Clubindustry

I normally blog a lot more at trade shows either on site or in the days after returning to the office. However, after spending some extra time in the Bay Area after IHRSA 2009 and hustling to get the April issue out, I haven’t posted anything officially other than this post on the IHRSA Financial Panel.

I’m starting to make a habit out of this. I didn’t blog about last December’s Athletic Business show until February. It’s a habit I hope to break at future shows.

So against the wishes of my boss—who’d rather I just plow ahead with other duties—and with my boss not around on a lazy Friday afternoon, and with the Royals playing their home opener (that’s where my boss is right now, by the way), I thought I’d take a few minutes to give you some of my highlights of IHRSA 2009 in San Francisco. more

Now that I’ve returned from the IHRSA trade show, I’m sitting down to blog about a few of the exhibitor visits I had while at the show.

My first visit was on Tuesday at the Sales Maker booth. Sales Makers has traditionally been a consulting company, but Doug Miller is now expanding the company out a bit to include a new product called Joinonline247.com. The product allows potential members to visit a club’s Web site, take a tour of the club, sign up for a free pass or register for a membership. The members pay for their membership through Pay Pal, so the club never has to deal with payment issues. Sales Makers is also looking to offer something called E-lerts, which is a desktop widget that allows instant communication with people who have downloaded the widget. They don’t have to open a browser. This would be a way for a club operator to stay in touch with members and notify them of news without having to send e-mails.

My second visit of the day was with John Stransky, president of Life Fitness (and a proud University of Kansas alumnus, as am I). Stransky says that since he came to the company three years ago, he’s been moving the company away from strictly focusing on the equipment to a focus on taking care of their customers (club operators) so their customers can take care of their customers (club members).

“We recognize that people who work out have made a commitment. They have goals. It’s important for us to recognize that commitment and help them reach their goals,” he said. “We don’t just want to make equipment; we want to make sure that our customers can take our equipment and help their members reach their goals. So we need to be our customers’ best partners.”

Stransky says that Life Fitness is helping by making equipment easier to use, providing more entertainment options on the equipment and making it more aesthetically pleasing so it’s not so intimidating to new members. The company’s new Elevation series cardio equipment includes iPod capability, USB ports so users can download their workouts and a virtual trainer option.

Of course, all this additional technology adds to the cost of the equipment, and in this day and age, added costs can be a problem, but Life Fitness offers cheaper equipment options for club operators who can’t afford the more expensive, but entertainment-laden equipment.

“If it doesn’t help the exerciser, the cost is too high,” Stransky said. “But if the extra benefits result in the exerciser having much greater success, then it’s worth it.”

Later that day, I spoke with Brent Knudsen, founding and managing partner of Partnership Capital Growth (PCG), and Brian Smith, partner in the company. The two did not have a booth at the show, but they were making the rounds. They spoke about how their company matches club operators with potential investors. Knudsen has a background with Northcastle, which owned Equinox at one time.

“Brent found a disconnect in the business. Private equities had a leg up in structuring deals over club owners,” Smith said. Smith says that PCG can help club owners prepare for investment by a partner or prepare for exit from the business.

Both of them said that club operators might be surprised by the number of investors still looking to get into the club business despite the economy.

“There are more investors than ever. There’s more money available now,” Knudsen said, noting that banks are loosening up now, and he anticipates that the stimulus bill would free up cash.

My last visit on Tuesday was with Fiserv (which recently renamed Checkfree as Fiserv Club Solutions). Randy Ivey, marketing director for the company, introduced me to Jim Parks, the new vice president and general manager of Fiserv Club Solutions. Although this was his first fitness industry show, Parks noted he was excited about the changes under way at his company and the opportunities for the company in the fitness industry.

