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Random Thoughts for 2011
Originally Posted 01/01/11

I like trying to make predictions. Just the process of trying to figure out what might happen next forces me to think, and thinking is a lost art that too many people avoid in their lives, either because they donít remember how (Think about not being able to think. Come on, you have to like this line) or because it is just too painful to deal with the realities that await for those unprepared for changes in their life.

So what is going to happen this year in the fitness business and how will it affect you and your life in fitness? Here are a few guesses of mine and donít hesitate to add your own once this is posted:

The year of $19: This is perhaps my strongest prediction. I will declare now that 80 percent or more of all mainstream clubs in the country will be priced at $19 by the end of 2013. The trend is already there and we are already on our way.

The monstrous mistake we have made during the last few years is to convince ourselves that chains such as Planet Fitness and the economy are forcing the price downwards. The real trend is that we continue to build businesses deemed irrelevant to the consumer. How many 30,000 square foot box clubs, represented by the chains and especially by those guys who build things such as a Goldís with two lines of Hammer down the middle, do we need based upon a failed business plan that hasnít worked since 2000?

Build one of these and you suffer from a lack of new members, but why blame the model when you can blame everyone else. The reality is that the model failed and no one knows how to fix it so we lower our price. This is the real reason prices will fall. It is not competition, it is internal failure by guys who build crap and canít figure out why it doesnít work any longer.

When all else fails, lower the price. The $19 price does work if you have the volume and sales systems to support it and lowering the price to $19 for many of these clubs is the right thing to do. Knowing how to lower the price is the art form and you will see many owners who appear to just drop pants and run rather than systematically figure out a new business plan.

We will, however, see the start of a vicious and business-ending cycle attached to this downturn in price. Take New Jersey for example. You have a saturation of clubs there in all shapes and sizes all heading toward $19 and heading there quickly. But what happens when we all get there at the same time?

The $19 model is based upon two things: volume and the ability to continually replace lost members over time. The major point most club owners donít realize is that when you lower your price, the expenses do not go down accordingly. You just need more people to pay the bills and what you are betting is that the $19 price will attract many more members than your $49 price did.

But what if every owner is going for the same bet? We now all need more volume and all of our competitors are now dependent on literally thousands more people joining clubs in our marketplace. Planet had an advantage in that they were first into the market at the low price, but now everyone is getting into the game meaning everyone now needs to sign up several hundred members a month and going into year three of that business plan needs to keep signing up several hundred members a month or more to replace the ones that are lost.

The industry has been flat for several years stuck at about 42 million people who belong to clubs. If New Jersey goes totally $19, and I think they will be the first state to make the across the market switch, you have to wonder where all these new members are going to come from if everyone lives in the pursuit of volume. The industry is not growing but that is exactly what everyone will expect to happen once the price hits the bottom.

The smart owners, of course, will be the ones who use $19 as a base and then chase training revenue as if there is no tomorrow, which there wonít be unless you master that component. I donít mind the $19 and will encourage a lot of my clients to go there, but only on the condition that they put the same effort to build a separate sales team and try to grow the monthly training revenue to be larger than the monthly receivable based upon the $19 membership. Layered pricing works but no one should be totally dependent in todayís market on just the volume that can be generated off a $19 membership model.

The largest failure rate in the last 10 years: We will see the largest closing rate in the last decade starting this year. The signs are there for this one too. Look at Curves, the lack of growth in the big chains and the desperation ads most of them are running. I look for some big closings this year and a lot of them. Keep your eyes open in your market and look for deals, especially in the smaller clubs under 20,000 square feet that can be taken over cheaply.

It will be a good year to be a trainer: The trainers in the 6000 square foot class will be the new role model for the industry and it wonít be long before everyone starts to write about them and "discoverĒ this class of fitness business. Again, why start a mainstream fitness business for $2-3 million when you can open a training facility and make the same net for only about $250,000?

We will lose a few equipment companies: Look for at least two to close or sell this year. You donít want to be the last guy out there selling lines of circuit equipment although the guys with great cardio will stay in the game.

The perception of a better economy will mean more start ups, followed by more failures: Most markets seem saturated, but in reality this isnít the truth. The reality is that there are a lot of clubs out there, but not many good ones. It is sort of like a couple of good looking guys going to a computer convention where there are 5000 ugly geeks and 2000 good looking women. Yes, there are a lot of guys there but the only two guys getting some sweaty action are the two newer models. There are a lot of clubs, but most are uglier than the butt crack on a sweaty gym teacher and they merely take up space in the market. Newer more effective business models will send the old players home and it will be ugly.

