The 2017 Financial Outlook for the Club Industry


The following is a wrap-up of the Financial Panel presentation at the 2017 IHRSA Conference and Trade Show.


BY RICK CARO I


n late 2016 and early 2017, the overall U.S. economy has enjoyed a spurt. It is not clear whether this upward trend will continue


through the remainder of the year, nor is it clear how it will have any mean- ingful impact on the club industry. There is some concern that minor in- flation will creep into the economy. This could mean more pressure to con- trol supplier costs and maybe a need to increase club prices in areas separate from dues (e.g., guest fees, childcare fees, personal training fees, massage fees, program fees and late payment fees). There seems to be continuing opti-


mism carried over from late 2015 and 2016. For some club owners, it is based on being offered new sites by land- lords who may not have previously considered a fitness club as a suitable tenant. In other cases, the availability of reasonable financing may be driv- ing this positive viewpoint. Or, it may simply be due to operational improve- ments on both the revenue and ex- pense sides. There was still some concern of


geographical areas sensitive to the oil industry. But consumer confidence is strong. The overall conclusions from many club owners operating in differ- ent segments is that they see 2017 as a better year than the previous one.


2016 Headlines The overall health of the club


industry continues to improve. The to- tal membership levels nationwide has increased by almost four percent in the last year. This may not be fully ac- curate since regular users of pure stu- dios may be understated since they see themselves as regular users of their studio and not members. It is still interesting to note that the


overall profile of a club user is still very upscale. The idea that the HV/LP (high-volume/low-priced) clubs would open up opportunities to the middle class (and maybe even the lower mid- dle class with a $10 price point) has not happened. The median household in- come continues to increase, even over the $82,000 mark. The number of new facilities con-


tinues to increase regularly in three segments. The largest club companies are each building 20 to 30 new clubs a year. The number of HV/LP clubs is increasing, and the growth in studios continues. Although there have been a few closings of independent studios in 2016, they are offset by the continuing trend of new openings. Finally, it should be noted that of-


ten the category of franchises has been fueling the opening of new studios of all types that offer, for example, barre classes, boxing, kickboxing, small group training, HIIT, group cycling, etc.


The industry trends continue on a


similar path. When comparing clubs’ total rev-


enues for 2016 versus 2015, there was limited upward growth. The same


comparative trend was noted in the number of net memberships. Pricing continues to be flat with no regu- lar committed pattern of increases in monthly dues. The non-dues revenue categories continue to show increases year-over-year. Many clubs are creat- ing new programs or services or re- packaging old ones. EBITDA (earnings before interest, taxes, depreciation and amortization) margins continue to in- crease slightly, but they do not reach the percentages of the industry peak of 2006/2007. Construction costs have increased


in recent years following decreases during the recession years. Most clubs have resumed their annual commit- ment to regular capital expenditure re-investment at the typical industry levels.


Debt Markets Still Attractive The profile of lending is similar to


recent years. Debt is accessible and at attractive terms but generally not for first-time start-ups or those with no previous track records. Many clubs have funded new builds or acqui- sitions through debt. The banking markets are still providing attractive terms, although interest rates are inch- ing upwards. Re-financing is typical for proven club companies. Cash-flow based lending is still very available at attractive leverage levels. This may fuel private equity firms to enter the club industry or continue to grow it faster, if already involved.


Limited Club Transactions Although the club industry has


been described by financial gurus as one of the most fragmented they have ever witnessed, there has been little movement towards consolidation in


» May/June 2017 Fitness Business Canada 43


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