interview
Pure Gym has opened five
clubs so far, including Leeds (these images), with plans for seven more in 2010
A handful of independent mid-market
gyms have already converted to a budget model as a result of precisely this squeeze. Does Roberts feel more may follow suit? “Not that I’ve looked into it in any
great detail, but to change the whole club layout – getting rid of the pools and wet areas – would cost an awful lot of money. Plus a lot of those mid-market clubs probably have 3,500 to 4,500 members. You’re not going to survive on that as a budget operation. Charging the sort of fees we do, you need at least 6,000 members to make it work. “Not only that but, when you have
members who’ve been used to different facilities and you suddenly tell them:
‘I’m sorry but you can’t have those any more’, are you really going to get a good reaction? I wouldn’t even consider buying a gym that had gone bust because of the baggage carried over from the previous operation. People take an awfully long time to forget what’s gone before.” In any case, he suggests, if we again
take hospitality as an example: “The budget sector in hotels has matured now and I think people recognise that it’s horses for courses: there’s a large market out there and it’s just a case of providing something for everyone.”
EXPANSION PLANS
Pure Gym plans to expand rapidly. It’s opened five clubs to date – in Manchester, Leeds, Edinburgh, Wolverhampton and Sheffield – with plans for a further seven in 2010, plus eight to 10 a year going forward. All will be owned and operated by the company – there are no plans for expansion through franchising. “We want to become a market
leader,” says Roberts. “I think one of the advantages of doing it at the moment is that, thanks to the recession, the deals
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available on property are currently better than they were. However, it’s obviously not easy to raise money – in all the time I’ve been doing this I’ve never known it to be so diffi cult. And the market for leasing assets and equipment on a large scale is virtually non-existent. So with no debt at all, and no lease money, you have to raise more equity. “I was lucky as I had my previous
private backers, and that funding got us up and running with the fi rst four clubs. We’ve just raised further funds through a consortium led by Magenta, so we’ll have over £10m of equity in the business without any bank debt at all. We have a very strong balance sheet, with no borrowings, but I’ll be honest and say it’s taken a lot of hard work to get there.” Pure Gym’s model is, as Roberts
explains, “low cost, high volume, so picking the right sites is very important”. In general terms that means large population centres, although the company is still weighing up the pros and cons of business-orientated city centre sites versus residential areas. Nevertheless, costs in the capital
mean many budget club chains steer clear of London. What about Pure Gym?
“We’re certainly planning to open in London, but getting 15,000–20,000ft of fl oorspace with the right fl oor to ceiling height, the right access and visibility – all at the rent you want to pay – is diffi cult. “I think even a budget club would
probably have to push its prices up a little in London, but you have to be careful not to fall in the trap of suddenly becoming a mid-market gym. I believe we have to be under half the price of our mid-market competitors to differentiate ourselves. Anyone who thinks they can come in and charge twenty-odd quid… Well, I don’t think
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it’s good enough. There has to be clear water between you.” Putting the mid-market competition
aside for one moment, the budget club sector is also growing rapidly. Does Roberts have concerns about the challenge this might represent, either in London or elsewhere? “With a model that relies on getting fairly large numbers through the door, if someone were to set up shop next to you, you’d both suffer signifi cantly. One does rely on a certain amount of common sense from competitors,” he says pragmatically.
FUTURE CHALLENGES
So what are the major challenges for Pure Gym, and indeed the wider industry, going forward? “I think one of the clouds on the horizon is that there may be an increase in VAT, potentially to 20 per cent,” says Roberts. “That would represent a 14 per cent increase in the VAT on our membership price. Do we try and absorb that? That would be tricky but in today’s market, if we were to add it to the fees, there would certainly be a negative reaction. Particularly at our price point, if we suddenly upped our fees to £18… Suffice to say it’s a potential threat to our business model. “Other than that, it’s simply a case
of being willing to continually re-invest in the business. If I come back to the hotel industry, a lot of the old-fashioned hotels that were built in the 70s, 80s and even 90s are now beginning to look very tired. We can’t let that happen. Even as a low-cost business we have to set aside a lot of money every year, because the moment your standards drop, you’re going to lose members.”
healthclub@leisuremedia.com
kate cracknell
june 2010 © cybertrek 2010
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