On Wednesday, I just had two booth visits. The first was with Tim Porth at Octane Fitness. Porth showed me the company’s new seated elliptical, which is now being sold, and its new elliptical prototype, which will be released later in the year. The seated elliptical allows you to work upper body only, lower body only or both at the same time. It allows the exerciser to do some muscle work in addition to cardio, something that a lot of club goers want these days. The new standing elliptical allows users to change the stride length, offering shorter stride for smaller people and a longer stride for people with long legs or those who want to simulate a run.

My last visit of the day was with Keith White at Star Trac. White just returned from the Chain Reaction event that Star Trac was holding in the other hall. Chain Reaction was a three-day charity Spinning event to benefit Dr. Oz’s HealthCorps, which is a group dedicated to combating childhood obesity and raising awareness about the importance of living a healthy lifestyle. He took some time to talk with me about plans that Star Trac has for working with clubs. Although I can’t share more details about that right now, I am able to say that the company’s equipment is being featured prominently in this season’s “The Biggest Loser” TV show on NBC, something that White says has boosted Star Trac to one of the top 10 most recognizable brands in the country today.

At first glance, the 13th annual IHRSA Financial Panel, moderated by Rick Caro, didn’t appear to lend itself to a lot of zingers and one-liners. Intended or not, the session that painted a sometimes not-so-rosy picture of the financial status of the industry actually produced a few laughs.

It started with Caro, who introduced the four panelists: Peter Rottier, vice president of Summit Partners; Ed Moss, managing director of Lincolnshire Management; Hugh Paisley, director of Global Consumer Products and Retail Group of UBS Investment Bank; and Chris Gagnon, managing director of Global Leisure Capital Partners.

Caro went on to say that given the current economic climate, he did not invite a representative from a lending firm or an equity analyst, which got a chuckle from the audience. The thinking there is, for the most part, banks don’t have much money to lend, and all an analyst would do is tell us how poor the stocks are of publicly traded fitness companies, such as Life Time Fitness and Town Sports International. No need to rub salt in an open wound.

In his opening remarks, Caro rattled off a list of 20 headlines in the industry from 2008, most of which reflected the struggles the industry is having in this economy. A few headline topics centered around the deep recession of the U.S. economy (that’s a no-brainer); sales, net memberships and non-dues revenue are all flat; U.S. debt markets are limited and hard to access; and there are fewer new builds, fewer major club deals and fewer new equity players in the industry.

One of the new equity players is Summit Partners, which invested in Snap Fitness last year. Summit’s Rottier, who was introduced after Caro’s headlines, joked, “A lot of cheery news from Rick there.”

Rottier said what many of his fellow panelists said—that fitness tends to be a resilient consumer discretionary spend. Rottier added that at Snap, attrition levels have been maintained. “We’re doing OK at the store level,” he said. Snap Fitness targets small- to mid-size towns and has the 24-hour key-card model that has become one of the fastest growing segments in the industry.

Lincolnshire invested in The Alaska Club in 2007. Moss said Lincolnshire liked The Alaska Club’s family club model. Believe it or not, the company’s location in our 49th state was attractive, too.

“We also like the weather (in Alaska) because it’s so bad,” Moss said, producing some laughs. To put it simply, bad weather enhances the need for indoor recreation.

UBS has affiliations with a number of club companies, including Gold’s, Life Time Fitness, Spectrum and Virgin Active. Paisley of UBS talked about the four C’s that are affecting the industry today: Capital is in short supply, Convergence trends are accelerating, Consolidation activity will hasten as leading platforms continue, and the Competitive environment is in transition, with new models emerging.

Paisley said health and fitness is outperforming other retail sectors, and that while the fourth quarter 2008 results for Life Time and TSI were down, they were “fantastic” compared to other retailers, Paisley said. Paisley also noted in retail specialty segments, some companies that were the major players 15 years ago have been unseated in their sectors. Best Buy has supplanted Circuit City, Staples has supplanted Office Depot, and Bed, Bath & Beyond has supplanted Linens ’n Things. Bally was the top dog in the fitness industry in 1996, but it is not any longer. What club company has emerged? Maybe 24 Hour, but there is no definitive answer.

