Just a Number

Last week, I wrote a post about common issues in gyms. I received several questions about the corporate model and how it is opened in the first place.

In 90% of cases, a corporate gym is opened this way: an investor leases a commercial space with the correct zoning licenses and permits, she or he will then contact Equinox, 24 hour Fitness, LA Fitness, Any Time Fitness etc to request a franchise. The potential "owner" sends over all blueprints, zoning information, and a check. The corporate office then plans everything: layout, contractors, equipment, software and management structure. Corporate headquarters sends out a bid list to several equipment vendors. These vendors include Life Fitness, Precor, Matrix, Rogue etc. Corporate headquarters receives a quote back from companies. This quote often looks like this:  

COMPANY A
ITEM            SKU            LIST         QUANT     SALE     TOTAL
BARBELL    B-002         638          5                510        2550
PLYO BOX   C-005         242          6                193        1158
BENCH        S-104          1029         4               735        2940
GHD             S-112           1100         2                880       1760

 

COMPANY B
ITEM            SKU            LIST         QUANT     SALE     TOTAL
BARBELL    B-002         265           5                235        1175
PLYO BOX   C-005         130           6                120        720
BENCH        S-104          540          4                515        2575
GHD             S-112           695          2               688        1376
 

You’ll notice two things: Company A is more expensive but also offers a greater percentage off on the sale of all items. Company B is cheaper, but not as good of a sale percentage. 

Corporate gym boards often see Company A as the “better” company because their equipment is sold at a better percentage off MSRP prices. Typically, they believe the more expensive something is, the better it is, so therefore Company A is a better deal as it is more expensive with a bigger discount. 

Unfortunately, companies such as Life Fitness, Precor, Matrix, Intek, and other big corporation based companies artificially raise their MSRP prices. This allows them to offer a "better sale" as the MSRP price has been inflated so much compared to the true value.

This hurts companies like Rogue, X Training, and other smaller vendors as their MSRP cost are closer to the margin. A rogue Ohio barbell (MSRP 295) is one of the best barbells I have ever used. A lesser barbell from Hammer Strength has a MSRP value of 615. The HS one will sell for somewhere around 400 and the Ohio Bar will sell for around 260 in a bulk order. Corporate gym boards interpret this as the Rogue bar not being good quality as it is a cheaper MSRP price and Rogue is not offering much off compared to Hammer Strength, when in reality, the Rogue bar is better than the Hammer Strength bar (in my experience).

Why do I bring all this up? It is part of the problem with gyms and fitness today. Corporate gyms care more about sales rather than clients. Everything is set up through a corporate office, hundreds or even thousands of miles away from the actual gym. The franchised gym must report to corporate their sales and membership data. Corporate sends paychecks for all employees and the owner. There is no incentive for the owner to go above and beyond as at that point, he or she is just another number in the payroll database. All revenue is sent directly to corporate headquarters and then distributed among the franchised gyms, with the top producing (i.e. selling) gyms getting a bonus. This is why corporate gym classes are packed with 30 people per class. The gym want's to increase the profit going to corporate, to hopefully get a bonus in return. This is why personal training is suggested for those who want to learn barbell movements as it is more expensive to charge for personal training, than to offer a barbell instruction class.

In a recent corporate owned gym meeting, there was a three-page outline. Two full pages were on techniques to sell potential clients, the other page was on upcoming incentives. My philosophy is this. There was nothing on programming, training methods or anything fitness related in general. If you have to offer incentives every month to attract new members and have two pages of sales tactics, the product isn’t a good product. The corporate fitness model is one I am vowing to avoid at all cost, the client should be the focus, not the sale. 

George Cullen