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“Where the U.S. Health Club Industry is RIGHT NOW…

and Why The Numbers Point to A Landslide Group

Fitness Business in the next 5 Years”

Michael Scott ScudderSpecial Les Mills Presentation

FRI 9/9/07 – 9:00AM

This presentation will be available to you via email attachment upload – just contact MSS!

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First, it is useful to look at a few established trends

within our industry.

Flare – Fad – Trend – Standard. Time-dependent. Usually must go through logical

progression…is not quantum. FLARE: Slide FAD: Tae Bo TREND: Step, Stationary Cycling STANDARD: Group Fitness

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Current industry phases, trends, or standards .

The trend of national membership statistics. Recently: flat to slight growth – 41.3 million for 3 years, then up to 42.8

million. Overall trend a 4% compounded growth rate over 10 years. The trend of national club-building.

Upward – Double-digit (12%) in 2002-2005…about 8.5% in 2006. Slowing perceptibly at present.

The trend of club profitability. Downward – presently < 8% pre-tax. 30% (my estimate) making no profit at

all or losing money on operations. The standard of member retention.

Flat – has not moved off 60% in 15 years. The general trend of Marketing Positioning. The general standard of New Member Orientation.

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10. The possibility of subsidized exercise for those clubs that qualify. (Flare) 9. The aging of the new membership population. (Fad>Trend)

8. A re-birth of Group Exercise independent studios (Fad), amidst the reincarnation of Group Fitness. (Trend)

7. General lowering of profit margins in several sectors. (Trend)

6. The obviating of reductions in service in many facilities. (Fad) 5. Continued membership growth in the not-for-profit sectors. (Trend) 4. The beginning of a crest, or top, in facility numbers. (Flare>Fad)

3. Continued segmentation of facility markets. (Trend)

2. General down-pricing of fitness memberships. (Fad>Trend)

1. An outbreak in the low-and-value-priced club sector. (Trend)

10 PREDICTABLES FOR THE FUTURE:

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Where It Is RIGHT NOW- The Marketing Positioning

Grid

How are the grid positionings described in the national fitness marketplace?

What are the needs for marketing position differentiation?

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Low End

Mid Market

High End__________________________________________________________

$29 $49 $75$19 $100

Low-price players

Value-price players

Curves

Planet Fitness

WHAT THEY HAVE:

- Market Distinction

- Economy of Operation

- Limited Services (Divergence)

Gyms

Chains

Not-for-profits (Ys, JCCs, Community/Rec, College/University)

Big-boxers

Lifetime Fitness

WHAT THEY HAVE:

- Little/No Market Distinction (except for LF)

- High Cost of Operation

- More Services/Programs

(Convergence)

WHAT THEY NEED:

- Excellent Marketing/Sales

- Better Service

- Better Management

- Mid-to-Mid-High Demographics

Athletic Clubs

High-end Chains

TSI, TCA, CCA, CSI, Club One

WHAT THEY HAVE:

- Market Distinction

- Highest Cost of Operation

- Most Services/Programs

- Facilities Excellence

(Convergence)

WHAT THEY NEED:

- Good Marketing

- Excellent Service

- Excellent Sales

- Excellent Management

- High Demographics

24Hour, LA Fitness, Bally

GG – PH

WHAT THEY NEED:

- Excellent Marketing

- Limited Sales/Service

- Good Management

- Low-Mid to Mid to Mid-High Demographics

World Gym

Studio “key” clubs Snap, Anytime

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How many clubs and how many members?

Planet Fitness: 200 clubs/1 million members Curves: 8000 clubs/3 million members World Gym: 250 clubs/1 million members Snap/Anytime: ? Clubs/? Members (insignificant) Gold’s Gym: 500 clubs/2 million members Powerhouse: 200 clubs/.5 million members 24 Hour Fitness: 350 clubs/2 million+ members L A Fitness: 100 clubs/<1 million members Bally Total Fitness: 350 clubs/3 million members Lifetime Fitness: 65 clubs/<.75 million members High-end chain clubs: 350 clubs/1 million+ members NFPs: 6000 facilities/24 million members

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Let’s dissect those numbers!

Curves and Curves clones: 10,000 clubs/ 4 million members

NFPs: 6000 facilities/24 million members

The rest of the industry: 14,000 clubs/ 15 million members

POSSIBLE CONCLUSION: ”real” average club size: approximately 1,100 members

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What’s the revenue look like?(Source: Club Industry’s Fitness Business Pro “Top 100” Survey – July ’07)

The “Top 100” represents nearly 2,800 facilities. They report Gross Revenues of just under $5 billion.

Approximately $1.7 million per average club Estimated $1.2 million in membership income (70%),

$.5 million in ancillary revenues (30%). Total facilities revenues are estimated at $17 billion.

Approximately 10% of total facility count controls just under 30% of industry revenues.

The remaining 90% of facilities (approximately 27,000) share $12 billion in revenues. Average club in this bracket grosses about $560,000 annually.

Approximately $460,000 in membership income (82%), $100,000 in ancillary revenues (18%).

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Where It Is RIGHT NOW- New Member Orientation

Are most clubs doing it any different? What are the downsides of following

“the standard operating procedures”? What is it costing most clubs?

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Most clubs have a well-intentioned, but flawed “new member orientation system”…which produces automatic attrition and insufficient additional revenues!

Prospect

SaleNew Member

One Evaluation

One EquipmentOrientation

Interview and Tour

Then WHAT????????????? Usually NOTHING.

No Sale

?????

90 Day Follow Up

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0

10

20

30

40

50

60

70

80

90

100

Low Mid-Low Mid Mid-High High

Self-Motivation Index*Self-Motivation Index*

* Adapted from Dishman* Adapted from Dishman

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A modern “new member orientation system”…focused on creating value, educating members, and possibly selling services which help members!

Prospect

SaleNew Member

Multiple Physical Trainings

“Real”Evaluation

InterviewAnd Tour

No Sale

N–T-M-U

Interest Emails/Programs

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A breakdown of the “process” of the “NEW new member orientation system”

New Member

½ hour cardio

½ hour strength

½ hour PT/Specific

½ hour stretch/balance

An integrated member!!

Evaluation

Re-selling & Integration Opportunities

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TEACHING NEW MEMBERS (Seminar):WHAT do you do?

HOW do you do it?

WHEN does it happen?

WHY should you do it?

For many clubs, this training can be accomplished in small groups (preferred) …adding to the “social integration” of the member!

If the club has Les Mills Group Fitness programming, it should also slot new members into a class-a-week for the orientation period.

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> Positioning the club organization to benefit from subsidized exercise. (Clubs must move to exercise documentation.)

> Stratifying the club to more workable levels. (Understanding “addition by subtraction.”)

> Finally moving to more profitable “amenity services.” (Clubs must begin to understand non-member marketing and program marketing.)

WHAT ARE THE PRESENT MAJOR OPPORTUNITIES?

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> An industry truly struggling for the first time in its modern history…but apparently adapting to the struggle!

IN SUMMARY:

> An industry with immense possibilities for humanity.

> An industry in the process of a huge shakeout, which is not going to happen…we are in the middle of it!

> An industry in which to excel means to get different – not just better.

> An industry in which committed, intelligently-working individuals can make extraordinary contributions…and CAN truly make a difference!

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Combining MSS FitBiz ConnectionTM and Health Club Managers, Inc.TM into one leading-edge umbrella company to SERVE YOU…the health club entrepreneur.

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