Gagnon of Global Leisure Partners said his company loves the fitness industry, the people in the industry and adds that the industry has “a ton more to go” to reach its potential. Global Leisure Partners invests in Fitness First, the largest non-U.S. club chain in the world.

Gagnon noted the growth this decade of programs such as yoga, Pilates, boot camps, kettlebell and sports-specific training. What they all have in common is that they are results focused, functional, community based and are inclusive, Gagnon said.

The question-and-answer portion of the panel session was brief but enlightening. The final question was most intriguing: Can you build a model of a club that is not dependent on memberships? Caro pointed out that once upon a time, racquet clubs started out as a pay-as-you-play business. The panelists said that the model would be much harder to finance and that a company runs the risk, if there were no memberships, of having everybody come to the gym at 5 p.m. on Monday.

Given the state of the industry and the economy, do we need to come full circle to those racquet clubs that started this industry years ago?

Wow, attending IHRSA has been a big learning experience! The fitness industry is so lucky to have so many positive, upbeat people in it.

This morning, I caught a really enlightening seminar by Seth Godin, formerly with Yahoo and founder of Squidoo.com. He noted that since consumers are hit with so much information, through the Internet, e-mail, direct mail, TV, etc., it’s hard to make them notice a club’s marketing message.

Godin suggested that to succeed in this new age of too much information, club operators need to create a sense of community in their clubs, and make them remarkable, which literally means, to remark about. If people are excited about what’s happening at your club, they’ll tell their network of acquaintances and can be good advocates for your business. He also noted that the Internet makes direct communication easier than ever, and that it can go both ways - positive and negative - so it’s important to ensure what people say is positive.

To develop a sense of community within a health club, Godin suggested club operators consider whether their business is about finding more customers for their club, or finding more club for their customers? He recommended leading people where they want to go with their fitness levels, and building a “tribe,” or community, among members who are longing to belong in a splintered society.

Lots of food for thought. I’m thinking I should check out Godin’s books now - perhaps we all should!

I just stepped out of the session Voluntary Facility Certification: An Update and Forum on the Current Industry Initiative where four panelists explained the process that NSF International is undertaking to develop standards for health clubs.

I thought the room would be packed—and apparently IHRSA did, too, as the session occurred in the largest room at Moscone. However, only about 15 people were in the room (not counting the four panelists). I was surprised that more people weren’t interested in this topic since it could affect their future.

We plan to run an item in the magazine in the near future on this issue, but I’ll give you a brief update here.

The panel was made up of Art Curtis, CEO of Millennium Partners Sports Club Management LLC, and chairman of IHRSA’s subcommittee on standards; Walter Thompson, regents professor, Department of Kinesiology & Health, Georgia State University, and chairman of NSF Joint Committee on Health and Fitness Standards; Mike Motta, member of the NSF Joint Committee on Health/Fitness Facility Standards and president of Plus One Health Management; and Frank Napolitano, president and CEO of GlobalFit, and member of the NSF Joint Committee on Health/Fitness Facility Standards.

The NSF Joint committee is on the 11th version of the standards and they are in the comment phase, so people can comment on the standards by e-mailing gr@ihrsa.org. You can view the standards by going here.

IHRSA surveyed its members (the survey is still open through the end of the month). Of the 14 questions asked in the survey, the average agreement rate for the questions (those who agreed with the standard in question) was 78 percent for 254 respondents (as of March 13).

One of the questions on the survey was whether the standards covered the right areas. The percent responding was 69.9 percent with 8 percent saying no and 22 percent saying maybe. Seventy percent of the respondents said that they would be willing to participate in voluntary standards, while 6 percent said they would not and 24 percent answered maybe.

The main reason for participating (at 84 percent) was to help grow the industry by increasing consumer confidence in the safety of accredited facilities. The main obstacle to participating was the cost (64 percent)—although the panelists said that no costs had been set yet. Administrative burden was an obstacle for 50 percent of respondents.

