Club Insider

Panic - Pain - Suffering - Optimization - Opportunity

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Bill McBrideBill McBride

"No one questions the essentiality of fitness, but the essentialness of fitness centers has been questioned, doubted and challenged."

• • •

Hello Industry Colleagues. We are all colleagues on the same team in so many ways. We've all been in this pandemic together dealing with very similar realities, perceptions and challenges. One might say that everyone in the world has had to go through this together. But, just like other industries, ours has its particular nuances.

As an industry, we have fought most government regulation and licensure. We have catered to the top income and education levels of society. We have taken pride in our missions of helping others reach levels of beauty, physicality, performance, fitness, health and wellness. We know fitness is essential. No one questions the essentiality of fitness, but governments and press have questioned the essentialness of fitness centers. It seems odd from our perspective, but it seems others/outsiders view us as social recreation or said another way: non-essential. I suggest we welcome some higher standards of care that we are known for throughout the world on what we provide and that we do a better job with inclusion.

So, what happened?

The world was hit with a pandemic. Everywhere people gathered became an issue, except those essential businesses... not us! We were shut down with very little scientific proof of our services being problematic. In reality, we were/are part of the prevention/cure. Fitness increases health and wellbeing with a positive immunity response. But, we still got hammered.

We had Business Interruption Insurance (B.I.) for unforeseeable events, but the insurance industry exempts pandemics, and it would most likely bankrupt our insurance industry without government backstopping. So, that was a non-starter and actually understandable, because if full coverage was provided, we would not be able to have insurance going forward based on a bankrupt insurance industry or premiums so high none of us could afford them.

So, with no B.I. insurance coverage, we had to close. The government gave us and everyone PPP money... a few months of payroll and a few other expenses. But, the pandemic has raged on for ten months and counting.

To date, IHRSA has reported 15% of private clubs and studios closed permanently. My guess is it will be another 15 - 20%, if not more. So, we are facing a possible 30% or more contraction in supply. This could prove to be a windfall for those that survive. But, it's potentially economic life ruining for those with personal guarantees on their small businesses and relying on their small business income.

Many, if not most, of the big players have filed Chapter 11 Bankruptcy for protection and restructuring. Some operators have filed Chapter 7 and closed permanently. Many will come out stronger than before the pandemic based on these legal opportunities. Some were challenged prior. Consumers won't lose faith as all are doing it, and they understand the challenges businesses are facing. This is not necessarily a bad thing because it ensures the survivability of many brands we love and need in our industry.

Many consumers report that, other than extended family gatherings, their health club experiences are what they miss mostly.

From a retail perspective, the fitness industry has never been better. People didn't give up on fitness, they self-solved for their problem. They bought up all the retail weights, bikes, roller blades, home equipment, Pelotons, Soul Cycles, etc. Our people didn't give up on fitness, they found alternatives. This is actually very good news. As people want/need fitness activity, and we know they need socialization and social experiences. Our consumers will return. The timing may be less than ideal, but they will return, and with the unfortunate reduction in supply, many will profit from the rebound in demand.

Our industry has stepped up as well, if not better, than any other in safety, cleaning and pandemic preventative measures. I'm honored to be involved in IHRSA's Standards Headlight Committee. IHRSA launched the Active & Safe Commitment with more standards to come (bit.ly/clubinsider118). I encourage all clubs to make the commitment.

Blair McHaney and MXM, working with IHRSA, has provided significant data on the check-ins to virus ratios of clubs in the U.S., and it is a very low (bit.ly/clubinsider119). They have also worked with the Oregon Consulting Group on Research, showing the low risk our industry poses (bit.ly/clubinsider120).

We are now seeing more and more positive press about the safety of health clubs. The Governors of New York and New Jersey have recently stated our safely record publicly. So, let's dive in:

Panic: We were shut down abruptly and arbitrarily. We had no insurance and no plan for what is next. Almost everything was out of our control. We all made independent decisions on keeping staff on, furloughing staff, charging members, freezing memberships, etc. We had no playbook for this one. It was a balancing act of values, projections, financial resources and uncertainty.

Pain: We had to furlough or lay off the majority of our staff. Those remaining may have been reduced in compensation with no bonus opportunities. We had to do our best with our staff during this horrific time, assisting them with navigating unemployment and benefits.

We had to communicate with our members the need for their loyalty to ensure our survival but with compassion about their safety and their own personal financial circumstances.

We had to approach our landlords about concessions on rent knowing they, too, have mortgages on the property. We had to approach our lenders and vendors knowing they, too, have the same challenges we face.

Suffering: It didn't end at the end of the PPP forgiveness period. It didn't end; it got worse. There was no rhyme or reason to the regulations and ordinances preventing us from fully opening, even with our best precautions. Some chose a very risky position of opening or not closing again, even with local or state mandates. This risks a lack of insurance coverage and industry goodwill, but it was/is a matter of survival for many. Many are also dealing with Red/Blue State and local enforcement strictness. Are fines and wrist slapping worth the lost revenue and services provided to the community?

These are hard decisions based on the science, facts and necessity of survival, as well as the fact that we are part of the solution to health and wellbeing, and in my view, as essential as any other business if not more so. But, for those that open against regulations, be warned you may have negative outcomes: fines, closure, loss of your business license, injury claims not covered by insurance, loss of industry goodwill that affects all of us, etc. If you stay open or re-open without local and state approval, please realize your macro risks.

People are suffering with weight gain, inactivity, isolation, depression, alcohol, opioid and other drug use, not to mention increased incidence of suicide. People are suffering.

Optimization:

  • We reviewed every transaction on our General Ledgers. We eliminated all that we could.
  • We reduced staff and compensation.
  • We applied for stimulus funding.
  • We asked our lenders for concessions.
  • We asked our landlords for concessions.
  • We did forecasts and projections.
  • We thought about survival and did all we could do in every way.
  • We cut all that we could.
  • We looked at all potential revenue business lines to enhance.
  • We looked at the circumstance from a point of innovation and a re-set to redo everything we have been thinking about if we were to start over: towels, services, etc.
  • We made cleaning and safety a core competency.
  • We did videos on what members could expect.
  • We shared our proactivity on all media vehicles.

Opportunity:

  • Vaccines are here and will become more and more available.
  • There are more stimulus funds potentially becoming available.
  • There will be market opportunities based on the industry's contraction.
  • We have an opportunity to figure out the unmet needs in our markets.
  • Those with a clean balance sheet, credit and reserves will have tremendous opportunities.
  • We figured out the enhanced importance for Virtual/Digital/Wearable Programming.
  • We learned the value of video connection. Video connections can be stronger than live, based on comfort levels and self-reservation.
  • We mastered member scheduling for services and visits in many cases.
  • We figured out the benefits and opportunities of outdoor spaces on our properties.
  • We learned the benefits of designated Personal Training or Personal Space "Pods/Areas."
  • We learned how to highlight the health and wellness benefits of exercise and activity.
  • We learned to present value not just price and promotion only.

• • •

It goes without saying that we have all suffered, some more than others. In that, we have all been bonded because we all experienced this together. Within our industry, for those who survived, opportunities for future growth will be abound. And, for those who were forced to close, it doesn't have to be over for you either. As the industry rebounds and rebuilds, there will also be opportunities for a new start. For all, we will have the hindsight of 20/20, and from those lessons, things will be done differently in the future.

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