The Dollar Dilemma

Have you heard? Planet Fitness has devalued the fitness industry lowered its dues to an offensive amazing $1 sign-up fee and $10 monthly dues with no commitment requirements! Isn’t that awful great?

It’s not like I didn’t expect this. Businesses lower prices to compete. But even if this means Planet Fitness can keep its lights on for another month or so, what does it mean for the industry after the economy rights itself?

Will the fitness industry end up like the airline industry? Airfare wars have driven prices so low that I wonder how long it takes before somebody offers to pay me to fly, instead of the other way around.

A $10-per-month price-tag is ridiculous. I can’t see how this lowball strategy will help the industry in the long run.

What am I missing? How can this possibly be a good idea? I seek enlightenment in the FM Blog’s comments section …

In the Spotlight

The tax-exempt status of non-profit fitness centers is the subject of a long-standing debate in the fitness industry. It hasn’t always taken center stage but, thanks to the current economy, that seems to be changing.

Now, the spotlight is shining brightly on non-profit fitness centers as states and cities explore new ways to get desperately needed funds.

Winchester, Va., is considering taxing hospital fitness centers.

The State of North Dakota tried to pass a bill that would allow levy property taxes on some nonprofit organizations, including YMCAs. The bill failed, but some lawmakers are still pushing to tax those businesses for police and fire protection.

Local governments are cutting or reducing funding. Bar Harbor, Maine, slashed taxpayer funding by $41,000 for the Mount Desert Island YMCA. Instead of getting $56,800 from the city, the YMCA will now receive $15,000.

Some will call this an overdue leveling of the playing field. Others will call it a devastating blow to communities and under-served populations. The debate will continue, and we can expect that scrutiny of some businesses’ tax-exempt status will only intensify.

We won’t all make it through to the other side of this recession. But those who do — for-profits and non-profits alike — will likely be faced with a new industry landscape. It's anyone's guess which fitness businesses will be in the spotlight then.

Can Our Industry Capitalize on the Recession?

Now that we’re officially in a recession, and scores of people are cutting back on their finances, the New Year is upon us. What does this mean for the fitness industry at a time when the greatest jump in membership sales typically occurs? We’ve always been able to count on those New Year’s resolutions!

But, over the Thanksgiving weekend, as I was watching the Fox News channel, it became ever more clear that those New Year’s resolutions may not pay off for our industry this year. While interviewing shoppers about their spending plans for the Christmas holidays and beyond, more than one individual mentioned their fitness center membership as one of the items that would be eliminated as their belts were tightened. The gym expense is considered by these people as “discretionary spending.” Even USA Today reported that cash-strapped customers have cut spending on spas and gyms.

This is not the first blog the FM staff has written about how our industry is going to hold up during what seems to be a never-ending economic downward spiral. And we are far from the only ones taking a look at this issue. Each day, a new story appears in some city paper about the problems our industry is, or in some cases, is not, facing. During Thanksgiving week alone, articles appeared with the following titles: Fitness Centers Work Out Deals; Fitness Clubs Fight Unhealthy Economy; Gyms Weather Economic Storm. And, those are just a few examples.

What’s interesting is that many noted industry experts have claimed, and are still claiming, that the fitness facility industry is recession-resistant. But, is this true? In the above-referenced articles, many facility owners are saying that they are not being affected by the recession, yet many others are saying they are.

Unfortunately, economists are saying this is one of the worst economies we have seen in a long, long time — long before fitness memberships were a part of the American family’s budget. So, with times as hard as they are, it’s logical to assume that we’ll hang on to many members, but we’ll also lose others, and we certainly may not gain many new ones.

To survive, then, our industry needs to respond in a variety of ways. Many are discounting their services, whether that is wise or not. Others are providing guarantees. See the article, Personal Fitness Training Franchise Introduces Bold New Fitness Goals Guarantee.

But, perhaps the most important response we should consider is how we can change consumers’ perceptions of “fitness.” The main thing that should be stressed in our marketing and communications to the public is that fitness is a “necessity,” rather than a “commodity.” As the writer of the article, Fitness Clubs Fight Unhealthy Economy, states, our services need to be “touted as stress-reducers, not indulgences,” and we need to highlight the economic benefits of “wellness.”

Where’s the Fitness Bailout?

Ballys is bankrupt. Fitness centers are closing at an alarming rate. Layoffs are rampant. But if you’re holding out for a free pass on your debt from the government, you’ll be waiting a long time.

The only people who have the power to offer a fitness bailout is you — to your members, to the displaced members of facilities that have gone under and to the masses of stressed-out people convinced that gym memberships are “discretionary spending.”

