A gym was closed down and many fitness enthusiasts are out of pocket and deprived of a place to workout and socialise.
California Fitness (CF) has been my gym for 17 years. Back then I had paid a sum upfront for what was termed as a lifetime membership. The deal was, I pay nothing more for the next 5 years, I think, it was so long ago I forgot, thereafter $80 annually to keep my membership running. If I travelled to a city, and there was a CF club in that city, I could use the facility. I travelled on business frequently then. All told, a very good deal for me indeed. The gym was state of the art, modern equipment, full set of weights, studios for classes and friendly and knowledgeable trainers. I did not avail myself of the trainers’ services but I made friends. CF was a good part of my life.
I figured, at the point of CF’s closure, I have realised ROI. So am cool.
California Fitness arrived in Singapore in 1998 and transformed the public perception of gyms. Prior, gyms were a men’s only enclave. Gyms did not only appealed to men, gyms in those days appealed to a certain type of men. These men were most likely to be large, sweaty body builders or boxers. These men didn’t mind the smell of sweat. Real men pumping heavy weights. The gym, I frequented in the nineties was at Pasir Panjang Community Center. This was where some of the body building luminaries of the 80’s work out. A rudimentary gym which is a far cry from the modern, air-conditioned gyms of today.
For 18 years, CF was doing well, it transformed working out at the gym from being the past time of sweaty Alpha male types, who rippled and bulged with well defined musculature to a past time for almost everyone who wants to have fun and become and remain fit. CF made gyms hip and attractive to women as much as to men. Now men who just wanted to do aerobics, pump a little iron in an air-conditioned environment in the heart of hip Orchard Road had a place to go. Women started coming to CF because there are programmes specifically tailored for them, Zumba, Dance, Spinning and more recently MMA. More clubs were opened and business seemed good.
What went wrong? Reports said that the franchise owners here in Singapore and who also owns the franchise in Hong Kong, did not have the resources to carry on operations and that rents were owed. My observations as an outsider to the business and not knowing the details is that cash flow was not optimal. The product mix, the struggle to attract new members and the stiff competition all played their part in the cash flow problem.
CF, like many gyms, clubs, and spa after it, sold life time memberships or mid length duration memberships of 2 or 3 years at an attractive rate. These types of memberships requires members pay in full and upfront the membership fee for the period. Receiving money in advance prior to fulfilling the service is good but not always. It is good as you have a healthy current cash position and you can use this cash to invest in new business. It is bad in the mid to long term as you will need to ensure that you have enough cash to pay your operations. To do that, you need to constantly sell more of these memberships. As you sell more of these membership, you will need to expand your capacity, this means opening more clubs or expanding the clubs you already operate. So as long as you sell more memberships, all is good. But what if you have competitors who are more than capable to match or even surpass your offering? In Singapore, this space is getting crowded. You will find selling memberships will become more challenging.
What do you do? You can do two things, either improve your services, which will increase your operating costs or reduce your fee. Both will mean that you will see a drop in margin.
Let us say, you improve your services, increasing operating cost but you do not see the expected increase in membership because of the stiff competition, which is the case here in Singapore, then your cash flow will be hit. You will now be under pressure to not only improve your cash flow but you will have a falling margin. A difficult position to be in indeed. Its like going on a long run on a hot day and suddenly realising that your hydration pack has sprung a leak and you have no idea where the next water stop is. Your resources are depleting, replenishment nowhere near and you have a long way to go. Dire.
The other alternative of dropping prices is not very attractive either. You are simply burning the string from the other end. In addition, you risk diluting your brand value.
Life time membership and packages where you require clients to pay upfront may be a good idea at startup where you want to quickly turn ROI but to sustain your business, you need regular paying members who will contribute to your cash flow. A business therefore need to evolve with the times.
My take is to optimise the product mix where you limit the number of lifetime and mid length memberships to a certain number per year but make regular paying memberships the staple and cash cow of the business is the way to go.
Meanwhile, I am looking for a new gym.