Reflections of the expert Chano Jiménez
Will the macro gyms survive?
Sports and Marketing Consultant for Gyms and Sports Centers.
(23-9-2020). What possibilities do macro gyms have to survive in the new reality derived from the Covid-19 pandemic? The consultant Chano Jiménez analyzes in this article the options for the future that these types of sports facilities have.
Chano Jiménez is the author of the books: ‘Vended Malditos Benditos’ and ‘Digital Attraction’. Jiménez is a Doctor in Economics, has a Postgraduate Degree in Neuromarketing, and also holds a Master’s degree in Sports Management, in Business Management. He is also a researcher, lecturer and international Sales and Marketing consultant for sports businesses.
To deal with the possibility of the disappearance of a business model, we must first define it. What do we call a macro gym?
Obviously, we are referring to a large-area gym, but in the 80s, facilities of more than 2,000 meters were considered very large and, today, we have many fitness facilities that exceed 5,000 square meters.
MINIMUM NUMBER OF CLIENTS
In this case, for the analysis of this article, I am going to use as a criterion what I consider the most decisive variable for the survival of large centers, the minimum number of clients, necessary to cover the breakeven (breakeven point in billing to avoid incurring losses).
In this sense, we are going to take as a reference the 5,000 active users, which depending on whether it is a facility with cheaper or more expensive prices, could range from 3,000 square meters (before the pandemic it was not uncommon to find low cost gyms with ratios of 1.5 clients per square meter) up to more than 10,000 square meters in multi-service facilities that usually incorporate external areas.
Of course, the breakeven does not only depend on the number of users, it also depends on the average ticket that is billed for them. But in facilities with so many clients, the anchoring to prices is deeper and, therefore, the increases of the same more complicated.
HIGH LEVELS OF CAPTATION
In any case, the greatest challenge of this type of facility is usually maintaining high levels of capture that compensate for the inevitable losses. Thus, for example, if a facility intends to maintain 5,000 clients with a monthly dropout rate of 10%, it will need on the order of 500 monthly registrations on average.
This is not an easy challenge in the long term for the following reason: the area of influence of a sports facility is established around a maximum of 15 minutes walking distance, which is equivalent to 1.5 kilometers in radius. This distance supposes an approximate area of 7 square kilometers. The highest population densities in urban areas can reach 20,000 inhabitants per kilometer, but as soon as it is a residential area with services such as parks or squares and a certain number of single-family or semi-detached buildings, we would find an average density below 10,000 which represents a population of about 70,000 people.
Even accepting that the breadth of sports services implies access to a greater number of the population, given the average fitness penetration ratios in Spain (between 10-12% with upward variations in areas with a higher purchasing power and culture), we can to conclude that the maximum potential market would be around 8-9,000 people plus a thousand to 3,000 additional people who may come from more remote areas traveling by some type of transport.
Therefore, it seems reasonable to accept a maximum available market below 12,000 potential customers (although it is certain that there are examples of facilities with different figures due to higher population density or higher penetration ratio).
LOTS OF COMPETITION
This potential market will have to be disputed with competitors that operate in the area or very close to it. In this sense, it goes without saying the degree of fitness offer that exists in practically all Spanish cities with more than 100,000 inhabitants (the most densely populated).
The point is that, if you need 500 new clients every month, in a year you need 6,000 and, therefore, depending on factors such as competition, the degree of recovery from leave, loyalty or the demographic evolution of the area, in a few years you may have serious problems maintaining the necessary volume of active users.
In this sense, something very significant is the evolution of waiting lists in macro facilities, which a few years ago were very frequent and already became a ‘memory of the past’ even before the covid-19 pandemic.
Considering this mathematical reasoning, which does not pretend to be at all exhaustive but rather a motivator for reflection for the analysis of their own numbers by each operator, we return to the main question: Will these “ocean liners” survive in the future of the fitness sector?
SHORT AND LONG TERM EXPECTATIONS
To risk in answering, I am going to distinguish the short term (a year seen extraordinarily conditioned by the evolution of the pandemic) from the long term.
Those operators of this group who arrived at the pandemic with financial problems have a very difficult time to survive
Those operators of this strategic group that reached the pandemic with financial problems and difficulty in accessing capital, have a very difficult time to survive, because it is a business model especially affected by a market that avoids crowds.
I take it as very likely that, in some cases, mergers by absorption (in those cases where analysts find genuine opportunities rather than greed or vanity). In other cases we will observe the reversion to public management of non-viable concessions in private exploitation (or substantial changes in the concession contract). The complete extinction of an installation of these characteristics is much less likely, because they are made up of large assets and, therefore, the willingness to renounce them can only be in very extreme conditions (although it is always possible to reconvert the space in favor of a more viable business / exploitation model).
I am skeptical that in a few years there will be fewer operators.
In the long term, although the sector is in a process of screening and concentration of operators, I am skeptical that in a few years there will be fewer operators. My impression is that the market will grow and the number of operators will grow as well, because the vocational factor in this sector has a very strong influence on entrepreneurs of all kinds.
However, the formats between facilities more oriented to economies of scale will be polarized compared to those more oriented to a personalization of services, to the detriment of models that navigate in no man’s land suffering from strategic uncertainty.
In any case, given that I do not foresee a drop in competition in the long term and, considering the market limitations reasoned in the first part of the article, I understand that macro gyms are going to be forced to reconfigure their ratios in the sense of be able to be profitable with fewer active customers, a higher level of loyalty and a higher average ticket. To face this challenge, many will have to reinvent themselves, albeit gradually or facing transition processes.
Dinosaurs may not be completely extinct, but they will have to be quite different dinosaurs …
Our start in the industry dates back to before 1984, when we manufactured cast weight lifting plates for two important companies in the sector.
In these 30 years, having won customer’s trust in our brand and their satisfaction with our products and services has made us grow, improve and make ourselves known throughout the world.
At this time we continue to design and manufacture quality products with the same effort and enthusiasm as 30 years ago.
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