It’s time to step up.

We recently posted about a fitness center that temporarily discounted or suspended membership fees to help defray the cost of fitness for those in economic agony. Most commentors to this blog said they thought it wasn’t a good idea, and that it devalued the service fitness facilities offer. Many suggested finding ways to add value to memberships in order to increase their attractiveness.

Unless “adding value” includes magically giving them back their jobs or buying their homes at their 2007 value, I’m not sure many people will see the light.

So, how else can you make a fitness membership necessary, not discretionary? As usual, I’m full of ideas.

• Buddy up with a local diner so members get 10 percent off each meal they eat there.
• Hire a job counselor to meet with members in the lobby area or a spare office.
• Put up a large bulletin board and dub it the Job Center. Encourage local businesses to post their openings, and be sure to broadcast success stories.
• Offer free coffee and toast in the mornings. It’s not much, but you’d be surprised how much a free breakfast — no matter how Spartan — is worth to people.

Unlike the other bailouts in the news these days, a fitness bailout you offer will most definitely be repaid. When the economy rights itself, when people aren’t struggling and worrying, they will remember your fitness center. They will remember how important it was during this dark period in their lives.

And, someday, they just might bail you out, too.

Free Personal Training?

It’s never a popular time to suggest taking a cut in income, especially right now, during what most believe is a recession. But, here goes. I strongly believe that for fitness center operators to keep as many of their members as possible — especially those who lack the knowledge and the motivation to succeed in their health and fitness goals — fitness instruction (a.k.a., personal training) needs to be included in the membership price.

There are two compelling arguments for this. First, in an industry trade show seminar about selling personal training, the speaker, a facility owner, said, “Most of your members know they don’t know how to get real benefits from exercise, and those who think they know, don’t know either.” The point was that most members need personal training to succeed. However, since the majority of members don’t pay for personal training, mostly because they can’t afford it, they’re not reaping the fitness benefits of their membership. Typically, that means that they don’t stay members.

There is a strong perception by the public that fitness centers and their staff simply don’t care about them. All they care about is selling them the membership, and then the member is forgotten. In the majority of cases (no, not all), this really is the truth. But, as Carl Liebert, CEO of 24 Hour Fitness, said in an industry trade show panel discussion titled “Fitness Business at a Crossroads,” the fitness industry’s membership numbers are never going to change until we earn the public’s trust: “It’s about earning people’s business; giving first, and then receiving.” It just seems logical to me that if we can show members that exercise really does work if they do it correctly, they will reward us by staying members and recruiting others.

Second, if you Google “free personal training” on the Internet, 27 million results turn up. Not all of these results actually offer free personal training, but a lot of them do. Free online fitness programming is exploding. How, then, when pinching pennies is a necessity for most people, are fitness center operators going to compete with that if they don’t offer something comparable? The online freebies may not be as good as the hands-on personal training you would get at an actual fitness facility, but tell that to the cash-strapped consumer, especially since it’s free.

There are fitness centers that have set the example for how offering free exercise instruction works. And, it’s paid off for them. A couple of these include two Anytime Fitness centers: one in Wabasha, Minn., and the other in Lake City, Minn, and West Virginia University Recreation Center.

Maybe this isn’t such a popular suggestion right now, but maybe it’s one solution that may get our industry through some tough economic times, and, in the long run, it may be one of the solutions to altering public perception.

Surviving the Economy

Every business today has been affected by the economic downturn. I doubt any fitness facility has been immune to members who have had to either put their memberships on hold or terminate them completely due to layoffs, pay cuts, etc. The question, then, is what is the right thing for the fitness industry to do to not only help their customers, but to also reduce their attrition rates?

Several solutions are being offered for how fitness facility operators are dealing with customers who are in a pinch. But, all of these solutions deal with the dreaded “discounting.” The notion to discount our products and services has been widely discouraged over the years, namely because, by discounting, we’re sending a message that our product is not worth what we’re asking. But, is that really relevant in today’s economic climate?

For many facilities, apparently not. According to an article published last week in The New York Times titled Staying Healthy in a Sick Economy, the author notes that consumers are especially in need of a healthy outlet during this stressful period. So, to help these consumers and, of course, to keep them on the rosters, fitness center operators are willing to bargain. A couple of examples include not charging members who quit a fee to rejoin when they’re able, and offering shorter, cheaper and shared training options. (See last week’s related blog, Survival of the Fittest.)

The issue is whether the fitness industry can portray itself as the savior by tightening its belt to serve the public, and then reemerge when the economy strengthens as a product to be valued, returning to previous pricing strategies.

