2020 is only a few months away, and with it comes the start of a new era for the health club industry. Milestones, like a new decade, offer a chance to evaluate what has happened and what might be expected in the years to come, and news and trends for 2019 serve as a reliable indicator for the future of the health club industry. With 2019 being a year of continued growth for health clubs, gyms, and fitness and wellbeing services in general, changes brought on by technological advances, investment and M&A activity, evolving consumers, and a robust marketplace of competitive offerings continue to impact the industry landscape in some expected and unexpected ways.
What can events of 2019 tell us about key trends in fitness and health clubs? How should operators interpret and consider 2019 in evaluating strategies for the decade ahead? Here are five key areas to keep an eye on.
The Marketplace for Fitness And Health Services Is Growing And Evolving
IHRSA, the global association representing the gym and health club industry, publishes valuable research, and their 2019 IHRSA Health Club Consumer Report is no exception. This annual publication provides member data, consumer trends, and insights for gym and health club operators based on a 29,000 person online survey of U.S. consumers.
The report confirms a growing market for fitness services and that health clubs and gyms are playing an increasing role in helping consumers get active, lead healthier lives, and pursue fitness and sports goals. According to IHRSA executive vice president of global products, Jay Ablondi:
"Over the past three years, overall industry membership has grown at a rate of 12%. The largest relative percentage growth in total members based on price point has come from the premium segment (dues between $75 and $99 a month), at 142%, followed by budget and premium budget clubs at 128%. When viewed by industry segment (i.e., club type), corporate fitness centers and nonprofits have experienced the greatest relative growth in members over the past three years."
The report also shares survey results about consumer sentiments, trends, and provides specific recommendations for gym and health club operators when it comes to being successful (purchase a full copy of the report here).
Here are three key findings, takeaways, and tips highlighted by IHRSA consumer reports that gym and health club operators can use to improve their fitness businesses now and in the future:
1. More Consumers Are Flocking To Boutique Fitness Studios. While the industry is growing overall, some segments are experiencing significantly more growth than others. In the case of commercial facilities, their dominance of the membership market has been eroded by boutique studios. Boutique studios now account cumulatively for 40% of the industry's membership. Over the past five years, membership in boutique studios has grown by 121%. In comparison, commercial fitness-only and commercial multipurpose facilities have grown by 18%. Why? Because consumers are seeking more group and personalized fitness experiences, particularly millennial members but active aging members are also a part of this trend. Clubs should be paying attention to creating great fitness experiences with engaging classes, programming, and other services to counter the boutique surge.
2. More Consumers Have Multiple Gym Memberships. Over the three-year span from 2015 to 2017, there has been a 20% increase in the percentage of members who indicated they use multiple facilities, rather than just one. In 2017, the industry average for multi-facility usage reached 23%, with commercial fitness-only facility members at 25%, commercial multipurpose facility members at 41%, and some boutique studios at 90%. Consumers are clearly spending more money on fitness services. Successful operators are introducing health and fitness-related services, such as chiropractic, physical therapy, athletic training, wellness, and nutritional coaching. While some clubs are already embracing this approach, far too many are not. Even leading club companies could improve on generating more revenue from health and fitness-related services rather than relying on membership dues as the primary source of income, taking a larger share of the wallet. Consumers are spending more; you have to give them more reasons to spend with your fitness business.
3. Industry Should Shift From A Sales Orientation To A Service Orientation. A "sales is everything" mantra has been the single-most influential cultural attribute in shaping the health club, gym, and fitness industry. It has been responsible for the industry's growth over the years, and, without that cultural mantra, the fitness facility industry would not be where it is today. But today's business challenges, such as industry segmentation, boutique studios, generational preferences, social fitness, hyper-competition, cross-facility usage, and others, are considerably different than the challenges the industry faced during its prior growth spurt. Today's challenges require a new way of thinking. The fitness industry created today's challenges, and the old way of thinking (overselling to compensate for operational deficiencies, dropping the price, copying the competition's moves, and others) is no longer the right mental framework to meet today's challenges. Remember, behavior cannot change unless thinking changes first.
