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Michael Scott Scudder Special Les Mills Presentation FRI 9/9/07 – 9:00AM

“Where the U.S. Health Club Industry is RIGHT NOW… and Why The Numbers Point to A Landslide Group Fitness Business in the next 5 Years”. GF. Michael Scott Scudder Special Les Mills Presentation FRI 9/9/07 – 9:00AM.

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Michael Scott Scudder Special Les Mills Presentation FRI 9/9/07 – 9:00AM

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  1. “Where the U.S. Health Club Industry is RIGHT NOW…and Why The Numbers Point to A Landslide Group Fitness Business in the next 5 Years” GF Michael Scott Scudder Special Les Mills Presentation FRI 9/9/07 – 9:00AM This presentation will be available to you via email attachment upload – just contact MSS!

  2. First, it is useful to look at a few established trends within our industry. • Flare – Fad – Trend – Standard. • Time-dependent. • Usually must go through logicalprogression…is not quantum. • FLARE: Slide • FAD: Tae Bo • TREND: Step, Stationary Cycling • STANDARD: Group Fitness GF

  3. Current industry phases, trends, or standards . • The trend of national membership statistics. • Recently: flat to slight growth – 41.3 million for 3 years, then up to 42.8 million. Overall trend a 4% compounded growth rate over 10 years. • The trend of national club-building. • Upward – Double-digit (12%) in 2002-2005…about 8.5% in 2006. Slowing perceptibly at present. • The trend of club profitability. • Downward – presently < 8% pre-tax. 30% (my estimate) making no profit at all or losing money on operations. • The standard of member retention. • Flat – has not moved off 60% in 15 years. • The general trend of Marketing Positioning. • The general standard of New Member Orientation. GF GF GF GF

  4. 10 PREDICTABLES FOR THE FUTURE: 10. The possibility of subsidized exercise for those clubs that qualify. (Flare)9. The aging of the new membership population. (Fad>Trend) 8. A re-birth of Group Exercise independent studios (Fad), amidst the reincarnation of Group Fitness. (Trend) 7. General lowering of profit margins in several sectors. (Trend) 6. The obviating of reductions in service in many facilities. (Fad) 5. Continued membership growth in the not-for-profit sectors. (Trend) 4. The beginning of a crest, or top, in facility numbers. (Flare>Fad) 3. Continued segmentation of facility markets. (Trend) 2. General down-pricing of fitness memberships. (Fad>Trend) 1. An outbreak in the low-and-value-priced club sector. (Trend) GF GF GF GF

  5. Where It Is RIGHT NOW- The Marketing Positioning Grid • How are the grid positionings described in the national fitness marketplace? • What are the needs for marketing position differentiation?

  6. $49 $19 $29 $75 $100 Low End Mid Market High End GF GF __________________________________________________________ Low-price players Curves Gyms GG – PH Athletic Clubs Value-price players High-end Chains World Gym Planet Fitness TSI, TCA, CCA, CSI, Club One Chains 24Hour, LA Fitness, Bally Studio “key” clubs Snap, Anytime Not-for-profits (Ys, JCCs, Community/Rec, College/University) WHAT THEY HAVE: - Market Distinction - Highest Cost of Operation - Most Services/Programs - Facilities Excellence (Convergence) WHAT THEY HAVE: - Market Distinction - Economy of Operation - Limited Services (Divergence) Big-boxers Lifetime Fitness WHAT THEY HAVE: - Little/No Market Distinction (except for LF) - High Cost of Operation - More Services/Programs (Convergence) WHAT THEY NEED: - Excellent Marketing - Limited Sales/Service - Good Management - Low-Mid to Mid to Mid-High Demographics WHAT THEY NEED: - Good Marketing - Excellent Service - Excellent Sales - Excellent Management - High Demographics WHAT THEY NEED: - Excellent Marketing/Sales - Better Service - Better Management - Mid-to-Mid-High Demographics