Maybe, maybe not. It depends on how many low-priced competitors decide to pounce on the market to lure cash-strapped customers into their facilities and away from the higher-priced ones. Look, for example, at a new line of fitness facilities named MiFit in the United Kingdom. Recognizing that people are struggling to pay the dues at most fitness centers, their new “low-cost fitness concept” provides memberships available only online at a rate of 9.95 pounds per month. According to the managing director of the corporation, MiFit fills “a gap in the market by providing premium fitness technology at a low cost.”

I guess only time will tell how the economy will affect our industry long-term. For now, facility operators will just have to do what they believe is necessary — for the good of their members and their fitness centers.

Survival of the Fittest

When times are tough, only the strong survive. The global economic crisis is about as tough as it gets, and already some fitness businesses are struggling — and failing — to stay alive.

New business ventures are being put on hold because entrepreneurs can’t get the credit to fund them. Clubs are facing increasing attrition rates because members can’t afford their dues. And there’s nothing you can do about it.

Or, is there?

According to a recent article in the New York Times, some clubs are finding ways to help their members through the economic hardships, and hopefully ensuring their own survival.

TELOS Fitness Center, Dallas, Texas, now waives applicable fees for rejoining the club for longtime members who have quit and wish to return. “I’ll put a note in their file and we’ll let them pick up their membership without any fees,” Clarisa Duran, sales and marketing director, told the Times.

What are you doing for your members to help ease the burden brought on by lost jobs, lack of available credit, and Wall Street turmoil?

Pinching Pennies

Everyone has heard about Barack Obama’s money-saving advice to Americans in this economic crisis: Keep your tires properly filled with air. Obama got a lot of flak for this. It’s a mundane and unglamorous solution, after all — hardly worthy of an election year sound bite. But pinching pennies is nothing if not mundane and unglamorous, and here are a few ideas that might help your fitness center. (Offer your ideas — or disagree with mine — in the comments.)

1. Reduce your personal training staff. Unless every session time is filled for every personal trainer at your facility, you can most likely afford to cut at least one position. Even if you have a commission-based arrangement with trainers, consider what you shell out when they’re in the building waiting for business: They use water and electricity, take up employees’ time chatting, wash their hands, fiddle on the computer. These are all little things, but, over time, they add up.
2. Eliminate your marketing budget. In this economic climate, keeping the members you have is a better bet than attracting new ones.
3. Keep membership fees constant. The temptation to slap a “sale” sign on the front door to lure potential members inside is strong, but don’t do it. It devalues the service you offer. And, there is no quicker way to alienate your tried-and-true members than by slashing the membership fee of Mr. Sweaty-Come-Lately.
4. Control the temperature manually. For the time being, take the thermostat off autopilot and experiment with keeping the temperature a bit higher than normal. In the winter, keep it a bit cooler. Honestly, there is no “perfect” temperature for a fitness facility (though you’d be surprised at the number of inquiries we get asking for a hard-and-fast number).
5. Eliminate paper. Come on, now. There are lots of ways to cut paper use in your fitness center. Why print out a gazillion copies of the new group exercise schedule every month when you can write it out on a large whiteboard? If members like to have a hard copy, keep the schedule updated on your website and send out a mass email each month.

I’m not saying that any of the above ideas are more sound-bite-friendly than Obama’s air pressure bit. But, at this point, I’d bet some facility owners would be willing to sacrifice a live chicken or two to keep costs down. Keeping enough air your tires, in comparison, isn’t really all that silly.

Some Perspective on Dues Value

Fitness facility operators are pretty smart when it comes to membership dues pricing. At least when compared to most members who sign up for club memberships.

Our industry has talked for years about how to make people understand the “value” of their memberships. It’s said that the industry has underpriced its services, which has led to the perception that a membership is really not worth that much. But, are memberships really worth the average $50 or $60 a month being charged?

In recent years, there has been more and more talk about charging users on a pay-as-you-go basis. Most facilities offer the option of paying $10 for a visit, without signing up for a membership. Others are starting to offer some or all of their services as pay-as-you-go only. But, wouldn’t it seem logical that fitness facilities would make much more money by charging people that $10 usage fee for every workout?

Not so. According to a paper published in 2002 by researchers at the University of California at Berkeley, when people purchase a membership, they actually believe they will go to the club more often than they do. So, they assume that the monthly rate they are paying is a good deal. But what the researchers found was that most members only use the gym an average of 4.8 times per month. If the monthly membership dues are $60 a month, that means that the average member is paying about $17 per visit. That’s $7 more than the $10 daily use fee.