While the bricks and mortar arena of the fitness industry reflects robust growth, increasingly fitness services are seen as a part of a larger marketplace of health, betterment, and wellbeing, and the numbers demonstrate this. The "wellness" industry, which comprises fitness, nutrition, travel, and more, has grown even more robustly than fitness alone. According to the Global Wellness Institute, the global wellness economy is a $4.2 trillion market and grew 12.80% alone from 2015-2017. You can download their report for free here.
These reports and other findings reflect an evolving marketplace. What "member experience" means and what steps operators need to consider when they think about providing a more meaningful experience for their members during this era of expansion, as a result, becomes very important to success in the next decade. The Fitness Industry Innovation Podcast interview with ABC's Vice Chairman Paul Schaller goes into further detail about how experience has been redefined and how the fitness and health club industry has grown and evolved in the past several decades. The podcast interview offers specific recommendations, and examples health club operators should consider as 2019 comes to a close, and the new decade begins.
So what do these eye-popping stats, industry research, and expert advice mean for health club, gym, and fitness business owners and operators? Well, understanding what is driving growth can help with creating a sound profitable business strategy. It is important to keep well informed and to obtain useful and reliable resources. The Ultimate Health Club Management Guide can help you learn more about how to operate a successful health club business in this era of massive growth in fitness and wellness services. You can also subscribe to ABC Financial's blog or the Fitness Industry Innovation Podcast for updated health club industry news, trends, and interviews from the leaders in the health club industry space.
Technology Continues To Impact Health Clubs And Fitness In General
Technology is not only impacting how health club operators manage their businesses, it is also affecting consumer behavior and the industry in general, creating new growth markets and opportunities.
The fitness industry is clearly becoming a segment of the broader marketplace of wellness, wellbeing, and as others have called it, betterment. The increasing relevance of data, the importance of personalized member experiences, the trend of frictionless commerce, are all a part of a newly emerging discussion about the industry in general.
The overarching theme, of course, is how technology will continue to impact the gym, health club, fitness and wellbeing market space. This is a big part of the discussions occurring with industry experts on our Fitness Industry Innovation Podcast.
In 2019 Jeremiah Owyang wrote about the emerging fifth digital phase, which he calls modern wellbeing. As Jeremiah alludes to, eras happen in overlapping waves; they don't start and stop; they overlay and interact with each other. He shares examples of the Collaborative Economy era (think Uber), which will soon become the Autonomous World era (think self-driving cars). What results from this layering is that sometimes, what is happening is not really clear. As we all know, change in the world does not happen in a linear manner; it can take different twists and turns. Here is a quote from Jeremiah's writing about the modern wellbeing era:
"Over a decade ago, I was analyzing how social technology democratized information, forever changing communications, media, marketing, and even governments. About five years ago, I dove in deep on the Collaborative/Sharing Economy, where yet again, technology empowered humans to take commerce into their own hands. They could get what they needed from their peers. Both of these trends continue to also have an impact on the economy, society, human interactions, and beyond. Now I see yet another movement – the Modern Wellbeing market, which enables humans to take healthcare, mental care, physical care, directly into their own hands. They are (for better or for worse) self-analyzing their bodies and minds with consumer technologies and relying on each other, and emerging AI systems to self-prescribe ways to help them be healthier, improve their mood, and beyond."
In contemplating the current state of fitness, gyms, health clubs, and wellbeing, in the decade ahead what Jeremiah's thesis sets forth is a marketplace which will grow substantially as a result of technology and will be profoundly larger and more varied as compared to what it is today. This will require a great deal of strategic thinking by organizations currently in the industry space of fitness and wellbeing because the decisions that are being made about the future today could create huge opportunities or result in missed opportunities. Strategy really comes down to the choices we make considering the future.