The trade show is dying: There is no legitimate reason to go to a trade show unless you are buying equipment and need to see the stuff, which is not really necessary in the world of Ipad and computers, or if you just like to go to cool cities and get hopelessly drunk away from home. Trade shows are too expensive, feature speakers that have no bearing on your life or business, and do a horrible job of providing any type of true educational experience.

The industry has changed more in the last several years than it has during my entire career and ideas we taught just a year or two ago are dated based upon what we see happening in the real business world, and especially in the training segment of the business, yet there are speakers out there who havenít changed their pitch in a decade who are the featured presenters at these dinosaur fests.

The consumer is done with them and unless the trade shows develop new educational formats, niche shows such as the Perform Better Summits will start to erode their bases simply due to their ability to provide a more needed offering for the club owner. We even feel this anti-tradeshow lashing in our own workshops, which have shown at least a 20 percent increase during the last 18 months or so. People are looking for new ideas and leadership and the trade show people just donít understand how to deliver, which keeps the door open for us.

What does all this mean? Attack, evolve, reposition, be aggressive and take control of your life and your market. It is going to be a good year for those willing to do the work and the rest of you will get rolled under faster than a skinny girl at a Wal-Mart sale.

Original Comments:

Dave Chesser-

"It will be a good year to be a trainerÖĒ

Counting on it! Weíre set to outlast the globogyms as they swallow each other up and then overreach. Looking forward to this year in a big way. 

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Renee-

Thom---I do love you and your wit!! Renee Teller

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Bill Ryan-

I have an old friend who was a bodybuilder and powerlifter and owned a 45,000 sq foot club focusing on service and multiple revenue streams for years making a decent living. Then he opened a planet fitness, soon he opened 2 more. I asked him how he could own club like planet fitness with his backround and his words were "I sold out, the $ is to goodĒ His base membership is only $15 and he has about 7000 members at each location with a monthly operation cost of about $65,000 for each location. That is not including what he make with the tanning beds. Do the math. The idea of the low cost gym is it does not cause a red flag when you are going through you credit card statement or checking account history. Most members donít go or go very little because the price is so low they donít think about canceling.

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Thomas Plummer-

Hi Bill,

That it is just "$15Ē and nobody looks in their checking account is old technology and didnít start with PF. Balleyís used it for over 40 years with their $5 a year renewals and Lucille Roberts, perhaps the first $8 club who charged that fee in the 70ís. It didnít really work out well for any of them over time. It does, in fairness to them, delay the losses for a number of months but if you arenít using it you will eventually cancel. Even $15 a month adds up to the point that someone walks, it just takes a few months longer than normal losses would occur.

These guys have losses, but they bet that going into the third year they can sign up 250 members to replace the 250 they lost. What happens if there are five other clubs in the market chasing the same price point? Every body is cool if you are the first or only, but that game is changing and everyone who chases bottom is going to have a crowded field to compete against.

The other issue is that there is no perfect system. All chains, including PF, have a strong 20% at the top, a mediocre 50% in the middle that are average and pay the bills and the bottom 20% can screw up anything. If there was a perfect business system that if you just followed it correctly you would be rich hasnít been invented. Ask Starbucks, who just closed almost 1000 stores how perfect works. If low price was perfect Lucille Roberts would have had a 1000 units.

Any system works somewhat well for about two years. Every club system, no matter what the price offering, will falter at some time. There is a chain in NC that is doing $3 memberships this month. They get about $90 down and then $3 per month. What if every body in the market did that? Is there enough cheap volume to go around The club market is based upon cycles, and the cheap prices were hot in the 70s and are hot again but everything also cycles down and the low price guys will be no exception. $3? What is next? $2?

This is also why training clubs will rule because they can get real money based upon fewer clients over time. How much help will you get for $3, or even $10. The consumer will balk at some point and then it will cycle up again to clubs that chase results for their members, a rather new thing in our industry. Enter the hybrid training club or mainstream club that is training centric.

Thank you for writing

Thom

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Kevin-

Iíve been open since April of 2009. I live in an area that has a planet fitness, a la fitness just opened and there are some other smaller gyms. From the start I ever bought into the "drop my priceĒ model and based my business on service quality and the facility. I have a 7500 sqft "hybridĒ facility which offers functional training and sports performance training along with general quality of life improvement. I offer group classes and pt to my members along with a standard gym membership. Iíve been able to get through maybe the worst economy Iíve ever seen. A lot of my philosophy was based on Tomís first book and Iíve developed my version of it over this crash course in survival. I think weíre finally ready to hit 2011 running and see a few of the boxes go under. Iíve positioned my self with very low overhead so I think weíre ready to go. It was great to read Frank Koleís approach. Itís similar to what Iíve done with my pricing structure. Kevin

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Thomas Plummer-

Frank and Robin are tough competitors and make it in a low priced market. Price is perception and everyone doesnít have to be a bottom feeder to survive.

