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Industry Focus: A Look at The Financial Health of Fitness Centers

Posted July 19, 2018 by Vertical IQ

They say that beach bodies are made during the winter, and most fitness centers DO experience higher membership growth right after the winter holidays as people make their New Year’s resolutions to lose weight or exercise more. But despite the seasonality of the industry, fitness centers are thriving in the U.S.

For example, in May of this year, Planet Fitness, Inc., which owns and operates fitness centers and sells fitness-related equipment to franchisee-owned stores, topped both quarterly revenue AND earnings estimates. And the company expects a 20 percent increase in total revenue for 2018, as compared to 2017 yearend numbers.

Thinking the fitness center industry might “work out” well for your client portfolio? Here’s a look at how this niche operates.

The big-picture of the fitness center industry

  • There are 27,300 fitness centers in the U.S., which provide exercise equipment, classes, and services to help members improve their physical fitness.
  • There are over 57 million Americans who are members of health clubs.
  • A typical fitness center operates out of a single location, employs about 22 workers, and generates about $1 million annually.
  • The industry includes independently-owned centers, chains, and franchises.
  • The main source of fitness center revenue is membership fees, accounting for about two-thirds of fitness center revenues.
  • Fitness centers also generate revenue by providing athletic instruction, admission fees for non-member usage, and food and beverage.
  • Gross margins average 77-78 percent of sales.

Trends within the fitness center industry

The industry is growing…

Fitness center membership has returned to growth, expanding 2.4 percent in 2014, 2.2 percent in 2015, and 3.6 percent in 2016, according to International Health, Racquet, and Sportsclub Association (IHRSA). Revenue grew 4 percent in 2014, 6.2 percent in 2015, and 7.3 percent in 2016. Health club penetration — the percentage of Americans age 6 and up who are members — is about 18 percent of the population.

…and Americans’ waistlines are growing too

About 36.5 percent of adults and 17 percent of children are considered obese, according to the Center for Disease Control and Prevention. Sedentary lifestyles and high-calorie diets have resulted in a population with weight issues severe enough to cause health problems. Demand for fitness centers should increase as the population of overweight Americans recognizes the need for a healthier lifestyle and looks for ways to control their weight.

Specialization

To better compete, many centers are offering specialized programs targeting a specific demographic or need. Recognizing that over half of health club members are women, women-only centers focus on hydraulic exercise equipment favored by women. To combat the physical effects of aging, baby boomers look for strength and balance improvement programs and trainers that specialize in older adults. Express workouts are becoming more popular, especially among time-strapped working adults. Sports-specific training targets young athletes looking for a competitive edge.

Increasing popularity of group fitness

Demand for group exercise is strong, leading fitness centers to offer more classes. Popular classes include cardio-kickboxing, yoga, high-intensity interval training (HIIT), dance, virtual group exercise, bootcamp-style training, and strength-training classes. The social element of group exercise has become increasingly important and helps participants maintain attendance. Virtual on-demand classes, in which workouts are led by a video instead of an instructor, are also growing, helping to reduce fitness centers' labor costs.

Risks to fitness centers

  • Membership attrition: High attrition can severely decrease cash flow, and replacing lost members is costly. 
  • Dependence on the economy: Most consumers consider fitness center memberships to be a discretionary purchase.
  • Competition: Centers compete with facilities offered by corporations, apartments/condominiums, the government, non-profit organizations, and home gyms.
  • Capital requirements: Developing or expanding space is costly, and owners typically have to renovate and replace equipment every few years to stay current.
  • Seasonality of demand: Most centers experience higher membership growth after the winter holidays and declines during the busy summer months. 

How bankers can aid a center’s financial fitness

Efficiently collecting membership dues and fees for classes (Collection period averages 6 to 8 days).
Solutions to consider: ACH services with blocks and filters, merchant services

Managing cash, given timing of initiation and membership fees and costs of membership promotions.
Solutions to consider: Line of credit, sweep services

Efficiently paying full-time and part-time staff (25-27 percent of sales).
Solutions to consider: Payroll services

Funding equipment costs and facility upgrades to expand capacity and stay competitive.
Solutions to consider: Equipment financing, term loans

Vertical IQ does the heavy-lifting for you with analysis on more than 300 industries!

All of the industry information in this post came directly from the Vertical IQ Industry Profile on Fitness Centers. Reviewing this profile, or even doing a quick 5-minute review of the industry’s Call Prep Sheet, gives you valuable insights into your fitness center banking prospect — their opportunities as well as the issues that may be keeping them up at night. You can use this industry information to build a healthy relationship with your clients in this niche.

Ready to get started? Contact us today for more information or a demo!

Tags: call preparation, industry knowledge, Industry research, niche industry, business banking, business owner, fitness centers

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