  7. How many clubs and how many members? • Planet Fitness: 200 clubs/1 million members • Curves:8000 clubs/3 million members • World Gym:250 clubs/1 million members • Snap/Anytime:? Clubs/? Members (insignificant) • Gold’s Gym: 500 clubs/2 million members • Powerhouse:200 clubs/.5 million members • 24 Hour Fitness:350 clubs/2 million+ members • L A Fitness:100 clubs/<1 million members • Bally Total Fitness: 350 clubs/3 million members • Lifetime Fitness:65 clubs/<.75 million members • High-end chain clubs:350 clubs/1 million+ members • NFPs:6000 facilities/24 million members GF GF GF GF GF GF GF GF GF GF

  8. Let’s dissect those numbers! • Curves and Curves clones:10,000 clubs/ 4 million members • NFPs:6000 facilities/24 million members • The rest of the industry: 14,000 clubs/ 15 million members • POSSIBLE CONCLUSION:”real” average club size: approximately 1,100 members GF

  9. What’s the revenue look like?(Source: Club Industry’s Fitness Business Pro “Top 100” Survey – July ’07) • The “Top 100” represents nearly 2,800 facilities. • They report Gross Revenues of just under $5 billion. • Approximately $1.7 million per average club • Estimated $1.2 million in membership income (70%), $.5 million in ancillary revenues (30%). • Total facilities revenues are estimated at $17 billion. • Approximately 10% of total facility count controls just under 30% of industry revenues. • The remaining 90% of facilities (approximately 27,000) share $12 billion in revenues. • Average club in this bracket grosses about $560,000 annually. • Approximately $460,000 in membership income (82%), $100,000 in ancillary revenues (18%). GF

  10. Where It Is RIGHT NOW- New Member Orientation • Are most clubs doing it any different? • What are the downsides of following “the standard operating procedures”? • What is it costing most clubs?

  11. Most clubs have a well-intentioned, but flawed “new member orientation system”…which produces automatic attrition and insufficient additional revenues! Prospect Interview and Tour Sale New Member No Sale One Evaluation One Equipment Orientation ????? 90 Day Follow Up Then WHAT????????????? UsuallyNOTHING.

  12. Self-Motivation Index* GF * Adapted from Dishman

  13. A modern “new member orientation system”…focused on creating value, educating members, and possibly selling services which help members! Prospect Interview And Tour Sale N–T-M-U New Member No Sale “Real” Evaluation Interest Emails /Programs Multiple Physical Trainings

  14. A breakdown of the “process” of the “NEW new member orientation system” New Member TEACHING NEW MEMBERS (Seminar): WHAT do you do? HOW do you do it? WHEN does it happen? WHY should you do it? Evaluation For many clubs, this training can be accomplished in small groups (preferred) …adding to the “social integration” of the member! ½ hour cardio 1 ½ hour strength 2 GF ½ hour stretch/balance 3 Re-selling & Integration Opportunities If the club has Les Mills Group Fitness programming, it should also slot new members into a class-a-week for the orientation period. ½ hour PT/Specific 4 GF An integrated member!!

  15. WHAT ARE THE PRESENT MAJOR OPPORTUNITIES? > Positioning the club organization to benefit from subsidized exercise. (Clubs must move to exercise documentation.)> Stratifying the club to more workable levels. (Understanding “addition by subtraction.”)> Finally moving to more profitable “amenity services.” (Clubs must begin to understand non-member marketing and program marketing.) GF GF

  16. IN SUMMARY: > An industry truly struggling for the first time in its modern history…but apparently adapting to the struggle! > An industry with immense possibilities for humanity. > An industry in the process of a huge shakeout, which is not going tohappen…we are in the middle of it! > An industry in which to excel means to get different– not just better. GF > An industry in which committed, intelligently-working individuals can make extraordinary contributions…and CAN truly make a difference!

  17. Combining MSS FitBiz ConnectionTM andHealth Club Managers, Inc.TM into one leading-edge umbrella company to SERVEYOU…the health club entrepreneur. • OFFICE PHONE: 505-514-0294 • CELL PHONE: 505-690-5974      • Skype PHONE: michael.scott.scudder • Emails:michaelscottscudder@yahoo.com - mss@healthclubenterprises.com • Web Sites:www.michaelscottscudder.com – www.healthclubenterprises.com THANK YOU!

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