In the question and answer portion of the session, Mark Daly, spokesperson for Anytime Fitness, voiced concerns about the standard that would require facilities to be staffed by a person certified in CPR and AED 67 percent of the time. Anytime Fitness facilities, which are key card clubs, are required to be staffed just 40 hours per week, which would not equate to 67 percent of their “open” hours.

The committee members said that they hope to have standards ready for final approval at the end of this year. Stay tuned to our Web site and magazine for continuing developments in this area.

What kind of club operator are you? One that allows your employees to do what they do best or one that tries to make everyone fit into a certain job category regardless of their strengths and weaknesses? Author and business consultant Marcus Buckingham, who offered the keynote on the second day of the IHRSA show, said that the answer to that question might determine your business’s success or failure.

When Buckingham worked for the Gallup organization, he conducted a study in which they asked employees of a company that had a multitude of stores and a wide range in profitability from store to store to answer several questions. They wanted to determine why one company would have such a large variation in performance from store to store.

Upon gathering the answers, Gallup tossed out the results from questions in which employees at the top and bottom stores answered in the same manner and looked only at the questions in which the answers were different. The following question appeared to be the question with the greatest difference in answer between the top and bottom stores: At work, do you have the opportunity to do what you do best every day? At the top performing stores, a high number of employees answered yes. At the bottom performing stores, a high number of employees answered no.

Buckingham contends that people feel more productive if they are doing what they do best.

“When they can do this, things seem better, things work better,” he said.

That’s also why Buckingham says that to be a better person/employee, people must leverage their strengths and work around their weaknesses rather than focus all their time on trying to improve where they are weak.

“The world wants performance, but it doesn’t know about your strengths,” Buckingham says, meaning that if you spend your time using your strengths, you are offering performance—and at a much higher level than if you were providing performance based on trying to improve your weaknesses.

Of course, Buckingham was not saying that you should not try to improve weaknesses, but he said that employers should focus more time in a review on people’s strengths and how to use those strengths to benefit the team, then spend some time on reviewing weaknesses and how to improve. It also means that employers should ensure that people are in jobs that allow them to use their strengths to their full extent.

He used Warren Buffet as an example. The billionaire gave millions of dollars to the Bill and Melinda Gates Foundation to dispense the money as they saw fit. Why did he do this? He told the press it was because they could give away his money better than he could. Besides, he added, charity is no fun for me. What did he mean by this? He meant that his strength was in making money, not in giving it away, so he didn’t want to harm the process by getting involved in that process.

Buffet knows something that we all should remember: focus on your strengths and you can blossom.

“There are risks to blossoming, but the risk is far greater to not blossom,” Buckingham said.

On this St. Patrick’s Day when everyone seemed to remember their green, the IHRSA show launched with an 8:30 a.m. awards presentation and keynote event featuring Marcus Buckingham.

The first award presented was the Julie Main Emerging Woman Leader Scholarship, which went to Karen Jashinsky, founder and CEO of O2 Max Fitness, Santa Monica, CA. Main is co-owner and president of the West Coast Athletic Clubs in California, founder of the Cancer WellFit Program and a member of our magazine’s advisory board. She could not attend the event due to health issues, but Jashinsky was there to pick up the award, which goes to a woman who exemplifies courage, perseverance, excellence, professionalism and contribution to the industry and community.

Jashinsky works to combat youth obesity and developed an initiative to promote fitness and wellness in the teen community.O2 Max Fitness is a youth fitness media company with a fitness studio whose mission is to teach youth how to exercise and adopt healthy lifestyles while preventing injury through the use of social media and educational programs.

IHRSA also handed out another first-time award this year, the Outstanding Community Service award. This one went to Dave Patchell-Evans, founder and CEO of GoodLife Fitness Clubs, the largest fitness chain in Canada, for his mission to advance medical research and education in finding a cause and cure for autism. He established the Kilee Patchell-Evans Autism Research Group at the University of Western Ontario to honor his daughter. He was also appointed president of the Autism Canada Foundation.