As 2020 approaches, health clubs must become more driven by insights from data to win in the marketplace. Achieving this, however, is not as simple as just looking at the numbers. You need integrated solutions that lead to insights resulting in actionable business outcomes. How do you quickly and efficiently get the full 360-degree view of your customers and your business, given all of the right measures you need?
To execute a sound business strategy, decision-makers need member-focused, strategic, and real-world ways to measure finances and operations. Without this capability, health club brands and fitness businesses can't link operational results to strategy. Organizations will find it difficult to get a coherent view of their internal and external processes, customers, logistics, operations, and finances. Here are five things to keep in mind when it comes to leveraging data in 2020 and beyond:
1. Insights drive business growth
In the 2017 report Insights-Driven Businesses Set The Pace For Global Growth, Forrester found that insight-driven companies are on pace to make $1.8 trillion annually by 2021. In the same report, Forrester found that insight-driven organizations are growing eight times faster than the global GDP. This new group of high-performing data insights companies are growing 30% year-over-year, according to Forrester's research.
ABC Financial has helped fitness businesses drive growth by using data insights and technologies. The growing fitness brand 10 Fitness pursued becoming insight-driven with the help of ABC Financial's expertise by leveraging data and technology to improve billing and collection processes. With personalized reports on financial performance, membership, and sales delivered via ABC Financial systems, 10 Fitness gained insights while saving time in the back-office so they could focus more on member-facing operations, as they added new locations. This was key to their being able to execute their growth strategy. You can learn more about the 10 Fitness story here.
2. Smart organizations are integrating insights into their businesses
Leading companies who embrace insights based on data outperformed their peers as confirmed by Forrester, and they were confident that their customer intelligence and insight function was "strong." Gaining insights positively impacts many areas of businesses, including marketing. Nearly 50% of chief marketing officers who used marketing intelligence experienced improved customer satisfaction, according to a 2017 study.
In ABC Financial's recent Fitness Industry Innovation podcast "Disrupting Marketing In the Fitness Industry", Tom Wingert, Vice President of Marketing at City Fitness in Philadelphia, shared his views about the importance of data to gain business insights for marketing. The story of City Fitness highlights a wonderful entrepreneurial journey. With the support of ABC Financial, founder Kevin Davies and his team have built a very successful multi-unit fitness brand that has grown from 60 employees to 300+ employees, and from 6,500 members to 15,000 members in a short time.
City Fitness is redefining what digital marketing means in the fitness industry by delivering ultra community-based, hyper-personalized experiences in all of his locations. The team at City Fitness represents the nature of rising and leading present-day fitness, health club, and gym entrepreneurs and professionals that our team at ABC Financial love to support, help, guide, and service.
Helping smart fitness industry innovators like City Fitness build insights is part of our history. You can learn more about how we have helped fitness entrepreneurs, like City Fitness and its founder Kevin Davies, realize their growth aspirations here.
3. Becoming insights focused and capable is challenging
According to Acxiom, 70% of businesses have little to no ability to integrate customer data. Although customer data is getting increasingly important, only 17% of businesses say they have integrated insights across their entire organization. Often times the challenges of becoming insights capable include overcoming the problems of switching to new platforms and technology tools, which can seem like a daunting task for some health club operators.
ABC's experience and expertise have helped many accomplished fitness brands navigate the challenges. One example is the Claremont Club. When they realized their software provider at the time did not offer the functionality and services they needed to grow, a major concern CEO Mike Alpert had was the difficulty of making changes. So Mike came to ABC Financial with these challenges and was presented with a course of action to overcome them.
As with Claremont Club, ABC provides a team of experts during the implementation process who install new hardware and software. Our team has been performing installations and supporting system changes for many years. As Claremont's CEO Mike Albert attests, "I've been through 6 software conversions in my career. The conversion with ABC has been by far, and above the best one I've ever experienced." Learn more about Claremont Club's story here.
