles •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. 14

Emerging Consumer Factors Health club consumer & PRIZM proﬁles 15

Emerging Consumer Factors Health club consumer PRIZM proﬁles 2009 Health Club Consumer Report 16

Emerging Consumer Factors 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 2009 Health Club Consumer Report 17

Emerging Consumer Factors 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

Emerging Consumer Factors HH “Upper Income” & education key drivers 2009 Health Club Consumer Report 19

Emerging Consumer Factors “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 2009 Health Club Consumer Report 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 2009 Health Club Consumer Report 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 22

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

Emerging Consumer Factors 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. 25

Emerging Consumer Factors Prevention - monetizing the wellness The emerging health care mess is creating new customer needs to reduce costs of traditional care via prevention 26

Emerging Consumer Factors Consumer’s don’t trust advertising The Days of Traditional “Sales” and “Marketing” in Health Clubs is Coming to An End 27

Trends - Emerging Economic Factors Proﬁles of Success 2009 2009 Proﬁles of Success 28

Emerging Economic Factors 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 2009 Proﬁles of Success 29

Emerging Economic Factors 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% 30

Emerging Economic Factors 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 2009 Health Club Consumer Report 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

Business Models & Trends - Growth Scenario Facility growth has slowed 2009 Proﬁles of Success 36

Business Models & Trends - Growth Scenario 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

Business Models & Trends - Core Economics Average membership dues fairly ﬂat since 1980 Car Today = $28,400 | Car 1980 = $7,210 39

Business Models & Trends - Core Economics Development & operating costs nearly quadrupled since 1980 40

Business Models & Trends - Core Economics 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

Business Models & Trends - Core Economics 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

Business Models and Trends - Competitive Landscape 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

Business Models and Trends - Competitive Landscape Prevalent Business Models & Trends 7 $134 Million 8 $130 Million 9 $110 Million Club Industry July 2010 By Editor Pamela Kufahl 45

Business Models and Trends - Competitive Landscape Bifurcation of the market - Ray Algar Model http://www.oxygen-consulting.co.uk/ 46

Prevalent Business Models & Trends - Emerging Ray Algar - UK Budget Market http://www.oxygen-consulting.co.uk/ 47

Business Models and Trends - Competitive Landscape Bifurcation of the market - Ray Algar Model http://www.oxygen-consulting.co.uk/ 48

Prevalent Business Models & Trends - Emerging Budget competitors emerging 49

Prevalent Business Models & Trends - Emerging New niche trends - engaging personal experience “drop-in” fees unlimited $89 - $17 - $40 $140 month 50

Prevalent Business Models & Trends - Emerging Hospitality brands reﬂect market bifurcation 51

Prevalent Business Models & Trends - Emerging http://futureofﬁtnesswhitepaper.ning.com/ 52

Prevalent Business Models & Trends - Emerging 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

Prevalent Business Models & Trends 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

Prevalent Business Models & Trends Growth - new emerging niches and models requiring new ways of doing things.... 55

Recap Of Trends 56

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

Evaluating Your Competitive Position - Internal SWOT Compare numbers to industry ﬁgures - benchmark 2009 Proﬁles of Success 62

Evaluating Your Competitive Position - Internal SWOT What is your technology platform ? customer focus ! Technology Platform: •CRM or just billing ? •Cloud based ? •Web site integrated ? •Mobility ? 2009 Proﬁles of Success 63

Evaluating Your Competitive Position - Internal SWOT How do you market ? Social media ! The “NEW” Marketing: •Social media strategy ? •What is your spend ? •Campaign effectiveness ? 2009 Proﬁles of Success 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

Evaluating Your Competitive Position - External SWOT Drive time psychographics - www.sitereports.com Forget “radius” use drive time ! 67

Evaluating Your Competitive Position - External SWOT Market assessment drive time - www.sitereports.com Drive Times Run 10 minutes Might want to adjust 68

Evaluating Your Competitive Position - External SWOT By utilizing PRIZM you can better estimate demand 69

Evaluating Your Competitive Position - External SWOT 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

Evaluating Your Competitive Position - External SWOT 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

Evaluating Your Competitive Position - Internal SWOT 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 2009 Proﬁles of Success 72

Evaluating Your Competitive Position - Internal SWOT 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% 2009 Proﬁles of Success 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

Plan Your Course of Action 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

Plan Your Course of Action 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

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How the fitness industry is changing and what to do about it

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How the fitness industry is changing and what to do about it — Presentation Transcript