Another study performed in the Boston area and reported on in January in the Chicago Tribune turned up the same findings. Researchers looked at 8,000 fitness center memberships over a three-year period, and found that most people never make it to the gym three times a week (like they thought they would); instead, they only work out about one time per week. These researchers also figured it to be about $17 per visit, and concluded that 80 percent of the people studied would have been better off paying the $10 daily fee instead of purchasing a membership.

Fitness center operators know this. Read my blog entry The Big Fat Truth About Health Clubs. So why, then, at all of the industry trade show seminars on customer service, are the speakers always recommending that staff get on the phone and call members who aren’t coming in? Health club operators know that that would be foolish. Even an article in the Financial Times this past January highlights why fitness center dues structures rely on those members who sign up and never use the facility. They don’t want to remind these members that their money is being wasted.

So, the whole argument about value is really not true. As the UC Berkeley researchers conclude, most health club members either make “time-inconsistent choices” or they have “limited cognitive abilities.” Pretty smart on the part of club owners, huh?

Just Say No to Dues Taxes!

How can government justify taxing health club membership dues, and what are you doing to help put a stop to this? Especially at a time when the obesity epidemic is causing a national healthcare crisis! Federal officials have estimated that treating obesity-related illnesses costs about $93 billion a year, and that was from a report in 2004.

It’s not like government hasn’t recognized the importance of this issue and taken numerous others steps to raise awareness and provide incentives for people to take better care of their health. In 2004, the Centers for Disease Control and Prevention predicted that obesity, caused by a sedentary lifestyle and poor nutrition habits, would overcome tobacco as the leading cause of death in the U.S. In 2006, the Health and Human Services secretary announced plans to develop physical activity guidelines, and in 2007, members of the advisory committee who will develop them were announced.

Other industries have also played a role in raising awareness and helping to curb the trend. The media has published countless studies on the benefits of fitness to combat obesity, which is a major cause of death. And, in the past several years, insurance companies have begun offering premium discounts to individuals who work out at fitness facilities. The company that has been most in the news lately is Medica Insurance Company. In 2003, Medica Insurance Company started offering $20-per-month incentive payments to members of fully insured plans who exercised at Life Time fitness centers at least eight times per month. It now also has agreements with most YMCAs and YWCAs in the Minnesota area, and, most recently, it added Curves fitness centers to its plan.

Currently, 25 states (almost half) impose a tax on fitness center dues. (You can view a summary of these on IHRSA’s website.) Yet, in 2004, the IRS approved tax deductions for obese Americans for doctor-approved weight-loss expenses, which include stomach-stapling surgery, approved weight-loss drugs and nutritional counseling. What kind of a mixed message is this?

For now, a few changes have been seen. On November 7, the Michigan Senate repealed its newly imposed sales tax on health club services. Then, in mid-November, the Maryland sales tax bill deleted health clubs after more than 14,000 emails, petition signatures, postcards and phone calls in protest.

This issue should be at the top of the fitness industry’s list to nip in the bud before it’s too late. It’s time for every fitness facility operator to do their part in making a major impact on reversing the tax on fitness center dues. Keep informed, write to your legislators and help be a part of fixing this national healthcare crisis — not just on a business level, but on a national level.

Is a Big Fine in Your Future?

If you attended the Technology Summit at the IHRSA show in March, you may have been a little freaked out. Speakers Michael Scott Scudder, owner of MSS FitBiz, and John Whitworth, business development manager of Ambiron Trust Wave, told facility owners that, if they weren’t PCI Compliant by the end of March, they could be fined up to $100,000 by the Payment Card Industry (PCI). Yikes! Amid the doomsday talk and technical jargon, something Scudder said jumped out at me: Being fined that much could ruin a club’s entire business.

The basic idea is that credit card companies formed a group and created some standards in order to pass along the cost of fraudulent charges to you. They created the PCI Data Security Standard (DSS), which every company that uses credit cards must comply with. If you don’t, and a customer or employee uses someone else’s card number illegally, you get fined. Also, PCI could keep you from using credit cards at all, which would basically wipe out your business. To give you an idea of just how big this is, credit card usage (including debit cards) in membership transactions went from 35 percent in 2002 to 65 percent in 2007, according to Scudder.

To be compliant, fitness centers must better control how they get credit card information and store it. Do you have member card numbers in some filing cabinet that isn’t locked? That is a finable mistake. Many more rules exist, and they can be found at www.pcisecuritystandards.org.

Being non-compliant should scare you. It scares me, and I don’t even OWN a club. However, is it time for fitness centers to hit the panic button and scramble to find experts to help them avert a financial crisis? I think sensible clubs can calmly contact their bank and software company and make the necessary changes without losing any sleep. No freaking out required.

Is your facility PCI compliant? Do you even know what that is?