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Club Industry Financials: A Continuing Story


BY RICK CARO An analysis of U.S. 2013


Club Industry Financials: A Continuing Story


financials suggests cau- tious optimism for the coming year


Many leaders in the American fit-


ness club industry have put the reces- sion behind them and are trying to fig- ure out the new norms going forward. No one is expecting to see the 2007 values any times soon.


For many, 2013 was a better year BY RICK CARO


Generally, the club industry was still hopeful for an overall improvement in the U.S. economy and a consisten ly upward trend in consumer confidence, but that has not occurred.


2013 headlines Once again, the trendline for key


club metrics was up a d, but only slightly. IHRSA’s Index showed that same club sales were up slightly as well as overall net membership totals. The real disappointment was with ancillary revenue categories, which has been regularly growing in recent years. In 2013, they were flat compared to the previous year. The challenge contin- ues to be the lack of predictability of new club membership sales which still does not follow a consistent pattern. Attrition levels now seem to be under control for most clubs.


EBITDA m rgins are increasing


slightly over 2009-2011 levels but are not reaching the 2006-2007 margins. The nu Imber of total club members for the overall industry grew slightly over


24 Fitness Business Canada May/June 2014


trying to figure out the new norms go- ing forward. No one is expecting to see the 2007 values any times soon. For many, 2013 was a better year than the previous one. A few clubs closed, but fewer than in previous years. But, the number of new builds continued to escalate in all segments. Generally, the club industry was till hopeful for n overall imp ove- men in the U.S. economy and a consis- tently upward trend in consumer con- fidenc , but that has not occurred.


M


2013 headlines Once again, the trendline for key club metrics was upward, but only slightly. IHRSA’s Index showed that same club sale were up slightly as well as overall net membership totals. The real disappointment was with an- cillary revenue categories, which has bee


any leaders in the


American fitness club in- dustry have put the reces- sion behind them and are


than the previous one. A few clubs that closed, but fewer than in previous years. But, the number of new builds continued to escalate in all segments.


the last year along with an increase in the number of total clubs nationwide. The club industry has already had an ease of entry, so the ability to create even a small niche club has not been difficult.


A continuing saga With the number of new builds


An analysis of U.S. 2013 financials suggests cautious optimism for the coming year


growing, several segments saw sub- stantial increases. The studio catego- ry, often featuring single-activity of- ferings–including boot camps, barre classes, boxing/kickboxing, yoga, Pilates, group cycling and small-group training–grew substantially. Many of these are part of franchise compa- nies. The proven franchise companies in other segments (high-volume/low- price and all-access) saw consistent growth in 2013. Landlords have recently wooed club


operators with more attractive real es- tate deals, even for the small operator. For many, the cost of construction re- mained flat.


does not follow a consistent pattern. Attrition levels now seem to be under control for most clubs. EBITDA margins are increasing


existing clubs often re-financed given very low interest rates. The availabil- ity of cash-flow-based lending soared and with a higher leverage opportuni- ty than seen previously. For start-ups, there still were challenges in gain- ing local bank and Small Business Administration approvals and of- ten with less attractive loan-to-value terms. Club leaders of existing clubs are returning to previous levels of cap- ital reinvestment again.


slightly over 2009-2011 levels but are not reaching the 2006-2007 margins. The number of total club members for the overall industry grew slightly over the last year along with an increase in the number of total clubs nationwide. The club industry has already had an ease of entry, so the ability to create even a small niche club has not been difficult.


A continuing saga With the number of new builds


More club deals For years, the club industry has


regularly growing in recent years. n 2013, they were flat compared to the previous year. The challenge contin- ues to be the lack of predictability of new club membership sales which still


24 Fitness Business Canada May/June 2014


heard financial pundits talk of its highly fragmented nature and the need for consolidation. In 2011, the first signs of such activity occurred. It continued through 2012. In 2013,


growing, several segments saw sub- stantial increases. The studio catego- ry, often featuring single-activity of- ferings–including boot camps, barre classes, boxing/kickboxing, yoga, Pilates, group cycling and small-group training–grew substantially. Many of these are part of franchise compa- nies. The proven franchise companies in other segments (high-volume/low- price and all-access) saw consistent growth in 2013. Landlords have recently wooed club operators with more attractive


Debt financing exploded last year as


most of the club deals involved either financial entities buying club compa- nies or buying out previous financial investors. Some of the most attractive stories involved franchised companies. Most involved club groups with sig- nificant numbers of existing clubs and a proven business model. A few club companies fully exited the industry.


The challenge is that independents


are still hoping for values last seen in 2007 and are not committed to trans- actions at lower levels. There are few buyers willing to overpay, so overall there are fewer club transactions than expected at this point. Also, the inde- pendents have not been successful in marketing their stories to outsiders who are currently not immersed in the club industry.


Club Corp had an IPO of 2013, so


there are now three public compa- nies (Club Corp, LifeTime Fitness and Town Sports International). No others are likely candidates in 2014. No major club owners from outside the U.S. have entered the market here. Only Equinox has ventured outside the U.S. into the United Kingdom with a club-owned business. Several franchisors have con- tinued to grow overseas.


gional players to expand both with new builds and local acquisitions, es- pecially with the availability of growth capital. The industry has yet to see any meaningful investment by strategic partners from analogous industries.


existing clubs often re-financed given very low interest rates. The availabil- ity of cash-flow-based lending soared and with a higher leverage opportuni- ty than seen previously. For start-ups, there still were challenges in gain- ing local bank and Small Business Administration approvals and of- ten with less attractive loan-to-value terms. Club leaders of existing clubs are returning to previous levels of cap- ital reinvestment again.


The market seems to be ripe for re-


More club deals For years, the club industry has


Other related news The club industry is always worried


about the quick-fix solution to weight loss. But, commercial diet centres are still lacking long-term success without an exercise component. The proverbial diet pill has not been a serious threat;


heard financial pundits talk of its highly fragmented nature and the need for consolidation. In 2011, the first signs of such activity occurred. It continued through 2012. In 2013, most of the club deals involved ei- ther financial entities buying club companies or buying out previous fi- nancial investors. Some of the most attractive stories involved franchised companies. Most involved club groups with significant numbers of


real estate deals, even for the small op- erator. For many, the cost of construc- tion remained flat. Debt financing exploded last year as


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