4. Becoming insights focused is achievable with help from the right partner
Research reflects that up to 40% of the insights created and delivered by reporting data are not actionable. In addition, 42% of organizations strongly agree that silos are harmful to generating quality insights. To solve this problem, companies should consider selecting the right partners to provide guidance in implementing efforts to achieve greater insights from data, including the elimination of multiple non-integrated systems.
ABC Financial helps many fitness brands benefit from our experience and systems, which include eliminating fragmented solutions. Bernie LeCocq, the owner of River North Gym, learned about ABC Financial through his REX Roundtable. He was very unhappy with the operations of the many systems they were using. ABC Financial was recommended to Bernie and his staff by other industry leaders and decided it was the best vendor partner they could choose.
As Julie Finn from River North Gym recently mentioned in this article from Club Solutions, "streamlined billing, better and more accurate reporting, more efficiency for all employees, more transparency within the company, more capabilities to manage and see what team members are doing, ability to lock down or allow certain actions within the software, and much more. We also believe it will give our staff a better overall sense of security when processing and reporting on all financial transactions. It will allow our members to view information about their membership they have never been able to see before. They will easily have access to information, billing, classes, and much more. Customers love to know what is going on, so this is huge and such an easy way for us to communicate with our members. Our members will also enjoy having more financial security and understanding, which our previous partner did not have and actually made us lose members because of."
By partnering with ABC Financial to combat their challenges and improve core internal business operations, the River North Gym team could focus more on member services. ABC Financial provided gym management software and payment processing solutions which worked well for River North Gym and helped them gain insights into their fitness business.
Having a trusted and capable partner to guide organizations through the process of adopting data to gain insights that help to achieve growth, enhanced profitability, and member service is key. There are some important things to keep in mind when selecting a technology vendor partner and explain why ABC Financial is the vendor of choice for leading fitness and health club brands. You can learn more about those here.
5. In the end, insight-driven fitness businesses will win
In the fitness industry, an insight-driven fitness business means better member relationships, a more seamless member experience, better and faster product and service development, and a focus on actionable data. When it comes to things like member retention, for example, an insight-driven member experience is essential. Those health clubs and gyms with excellent integrated, omnichannel customer experience retain 89% of their customers, according to SuperOffice. As we know, customer retention translates into profitability. According to Deloitte & Touche, customer-centric businesses that focus on digital insight are 60% more profitable than those that are not.
In the fitness industry, insight-driven businesses already have an advantage compared to those still sticking to their old ways. To remain competitive and excel in the fitness industry, the time to become insight-driven is today, not tomorrow.
Fitness Consumers Will Continue To Evolve
Consumers of fitness products and services have more choices than ever before and their needs and wants continue to evolve. As Bryan O'Rourke explained during a recent Fitness Industry Innovation podcast episode, Understanding The Fitness Consumer Of Tomorrow, ""Expectations for consumers are increasing, and have for quite some time now, Meeting that expectation is getting more challenging for brands in all industries including health clubs and fitness in general."
When it comes to fitness, 2019 was truly the age of the consumer. The term, coined by Forrester Research, reflects how customers leverage digital devices to access information, anywhere, and anytime. What that means is the power in the relationship between companies and customers, or in the case of health club members and brands, has shifted from the past paradigm to a new way of engaging in business. As a result, successful operators have to rethink how they conduct business to be successful.
What smarter customers are capable of is experienced by businesses every day. Whether shopping for a car, computer, haircut, groceries, or a gym membership, customers are heading to Google, or their favorite social platforms on their smartphones, and examining customer ratings, prices, recommendations, and more, in their quest to find what they want. This new smarter customer expects, as a result, that companies be more customer-centric, meaning-focused on their expectations at every single touchpoint. Customer centricity is no longer a buzzword used by marketers when describing promotional tactics such as personalization and customer experience. Customer centricity is a mindset that companies must adopt throughout the entire organization to thrive in the digital world.
