Physical Fitness Facilities

SIC 7991

Companies in this industry

Industry report:

Establishments in this industry are primarily engaged in operating reducing and other health clubs, spas, and similar facilities featuring exercise and other active physical fitness conditioning, whether or not on a membership basis. Also included in this industry are establishments providing aerobic dance and exercise classes. Sports and recreation clubs are classified in SIC 7997: Membership Sports and Recreation Clubs if operated on a membership basis, and in SIC 7992: Public Golf Courses or SIC 7999: Amusement and Recreation Services, Not Elsewhere Classified if open to the general public. Health resorts and spas providing lodging are classified in SIC 7011: Hotels and Motels and SIC 7041: Organizational Hotels and Lodging Houses, on Membership Basis. Establishments that promote physical fitness through diet control are classified in SIC 7299: Miscellaneous Personal Services, Not Elsewhere Classified.

Industry Snapshot

According to the International Health, Racquet & Sportsclub Association (IHRSA), the number of health clubs in the United States grew rapidly through the first decade of the 2000s, from 16,938 clubs in 2001 to 29,960 clubs in 2011. More than 51.4 million Americans belonged to a health club in 2011. About 47 percent of members belonged to a commercial health club, and 40 percent belonged to a nonprofit club, such as a YMCA, hospital-based club, or university club. The remaining 13 percent belonged to miscellaneous for-profit clubs, such as corporate fitness centers, aerobics studios, spas, and country clubs. The overall industry, which also included spas, generated revenues of about $25 billion in 2011 and employed approximately 561,000.

In general, health clubs emphasize three aspects of physical fitness: cardiovascular conditioning, strength, and flexibility. Some also offer nonprofessional mental health services, such as stress reduction and counseling programs. Full-service health clubs feature aerobic conditioning equipment, resistance equipment, dance and exercise classes, swimming pools and spa areas, and sometimes tanning and massage. As the U.S. population ages, the over-50 population was expected to become increasingly important to the health club industry, and some clubs were adding health maintenance and monitoring programs to their offerings, including checks for bone density, blood sugar, and blood pressure.

Membership and enrollment (or initiation) fees constituted the vast majority of club revenues in the early 2010s. Although these fees have long been the mainstay of industry income, other revenue sources like children's programs, personal training, exercise classes, physical therapy, and aquatic programs had started accounting for a growing proportion of health club revenues.

Organization and Structure

The fitness center industry is self-regulated through several professional organizations that were formed in the mid-1970s. The most influential of these is the International Health, Racquet & Sportsclub Association (IHRSA). The IHRSA (originally named the International Racquet Sports Association) was formed when the National Tennis Association and the National Court Club Association consolidated in 1981. As its name indicates, the majority of IHRSA's membership (about two-thirds) consists of multipurpose clubs that combine fitness and racquet facilities. The IHRSA's most valuable contributions to the fitness industry include its statistical surveys and its professional journal, Fitness Management. Fitness centers are geographically concentrated in high population areas, with California leading the nation, followed by New York, Texas, and Florida. The vast majority of these businesses are privately held, with a few exceptions such as Sports Club Company Inc.

Background and Development

Health Spas.
Known early in their history as health spas, fitness centers first appeared in the early 1960s, when increasing automation had negated the need for most people to perform daily physical labor. At the time, some experts predicted that physical health in the United States in general would deteriorate, but some Americans made a concerted effort to encourage physical fitness. This "fringe movement" of enthusiasts and entrepreneurs started a trend that led to a fitness boom.

Spas were the first establishments of the fitness center industry. They emphasized relaxation with a European flavor, featuring whirlpools, steam rooms, and massage services. The most prominent of these spas were Europa, European, Scandinavian, Grecian, and Olympic. These early facilities also had some fitness equipment, including manual joggers, stationary bicycles, standard resistance machines for men, and passive resistance equipment for women. Most spas focused on a single gender and had only one locker room. Some clubs tried to maximize their facilities by alternating women and men on particular days of the week. In 1972, however, the New York Health and Racquet Club ushered in co-ed fitness when it built its first facility that had both a men's and a women's locker room. The vast majority of fitness clubs constructed since that time also have locker rooms for both men and women.

