An Analysis of the U.S. Health Club Industry in 2004 and the Role of Bally Total Fitness
The rise of the U.S. health club industry can be traced back to the 1980s and 1990s when the majority of health clubs emerged. By 2004, this $14 billion industry claimed 41 million members. Although the health club industry operated in a perfectly competitive market, several prominent key players gained large market share, including Bally Total Fitness and 24 hour Fitness. This perfect competition encouraged entry of smaller emerging firms into the industry. In 2004, the health club industry consisted of ...view middle of the document...
In addition, the company entered the health club markets of Mexico, Asia and the Caribbean, generating corporate revenue of $954 million in 2003. Before long, Bally boasted presence in over 360 outlets in the U.S. and more than 50 internationally.
A number of recognizable key factors are responsible for the rise of the health club phenomenon. The most notable factor was the growing concern of people’s overall health and well-being. Awareness about the impact of obesity-related diseases on the quality of life and available health resources was heightened, especially following a statement issued by the Surgeon General’s office, which estimated the annual mortality resulting from obesity complications to be over a quarter of a million. Further research at the time showed about 6 in 10 American adults were overweight or obese, with only 4 in 10 adults falling within the healthy people indicator bracket. Between 1964 and 2004, 28 Surgeon General’s reports had been issued, all of which described the epidemiology and health consequences of unhealthy behaviors.1.
This general awareness resulted in about 17% of the U.S. population becoming more enthusiastically committed to fitness activities, with 63% recognizing the importance of fitness activities and 25% of whom actually attending health fitness clubs. Also, a recent survey showed that 37% of exercisers were motivated by the desire to control weight. Consciousness about body image and the desire to reduce stress and meet new people also had an impact on the health club phenomenon.
The value created by this industry serves multiple beneficial health purposes. Regular exercise can help control weight, improve mood, reduce stress and boost energy. Most importantly, the industry provided a platform for prevention of diseases and health conditions associated with obesity, such as cardiovascular disease and stroke.2. The cost to deliver these values varies depending on the capacity of the individual firms. For a 40,000-50,000 sq. foot facility, fixed costs may comprise up to $1.5 million, while small operator start-ups (including equipment rentals) may only cost $25,000-$35,000. A small number of well-known health fitness equipment producers dominated the industry. Nautilus, a key player in the industry, sold fitness products to health clubs through a sales force and dealer network and to consumers through direct marketing and retail channels. Its commercial-strength product lines were sold under the brands Nautilus, Schwinn and StairMaster. Each piece of commercial Nautilus equipment priced between $5,000 and $7,000 before volume discounting and focused on particular strength-building exercise. However, new operators could also tap into an active market for used fitness equipment.
Most clubs included a number of services and facilities for a basic subscription charge but offered additional services for a fee. The non-dues fees generated from these activities made...