Efficiency of Activity of Russian Fitness Clubs

Фотографии: 

E.V. Krasnov, Master of Physical Education, candidate of Department of Management and Marketing of Sports Industry of Plekhanov RUE

Key words: sport, fitness club, economic indicators of fitness clubs, public-private partnership.

Recently the development of the public-private partnership (PPP) in the field of sports and fitness industry is being increasingly discussed in the press and in the professional community. This question is relevant because of the ongoing active construction in the last years of sport and fitness complexes and arising, in connection with this, problems of their efficient operation [1, 2].

In addressing the issues of PPP, one is generally guided by the following expected positive effects [3]:

  • enhancement of projects;
  • risk-sharing optimization and reducing public expenditure;
  • oping with budgetary financing gap of sports-fitness and fitness projects through private investment.

In addition to that, the question what is the possible realistic level of efficiency that can be obtained in the operation of a sports and fitness organization by involving the mechanism of PPP is understudied at the moment. There are no reference ranges, on which one is to focus and what to strive for. For example, just this year, having declared the desire to sell own business, a large company of the fitness industry, the “Russian fitness group” company (the fitness club networks "Fizkult" and "World Class") revealed some economic performance indicators of its work (profitability ratio according to EBITDA) [4]. This ratio amounted to 12,9%. It is not the best index, given that deposits in many banks provide comparable indices and it is no need of operation administration. The profitability index of a sports and fitness club in the amount of 40% seems more attractive. This very indicator of several clubs is noted in the paper "Sports response" [5]. It can be assumed that the real profitability ratio, calculated using different methodologies, is in the range of 12-40 % in the majority of fitness clubs.

In order to get some benchmarks and clarify potential expectations from the projects of PPP in the sports and fitness area, we conducted an anonymous survey of owners of several fitness club networks. Their expert opinions were received and processed. The findings are presented below.

3 main strategies for fitness clubs can be conventionally allocated in relation to cost and quality of their services and associated indices of economic performance of some clubs.

1. The first option ("economical") - the minimum cost of startup, low price for services, basic quality and quantity of services. For example, paid section or monthly pass.

This option is good because it can be used for fast and cost-friendly opening of a commercial sports club or studio. One of the drawbacks is that the club has practically no competitive advantages, and the low price in most cases will determine the quality of provided services. According to the polls of companies operating in this segment, the approximate cost of repair and equipment ("turnkey") per one square meter of the total area of the club in this segment is approximately 400-600 USD. The cost includes cosmetic repairs, restoration, sports reequipment, all costs relating to the opening of the club. Surely, these indices strongly depend on the initial condition of the premises.

2. The second option ("qualitative") is more expensive and requires special knowledge. It is characterized by expanded list of services, more complex human resource management system, stable and high quality of provided services.

This option enables to retain elite specialists, makes services more attractive than of its competitors. The drawback is the need for a thorough and well planned structure and operation of the club. The level of costs per square meter is in the range of 600-1000 USD. Normally, the period of execution of cosmetic repairs of the leased premises does not exceed 3-6 months. This is the period, which in most cases, a company can expect to have a "rent free period" from the landlord if the premises are rented. Unfortunately, purchase of ownership of premises or its reconstruction "from scratch" is a rarity in this segment, due to administrative difficulties and longer payback periods. This business no longer provides such payback periods, as it used to be a few years ago. The payback periods have extended from 1-2 to 3-4 years. Not many investors are willing to invest in such a period. Subsequently, significant amounts of lease payments are added to the cost of services, causing the growth of their cost.

3. Third option ("representative") is associated more with an external embellishment aimed at attracting status and most affluent customers, rather than quality improvement and increase of the number of services. The cost of repairs, restoration, equipment ("turnkey") in such clubs normally starts from 1000-1500 USD per square meter, and often significantly (3-5 times) higher than these figures.

The frequency of demand for sports and fitness services has pronounced seasonal specifics. There are two main periods in the year ("autumn -winter" and "winter -spring").

Indicators of rent of spaces for fitness clubs.

Clubs of the mid-range segment seek premises for lease at the rate of 7-9 thousand rubles per 1 square meter a year (data for Moscow). In some cases the lease is higher. In this case the club card will be more expensive too. So, clubs of the business class can afford renting premises at higher rate ranging from 12 to 15 thousand rubles per 1 square meter in case of a really good location of the property.

The average payback period for a club (in case of leased property) is 2-3 years in case of choosing the right model and 3-5 years in case of gross errors.

Normally, the leading market players have an additional "non-price" driver development. For example, "friendly", less expensive construction workers, possibility of financing at low interest rates, friendly landlords, etc. This affects the payback, speeding it up to 1,5-2 years.

Typical errors inherent in new non-networked fitness clubs.

The most damaging at the initial stage of operation of the club (during design and startup). For example, an incorrect choice of strategy, faulty assessment of the target audience of customers, unread price quotation.

Conclusion. In case of a properly structured model and competent management of fitness club one can get 20-25% of net profit per year, as well as improve the image of the property in which the fitness club is located (for example, an increase of the flow of different groups of visitors of the shopping center, where the fitness club is located). The given figures are in good agreement with the previously made assumption about the likely range of profitability of fitness clubs at the moment. Focusing on these figures, the result of PPP can be assumed in relation to a particular object. Certainly, each sports and fitness facility requires an individual calculation of the leading economic factors in view of the possible charge and targets of work. Most likely, applying the mechanism of operation of some premises of the sports and fitness facility by the scheme of PPP can significantly enhance the operation of the facility, its appeal among the population, additionally maintain the level of training staff, contain the modern fund of sports equipment, provide the possibility of additional visits of training camps and better results in training of athletes who use these facilities.

References

  1. Draft of the United Russia party – “Construction of sports and fitness complexes”. http://er.ru/projects/2013/2/18/stroitelstvo-fokov/ (In Russian)
  2. Draft of the United Russia party – “500 swimming pools”. http://er.ru/projects/2013/2/18/500-bassejnov/ (In Russian)
  3. Malygina, O.V. Proceeding of the conference “Fitness Summit”, 2011. (In Russian)
  4. "Kommersant" newspaper, №227 (5012), 30.11.2012 “Investors offer a fitness plan” http://www.kommersant.ru/doc/2078919 (In Russian)
  5. "Kommersant sekretnoy firmy" journal, №1-2 (327-327), 05.02.2013 “Sports response” http://www.kommersant.ru/doc/2117074 (In Russian)
  6. Reports of the international association of sports and fitness organizations (USA) for 2000-2012. (In Russian)
  7. “Stroitel’stvi i ekspluatatsiya sportivnykh sooruzheniy” journal, № 12, 2012. (In Russian)
  8. Sport and fitness. Orlov, A.V., Krasnov, E.V. High school of sports industry of Plekhanov REU, 2012. (In Russian)

Author’s contacts: ev_krasnov@mail.ru