Tuesday, December 12, 2023

Gyms are encouraged to continue raising prices

“In 2023, the majority of operators will report better results compared to 2022.” This was predicted by the founder and CEO of the consultancy Management Around Sports (MAS), María Ángeles de Santiago. The board is in favor of continuing the increase in gym rates and maintains that “there is already evidence that the market has accepted the rate increase.”

Santiago and the consultant of the said consultancy, Óscar López, positively appreciated the increase in the average ticket of the gyms, as well as the results of cost cutting or adjustment procedures carried out by the operators in the last three years, which has been shown in the Study of Strength in Spain, prepared in consultation with it, with the sponsorship of EGYM and the endorsement of the University of Alcalá de Henares.

Are the last three years the most dangerous period for the economic sustainability of gyms in this 21st century?

María Ángeles de Santiago (MAS): We consider it true that this is the most dangerous period of all time because of two serious problems, namely the covid pandemic, on the one hand, and, on the other, the dramatic increase in energy costs. These two sharp milestones are a serious problem for this industry. The reform of VAT in the sector in 2008 is also problematic, although, perhaps, not as important. The change in VAT from 8% to 21% means a decrease in the profit of the facilities because a sufficient percentage of the operators did not pass the increase in the tax to the final consumer and their margin greatly affected. Unlike that situation, the recent covid crisis stopped revenues, while expenses continued to be recorded. That scenario is dramatic for the industry. In Catalonia there are measures by the Public Administration to alleviate the situation, but this is not happening in the whole of Spain. And when the pandemic crisis ended, the brutal increase in energy costs broke out.

The new mix of quotas shows that the consumer has changed

Did the operators manage to overcome this situation?

MORE: Most operators have reached pre-pandemic profit levels. This happens, in part, because the average income per client increased by 9.9%, while the sale of other services also increased, such as, for example, personal training or the use of towels and padlocks. On the other hand, the increase in the quota mix helped this increase in income.

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Óscar López (OL): Indeed, the new mix of quotas shows that the consumer has changed. There are more and younger profiles and this translates into a lower number of family or senior bills and a larger number of individual bills, which leads to an increase in the average ticket. Operators have quickly adjusted to the sudden changes and most have reached pre-pandemic conditions or will soon.

There are companies that are more adept at applying measures that allow them to control costs.

Did the residency study you did reveal that those who made the best and brightest cuts were the most fortified for the current scenario?

MORE: There are companies that are more adept at applying measures that allow them to control costs. This may be through negotiations with landlords or workers, or through audits to control supply costs.

We are not talking about a ‘cut’ in staff but about an ‘adjustment’ in staff.

Up to 70% of those who applied for layoffs stated that they were done by the staff. Are gyms overkill in this area?

MORE: You must interpret the data well. We have seen that in 70% of the cases the cost of personnel has decreased but we have not asked why it has decreased. And the interpretation we give is that it may arise from the change of the contract, or from the reduction of hours, or due to the transfer of employees to other areas, or due to the reduction of people in certain positions , or due to salary renegotiation, and other aspects. We are not talking about a ‘cut’ in staff but about an ‘adjustment’ in staff. From the consultancy, moreover, we do not see that this is a year where operators are understaffed.

OL: Another interpretation could be that, within the costs, the biggest of all is usually personnel, with an incidence between 30% and 40% of the total costs. Finally, as this is one of the biggest things, when it comes to adjusting these costs it may be the easiest to adjust. On the other hand, others such as marketing will be more difficult because it represents a small percentage of the total (3%).

Do you think gyms will continue to cut staff for the rest of the year and into next year?

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MORE: In the presentation of the study, Ignacio Atucha, professional in sports facilities, talks about what are the new models of fitness facilities. He talked about models that are more youth-oriented that tend to be more technological and require fewer personal workers. And the thing is, 15-year-olds are participating in sports facilities much more than in the pre-pandemic period. The gym has become a trendy product. However, this does not necessarily lead to the loss of employees in the centers. On the other hand, the physical activity of the elderly is very important for the income of the concession model. And these models, which aim to transfer the administration of a company for the provision of services, do not have much room to reduce staff.

OL: Adjusting personnel may not be fashionable but facilities and operators have quickly adjusted to these conditions. The fact that the facilities are increasingly filled with young people means that their needs and demands must be met, and physical exercise is increasingly linked to health.

The energy crisis has made operators think about solutions in this matter

6- In what other items do you predict there will be continued cuts this year and next?

ADDITIONAL: We hoped that energy bills would be reduced for the benefit of the industry and, indeed, they have been reduced. In addition, it is possible that changes may also occur as a result of more efficient operations. There are tasks that used to be done manually and now started to be done mechanically.

OL: The energy crisis has made operators think about solutions regarding this matter. Not only in energy installations, such as solar panels or other types of energy generators, but also in the processes themselves.

Physical activity has prices lower than what they represent

The study showed that the average ticket in the centers increased by 10%. Is that index enough or should gyms consider they need to keep raising prices?

MORE: The answer is yes, prices will likely continue to rise. In fact, the physical activity has prices that are much lower than what they represent and foreign operators have quotas that exceed the Spanish market. And this is accompanied by a higher rate and will continue to happen if they want to take advantage of the opportunity.

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Isn’t there a risk of losing customers if the prices continue to be raised?

MORE: When we came out of the pandemic, some operators decided to raise their fees by two euros, and then others joined the further increase. So far, there is evidence that the market has accommodated these rate increases. The concession model, however, which does not allow the increase of quotas, will find some elements to open up opportunities.

OL: Studies have been published showing that the profits of some companies have reached pre-pandemic levels without customers recovering at the same time. They know they don’t have to fear losing customers.

In what other areas, in addition to fees, would you recommend strengthening strategies to increase gym revenue?

OL: Gyms are expanding to other services that didn’t exist before, such as paying for the use of towels or personal training.

Gyms remain with fewer users than before the pandemic without it negatively affecting them

It is stated that in 2023, Spanish gyms will end the year reaching the number of subscribers they had before the pandemic. Do you share that idea?

MORE: In general, gyms remain with fewer users than in the years before the pandemic without it negatively affecting them. That is due to the increase in the average ticket.

OL: Also, the numbers are added because the rooms are fuller than before. And while other users go once a week, now they go three times. This makes the rooms more full throughout the day. And, as the situation stands, we believe it will remain so, maintaining the comfort ratios per user.

Do you think that by 2023 the majority of gyms will be making money or will be a minority and the polarization of the scenario will be further promoted?

MORE: We have a view that most operators will report better numbers this year compared to 2022.

Are there still a significant number of gyms in Spain at risk of disappearing due to economic problems and lack of profitability?

MORE: It is important to distinguish neighborhood gyms, some of which have had to close, from large chains, which generally do not close clubs for these reasons. There may be a lot of profit risk, but what the pandemic has done is delay the good results.

Nation World News Desk
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