As the IHRSA 2019 Consumer Report points out, consumers are exercising their right to choose with nearly 40% using multiple fitness facilities:
"A few years ago, it became clear that members are no longer committed to a single facility but are, instead, leveraging the assets of multiple facilities to pursue their goals. 20% of fitness facility members indicated that they frequent more than one facility. While the industry average was 20%, a member's likelihood of using more than one facility was highly dependent upon the type of facility they belonged to. Fitness-only facilities garnered the greatest commitment from their members, with 75% indicating they use only their primary facility, while 15% have a second membership, and 10% have more than two memberships. On the opposite end of the spectrum are boutique fitness studios, where 35% of members report being loyal to one facility, 44% use a second facility, and 22% engage with more than two facilities. With the exception of fitness-only and YMCA/YWCA/JCC facilities, it appears that at least 37% or more of a facility's members will have two or more facilities they engage with."
Investment Activity For Health Clubs And Fitness, In General, Is Robust
Investment in the health club and fitness sector has been robust in the past few years. 2019 has been no exception with its share of merger and acquisition activity. The 300 unit chain Crunch Fitness was acquired by TPG Growth in July of 2019. Anytime fitness holding company Self Esteem Brands added to its portfolio of fitness franchise concepts when it acquired 123 unit chain The Bar Method in September. TRT Holdings, owner of Gold's Gym, on the other hand, called off its planned sale of the iconic Gold's brand and decided to reinvest in it through a more aggressive growth strategy.
Public companies in the health club space saw ups and downs during 2019. Planet Fitness, with its now over 14 million members, experienced a spectacular IPO several years ago, with its stock performing very well in the first half of 2019. Meanwhile, Town Sports International experienced some challenges with stock price volatility following its acquisition of 24 clubs under a variety of brands, including Lucille Roberts, Total Woman Gym + Spa, and TMPL for $35.3 million in 2018.
On the supply side of the fitness industry, one of the largest manufacturers of fitness equipment for commercial health clubs, Life Fitness, was acquired by private equity firm KPS Capital Partners in May of 2019. Although the long-awaited IPO of direct to consumer brand Peloton disappointed the market, as its initial public offering has seen a significant decline in price.
With growth expected to continue in the marketplace, several key regional and national brands have obtained additional financing to expand as well. Further expansion and brand consolidations and acquisitions are anticipated by many industry experts as 2020 approaches.
The recent podcast interview with Planet Fitness CEO Chris Rondeau outlines the background of the largest publicly traded health club chain and how Planet Fitness transitioned from a gym brand to an industry sensation with its low price model. Chris discusses how the Planet Fitness model is very streamlined to focus on specific member experience and explains what is important to get right when it comes to serving the first-time health club goer. Learning from successful brands is always helpful when considering how to compete in the years ahead.
As 2020 approaches, the lessons learned from 2019 serve as a reliable road map for the future decade. Having reliable technology and industry partners is essential to navigate a changing health club industry. Thankfully the team at ABC Financial is here to help. Please contact us if you need to improve your fitness business and prepare for the decade ahead.
About ABC Financial Services
ABC Financial (abcfinancial.com) is a premier provider of technology and related financial services for the health and fitness industry, renowned for exceptional client service for clubs and their members. Its market-leading billing and collections solutions automate the revenue cycle that enables owners and operators to achieve better financial performance, all in a Software-as-a-Service and cloud-based platform. ABC's comprehensive technology solutions include DataTrak advanced health club management and MYiCLUBonline extensible member engagement platforms that allow owners and operators to manage employees efficiently, members, resources, sales, and drive improved member engagement. Founded in 1981, ABC helps more than 7,500 health clubs across the United States, Canada, Mexico, and Puerto Rico perform better and more profitably. ABC Financial is a Thoma Bravo portfolio company, a private equity firm based in San Francisco and Chicago (thomabravo.com).