Training offsets low price. People will pay more for continuous support. That is what Frank, and Alwyn and Rachel Cosgrove, and Rick Mayo and Frank Nash do so well. It started a trand and it will be fun to watch where it ends.

Thanks for the post Kevin

Thom

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Frankkole-

The last paragraph is how we hit the new year. Attack,evolve,reposition,be aggressive and take control of your life and your market. We took the layered trainer system from the Newport seminar and put it in place dec. 1 and practice the system just with t he trainers and select members and got it running like a well oiled machine. Jan 1 it went live. General membership for 49. membership 2 H.I.G.H. High Intensity Group Health. Unlimited High Group with gym 149 per month. Membership 3 semi-private personal coaching with gym and high 299 per month. Membership 4 one-on-one PC once a week with high, semi and gym 499 per month. Membership 5 one-on-one Pamper-Me-Membership trainer everytime you come in and protein to go home with and a shake after every workout and high, semi, and gym 999 per month. All of them have a 59 down. And we are selling them. With not one negarive comment because that is what we sell fitness and results. When we were sitting there for the two days I know this would work. Its pretty powerful telling someone we have a system that will get you the results you want. We have been out attacking the all the framers markets around san diego with the system and we are getting good traffic flow from the markets and the display of all the cool tools really make people stop and look and they want to try it. Thanks Thom! Frank and Robin

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Thomas Plummer-

Read above Frank. You and Robin are the next generation role model.

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Frankkole-

As of Jan 18th 4 brand new people in semi pc. 6 brand new people in H.I.G.H. out of 35 membership sold this month. We have not release this system to the general membership. But the old members are seeing something different and are taking the fundamentals. The new group training schedule is at the front desk and posted on the web site and the old members are seeing it and are not afraid but are pleased and show signs of surprise and a wow about it that they can have help when ever they come in. a couple of old members have purchased ten packs of H.I.G.H. for 15 dollars per group training session. Selling rental space in 80s and 90s was very easy to do. And help was the hard sell then. Help is the easy sale of today. Its so true Thom it is us as owners that need to get over what help cost and just go out there and sell it. This is what my help cost to do and what to buy it? At the lunch at the two day Alwyn Cosgrove was taking questions from us and another gym owner ask him how can you sell your memberships at such a high price. He simple said this is what my help cost and you as an owner need to get over what you want to charge and what help cost in your gym and he told this guy its your gym not the members and this what I charge for help. Well the guy was so scared to go this way Alwyn just told him in front of everyone you might want to stay at 19 a month if you cant get over the fact what help cost. Thanks to Alwyn in that lunch his voice is in my head telling that guy get over it!:)

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Timothyschliebe-

Great ideas, where are you in San Diego?

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Frankkole-

We are in North Park. If you are ever in town just stop by. We are here all the time. Frank and Robin

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Bwiningar-

Good post if you want to see some real funny stuff in health clubs you should see the places I have been working out at on vacation. Talk to you soon.

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Mikekalustian-

Tom,

You finally get it-sort of. You donít need to spend a lot of money on salespeople when you are selling $19 per month. You will save on a lot on expenses- so you are wrong stating the expenses wonít go down.

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Thomas Plummer-

We did heads up comparisons with guys running full service $19 clubs and the expenses did not drop. I never saw them drop substantially with the $19 PF model either. I of course have not seen them all but comparing box to box they arenít much more efficient than a typical club in that class. It seems the only expense that is saved might be sales, but almost everyone I have seen using this model has a sales team still in place. The other expenses, such as group, were replaced by more equipment and cost of operation, not resulting in any real savings. What is your cost of operation for a typical club?

I do understand the model Mike, I just think most guys running it think it is a long-term defensible position because most feel the $19 gives them an edge, which it doesnít if everyone matches price and services and the large majority of the players in that class are just membership mills that do little to enhance the profession. The only $19 model I do like has the layered training model on top, something few operators are doing yet but can be the deciding factor as to whether you survive or not. It is not where the niche is now that is interesting, it is where it will be after the price wars level the field.

The big issue is that if a large percentage of operators go that route, there will be warfare over the limited members you can attract in any market and a lot of clubs will fail. The guys that have done it well are the Fitness Edge team in CT. They have the density and management team to make it work and were years ahead of others in mastering the niche. They are also full service as well.

