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The Price Squeeze Problem
I recently had an interesting conversation with a friend whom I hadn’t seen in years. Though he’s retired from running his clubs, he still follows the industry. And, like many others, he’s concerned about commoditization. “Why are so many clubs selling memberships at such low prices?” he asked.
I
didn’t have a neat, convincing answer for him then, and I don’t now. But his question got me to thinking. Eventually, one thought leading to another, I
was reminded of a different question that another industry veteran had posed years ago. The setting was a meeting of the IHRSA Institute, and the speaker was Bud Rockhill, who was chatting with John McCarthy, then the association’s executive director, and other Institute attendees. “What do you want to be
famous for?” he asked. The question wasn’t raised
in a personal sense. Rather, interacting with a small group of executives, Rockhill was really wondering, “What do you want your business to be known for?” The question seemed a
Joe Moore IHRSA President & CEO
pivotal point-of-reference for Rockhill, who’d established his bona fides as one of the owners of Club Sports Inter- national (CSI), which subse- quently became The Wellbridge
Company. Now, with nearly 30 years of industry experience, he serves as the CEO of Spectrum Athletic Clubs, Inc., a regional 23-facility chain. Today, if you were to address his question to a
group of club owners, many might respond: “I want to sell memberships at the lowest price in town.” In 1972, I opened a small, 1,000-square-foot
storefront club that offered seven machines, a few free weights, and two showers, but that didn’t have amenities as basic as a drinking fountain or air conditioning. I told people the heat helped them to burn calories, which was true, but that didn’t seem to appease them in the summer. We sold month-to-
month memberships for $25 per month, and this was long before the debut of EFT programs. I soon started opening larger clubs with more amenities and increased the dues. According to inflation calculators available
on the Web, that $25 monthly membership fee is the equivalent of $135 today—I find that interesting. It seems that my bare-bones, hole-in- the-wall club was selling memberships at what, by current standards, are considered luxury prices. Over the past couple of weeks, I’ve had the
opportunity to visit a number of established and successful operations, including Club One, Anytime Fitness, the Sports Club/LA, and the Dedham Health and Athletic Complex. Each of them has developed a unique value proposition that differen- tiates them from the competition, and each of them has become famous for different reasons. All of them are impressive, and all of them
deliver great value at reasonable prices. But what, I can’t help wonder, would their prices
look like if our industry had kept up with the Consumer Price Index (CPI) over the last 40 years. There are always forces pushing prices down—
tax-exempt competition, government competition, more competition in general, and, of course, little glitches like the Great Recession. And there are always forces driving costs up: wages, energy prices, regulatory requirements, etc. It’s the disparity, the ongoing tension between these two seismic forces that generates the price squeeze that so many operators find themselves fighting. I’m not trying to provide any answers here—
just offering some food for thought. So, back to Rockhill’s original question: “What do you want to be famous for?” —| – Joe Moore,
jmoore@ihrsa.org
116 Club Business Internat ional
| SEPTEMBER 2011 |
www.
ihrsa.org
Tracy Powell
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