The John McCarthy Industry Visionary of the Year Award went to Jeff Klinger and Chuck Runyon, founders of Anytime Fitness, which opened in 2002 and has grown to 1,000 open clubs this year. The award is for individuals who have made an unprecedented or unique contribution to the advancement of the club industry as a whole. Klinger accepted the award for both men (Runyon was on a long-ago planned Disney cruise with his family). Klinger thanked the 190 people in his company’s corporate office and the company’s franchisees for their work.

Being a Kansas City Chiefs fan, I was excited to see Joe Montana’s presentation earlier today. Yes, I know that Montana is known for his many years as quarterback of the San Francisco 49ers, but he ended his career in KC, bringing Chiefs’ fans a glimmer of hope in making the Super Bowl (alas, it was just a slight glimmer).

Montana offered a brief history of his childhood, growing up in a part of Pennsylvania where most boys grew up to be coal miners. His family didn’t want that future for him, so his dad pushed Montana to develop his evident athletic skills in many sports, including basketball and football.

He eventually made it to Notre Dame on the football team, but “didn’t perform well there,” he said. However, once he was drafted by San Francisco, things changed as Coach Bill Walsh demanded perfection from his quarterbacks, Montana said. He credited Walsh for showing Montana how to prepare for games and how to develop a good work ethic. He also credited Jerry Rice, wide receiver for the 49ers, for setting a good example of a great work ethic for the team.

“You see people work hard, and it pays off,” Montana said. “That’s what you need for your work organization to go to the next level.”

He also said that people need to trust the person next to them to do what they are supposed to do so the team can succeed.

“Preparation was the key to my success,” he said, recalling that he spent more time going over the plays after practice than he did practicing.

Montana suggested that when you are not successful, you should take a step back and look at what got you where you are, then go back to those basics.

“Don’t throw a bunch of Hail Marys,” he said.

The show kicked off Monday night with IHRSA’s state of the industry address, offered by Joe Moore, executive director. Moore welcomed the packed room of club owners/operators and other for-profit club staff from the United States and other countries to the IHRSA convention and trade show.

He mentioned that the economy may have some people concerned, but that the industry would not be retreating. He noted that as people are depressed and anxious, exercise can help relieve this stress. He also said that the medical community is paying more attention to the industry now, which should help increase the industry’s prospects.

He noted the industry has $62.1 billion in global revenue and 110.4 million global members. He didn’t offer revenue for the U.S. market, but he did say that the U.S. market has more than 30,000 health clubs.

I had been told that Moore would offer more details on the survey than the trade association did stating January 2009 results, but Moore did not note anything about that survey. I’ll be checking with IHRSA next week to get more information.

Moore congratulated SPRI for being the IHRSA associate of the year. He then introduced Kent Stevens of Matrix, who introduced Joe Montana, the keynote speaker at Monday’s opening. See the next blog entry for more on Joe Montana’s presentation.

Stephanie and I arrived in San Francisco early this yesterday to a partly cloudy first day of the conference. After getting our badges at the Moscone Center, I showed Stephanie the way around the large conference center so she could get familiar with the site since it’s her first IHRSA show.

We later attended the State of the Industry address by Joe Moore, director of IHRSA, and listened to Joe Montana’s speech. We’ll discuss those presentations in further detail in a later blog. After a quick change back at the hotel, we headed back to the Marriott to the opening night’s reception where I was pleased to see some familiar faces in industry consultants Sandy Coffman, Rick Caro (and his wife Sue), Ed Tock, Jeff Masten, as well as some new faces in Yvonne Lin and Anatole Grigorenko of Y Lab, a Swedish media company that focuses in part on the fitness industry. My time with Yvonne and Anatoli was especially beneficial as I was able to hear from them that much of the Scandinavian and European countries are also facing similar issues with a slowdown in club memberships.