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Confronting the Economic Challenge When savvy club operators realize that they’re sailing into uncharted waters, they often call on Rick Caro, a 35-year veteran of the industry who’s participated as an owner, operator, teacher, presenter, and the president of Management Vision, Inc., a Manhattan-based consultancy. Today, given the persistently stormy economic environment confirmed by the year’s third-quarter results, CBI decided it was high time to tap his expertise. Our questions and his responses follow: What factors are affecting clubs most significantly today? Most are facing increased competition from a wide and growing variety of sources—from other commercial clubs, nonprofits, medically based wellness centers, etc. Obviously, the economy—which may put pressure on the finances of local residents or create job insecurity—plays a role in both attracting new members and retaining existing ones. These two factors may limit planned price increases, including ones for ancillary-revenue sources. It may force clubs to reexamine their marketing vehicles and marketplace positioning. Analyzing the revenue-per-member metric may also become more important. What impact are these factors having on clubs right now? At this point, many are seeing fewer membership leads, which, obviously, implies fewer new sales. Recently, there’s been a creep in attrition, with more departing members citing “financial reasons.” Some clubs are reporting fewer corporate sales, especially with regard to new accounts. Management has responded, in part, by reducing and reallocating marketing dollars—e.g., decreasing advertising spending and shifting the money to the club's Website, online lead-generation companies, and promotions and events—and by pursuing more member referrals. How are clubs responding to these challenges? The leadership is asking all the right questions. They’re scrutinizing marketing dollars and tracking leads. They’re reviewing sales processes and reinforcing sales training. They’re trying to improve their in-house selling of programs and services. This has led them to review their offerings, and to eliminate underused programs. In some cases, management has imposed a “hold” on—or trimmed—capital expenditures. Finally, it’s led to a real determination to examine costs at the department level, and above, to identify ways to overcome what, in recent years, may have been expense creep. In many cases, clubs have been successful in offsetting flat, or slightly reduced, revenues through significant expense savings. What other things should they be doing? There should make a strong commitment to controlling expenses on an ongoing basis. This means regular reviews of staffing patterns and matching them with usage—month by month, and season by season. They should develop a dashboard of key club metrics to spot early signs—both positive and negative—so they can take appropriate timely action. That could lead them to: focus on the fragile member (e.g., the new member or low user) before they cancel; review fixed costs with an eye to renegotiating rent, debt or lease financing, and insurance; or thoroughly analyze all of the little items—from lawn care, to telephone/utility costs, to workers compensation insurance. The old cliché remains true: $1 saved on expenses falls straight to the bottom line. Is there any silver lining to the current economic situation? Some landlords may be more flexible with rent, but, at the same time, may be less generous when it comes to underwriting tenant improvements. The costs of construction continue to rise, so there aren’t likely to be any savings there in the near future. Industry vendors, especially those with big-ticket items and/or large inventories, may be more flexible in terms of total pricing, terms, or warranty periods. And a number of individual clubs are banding together to do some joint purchasing, leveraging scale. Those clubs that focus on all of the right things now—the member experience, better systems, tighter cost controls, effective marketing and sales, the fragile member, adequate financial resources, etc.—will be poised for greater success once the economy strengthens again. Need to Know More? For more information about Management Vision, Inc., or to contact Rick Caro, please call 212-987-4300 or e-mail mgmtvision@aol.com. |
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International Health, Racquet and Sportsclub Association |
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