Fitness First has found itself in murky financial waters despite a fitness bug, driven by New Year's resolutions, sweeping the UK.
Last month it emerged that the health-club chain has been forced into talks with its lenders as it struggles to meet spiralling interest payments. A similar situation led to discount retailer Peacocks falling into administration last month.
Fitness First was bought by private equity group BC Partners in 2005, leading to ambitious growth built on a debt-based structure. Directors claim to be happy with trading, but the brand is expected to breach the terms of its loans as it restructures a £550m debt.
Nonetheless, aggressive expansion has led to the brand becoming the leader in the sector. It has more than 140 clubs and 300,000 members, but rival Virgin Active is expanding rapidly and last year acquired the 55 Esporta clubs, giving it a total of 122 locations.
In a highly competitive sector, David Lloyd Leisure Group and LA Fitness, both of which have 80 clubs, are also piling on the pressure, as is the 60-club Bannatyne's chain set up by Dragons' Den star Duncan Bannatyne.
In an attempt to drive cut-through, Fitness First runs a weekly 'Fitness Fridays' initiative, which encourages members to bring a friend to the gym for free.
However, Virgin Active is pushing the market leader hard, with its Usain Bolt-endorsed 'FAAS Claas', and LA Fitness has just completed an aggressive customer acquisition drive by offering new joiners half-price membership.
What must Fitness First do to maintain pole position and ensure that debt issues don't weigh it down?
We asked Jane Asscher, founder of 23red, who works with the Department of Health on the Change4Life programme, and Mark Jenkins, strategic planner at Crayon and a former LA Fitness marketing director.
Jane Asscher, founder and managing partner, 23Red, works with the DoH on Change4Life
Fitness First is still the UK's biggest health-club group, but ownership changes, management reshuffles and international expansion have been distractions. The business has also been burdened with excessive debt.
The market is mature and over-stocked with competitors that rely too heavily on price-offers to recruit and retain members.
This encourages promiscuity and erodes profit margins. All these factors make it very hard for Fitness First to reinvest in its business assets, both tangible and intangible.
New equipment, facilities and refurbishments are postponed, and brand values are allowed to drift without thematic marketing communications. The brand suffers from a weak online presence, with lacklustre websites. Customer opinions on blogs reveal badly maintained equipment, poor customer service, showers closed at peak times and a lack of management.
Fitness First looks and feels like a brand unloved by its owners. Why should customers feel any different?
Remedy
- Redefine the brand and ensure staff live it as your ambassadors.
- Use a regional test to prove the business case for brand advertising to make Fitness First more desirable, reduce price sensitivity and increase profitability.
- Invest in a more cohesive, contemporary and engaging website, plus SEO and social media to capitalise on the new Fitness First "buzz".
- Use partnership marketing to leverage the revitalised brand to cost-effectively recruit and retain customers.
Mark Jenkins, strtegic planner, Crayon, former LA Fitness marketing director
On the face of it, Fitness First should be an unqualified success. Trends show that health and fitness is at or near the top of consumers' and the government's concerns as the obesity epidemic threatens to bankrupt the NHS in the near future.
It also had first-mover advantage in the market in the 90s.
However, it is crippled by debt and in danger of being "stuck in the middle" as entrants to the market tempt consumers with a budget-priced version of the old gym model, and the cash-strapped seek to burn their calories using cheaper alternatives, such as running and Zumba.
Given the financial constraints under which the chain is operating, it is unlikely that Fitness First will be able to spend its way to better performance.
The company's management will have to be creative and fleet of foot in the way in which it approaches things.
Remedy
- Redefine the proposition so that Fitness First can go to market with something that offers genuine value to consumers and differentiates it from the budget entrants to the market. It needs to define whether it is selling a route to fitness through service, or merely access to its facilities.
- Focus on increasing use of facilities in off-peak hours by properly engaging with the corporate and referral markets (GPs, private healthcare providers and the elderly).
- Seek to find ways to build dialogue with the existing member base and focus as much on retaining them as attracting new ones.