The 75 or so (probably more) of the $19 clubs I have been in are usually worn out boxes that are high volume machines very dependent on them being the only guy doing the model in the market. When that changes, the $19 operators will change and we will see a new round of better players in the niche. The price war might actually be a good thing in that it will force everyone in the $19 category to get better or get out. It will be interesting.

Thank you for writing Mike and congratulations on your success over the years.

Thom

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MarkG-

Hi Thom,

Will the anytime fitness and snap fitness models be able to survive at $19? It doesnít seem like they have the capacity to do the volume needed at that price.

Thanks,

Mark

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Thomas Plummer-

Anytime corporate is progressive in that they allow the local guys to adapt as needed. They have created the perfect format for layering in training done on EFT on top of the entry level fee.

In 3500-5000 feet, you could do $20K a month in membership and $40K a month in training. Seeking dual income streams where you are treating training revenue as the same equivalent as membership income allows you to more than double your income in the same space. Most clubs, however, still look at training as a small part of their overall income and stay fixated on membership. I have said it a million times, you canít just make it on membership income as your primary drive in todayís market. There are just too many clubs fighting at a low price for the same limited amount of people.

Mastering layered pricing gives you an edge, that also works in any size club, and you shift your dependency away from membership to developing a second stream that focuses on money from members already in the system. To quote Jeremy Klugerman, a very talented owner in Canada, people will fight you to death over a dollar on a cheap membership, then once they are in the club, wonít fight at all over the price of training. I think this is especially true if the training is offered in layers where the lower priced training programs share the cost of the trainer. For example an Anytime might offer a $19 membership but then offer group personal training at $59 per month. For just a little more ($40), you can have a trainer every time you come into the club, which raises the average EFT dramatically. The $19 would be the low entry price bait but the goal is to get at least a third of the clients into a higher priced program.

Snap is just a circuit club concept and seems less prepared to fight the wars these days. Anytime has better leadership at the top I think and can lead the market if they desire.

Thank you for writing

Thom

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MelkaLP-

Hey Thom!

Great predictions. I see them already. What are you thinking for the really small studios? I have a 2600sqft group/personal training studio in Atlanta. Iím looking forward to discovering a model that will help me grow when you are here later this month.

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Thomas Plummer-

You are a little small but you are the future of results driven fitness.

Thank you for writing

Thom

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Bryankorourke-

Hi Thomas and happy new year. Yes, the bifurcation of the bricks and mortar health club market is here and many of your observations are spot on. Another trend is the rise of technology as it relates to training and how trainers will increasingly be able to deliver services both in the bricks and mortar and outside of it. Here is some presentation content if your interested. http://bryankorourke.com/j

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Thomas Plummer-

Thank you Bryan for taking the time to write. I went to the link and it is a great site. Tech will definitely give the trainers an edge in the business wars and expand their presence. I also think we will return to the age of group dynamics. People like groups and the era of one-on-one has forced us away from that. It is a shame that so little training is done in a group setting.

Thanks for the comment. I know you are a busy man in the consulting world.

Thom

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Matt-

I wouldnít bet against any of your predictions ThomÖIím sure we will look back and you will have nailed it.

Iím not looking forward to $19, but I can see the low price lead IF you can penetrate the value market with services. Do the co exist? It would seem the more volume driven players suck at delivering results and training.

Iím ready to work hard and look for a takeover deal in 2011. Whatís the best way to start looking for takeover targets?

Where on the West Coast will we see you this year??

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Thomas Plummer-

Hi Matt,

You can to $19 and still build a strong training business. The $19 doesnít scare me as much as realizing that most guys doing it will be totally dependent on that receivable base as their only income stream, something that is not sustainable when everyone is chasing the bottom. Most of the current $19 guys are terrible players in the training arena choosing to just be the low priced provider in their markets. But when everyone goes there, that will not be a defensible position. Next generation will master the dual income stream concept and will realize at some point that training revenue can exceed membership revenue if you grasp the layered pricing idea.

The best takeover idea is an old one. Have your attorney send a letter to every club in your area stating that he represents a qualified and experienced buyer looking for a club in the area and have them respond to him directly keeping your name hidden. The words "qualifiedĒ and "experiencesĒ should keep people from throwing stupid deals on the table but ignore whatever they send anyway and look for who is responding. You can make your offer on the reality, not their dream price. SF is it this year in the West. Check the site for more info. Denver too if you need a vacation and we are doing it at a good time of year.

Thank you for writing and the comments.

T

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