Self-Regulation.
An appreciation of professionalism was spawned in the early 1970s. In the 1960s, health spas were largely isolated from one another and were characterized by "inexperienced, inefficient and insincere" management, according to The Complete Health Club Handbook. Increased concerns about providing consistent quality led to the creation of affiliate organizations like the APFC and, later, the IHRSA.

However, these early attempts at professionalization were not sufficient to stem the rising tide of consumer complaints that precipitated public Federal Trade Commission (FTC) hearings in the late 1970s. The government's investigation identified several industry-wide problems, including false, deceptive, and misleading advertising and sales presentations; high-pressure sales tactics; bait advertising; deceptive pricing; misrepresentation of membership benefits and staff qualifications; and unfair cancellation and refund policies. Despite the large number of complaints, Dr. Jimmy Johnson, then executive director of the Association of Physical Fitness Centers (APFC), convinced the FTC that the industry was "well on its way to being self-policing." Johnson's protestations and his association's laudable efforts at self-regulation prevented the FTC from bringing the industry under government regulation. Although the problems cited in the 1970s continued to crop up over the next two decades, the fitness center industry managed to avoid government control through the 1980s and early 1990s by steadily increasing self-regulation.

Nevertheless, abuses continued. In 1994 Bally's Health & Tennis (later Bally Total Fitness Corp.) was fined $120,000 and ordered by the FTC to refund thousands in membership fees in connection with charges of improper billing and collections practices.

Certification of individual employees began in the mid-1980s, but stringent evaluation and certification of facilities were not undertaken until 1989, when the American College of Sports Medicine (ACSM) began a feasibility study of the proposition. After determining that facility certification was necessary "to elevate the credibility of the health and fitness industry to the purchasing public, as well as to ensure the safety of the public when exercising at a facility," the ACSM laid out three phases for the project. It first developed standards and guidelines for facilities, then published a 16-page booklet targeted to the public titled, The ACSM Guide to Selecting a Health and Fitness Facility. Released in 1992, the publication helped educate potential fitness facility members in their efforts to determine which facilities offered safe, high-quality services. The ACSM started its third phase, actual certification, in mid-1993.

The Fitness Boom.
An enormous number of adult exercisers generated a sport and fitness boom in the 1970s and 1980s, which caused rapid growth in the fitness center industry. In 1961 fewer than one-fourth of Americans, when asked, said that they did something aside from work to promote their own physical fitness. However, during the 1970s and 1980s, more than 45 percent responded affirmatively to that question.

During this period many of the best-known fitness center chains, including Bally's; Holiday Universal Inc.; President's Health & Racquet Clubs Inc.; Vic Tanny International Inc.; and Scandinavian Health Spa, experienced dramatic growth. The aerobics and running craze of the late 1970s and early 1980s launched a general fitness boom, and by the early 1990s more than two-thirds of Americans claimed to participate in some form of exercise. Health clubs were even celebrated as smart singles spots in the 1980s, but this social orientation faded in the 1990s.

Legal Aspects.
The fitness center industry has not been able to escape the tidal wave of litigation that has overwhelmed the United States. Fitness center managers have needed waivers and releases, risk management services, and liability insurance to protect themselves from financial disaster at the hands of an unhappy member and his or her lawyer. The most exacting claims seemed to occur in three categories: slip-and-fall or wet area accidents, injury to participants engaged in athletic activity, and claims involving health center employees.

David L. Herbert asserted in Fitness Management magazine that "one who merely rents space for a particular activity owes no duty to those utilizing the space to supervise its use." Nevertheless, as fitness centers in the 1990s offered more services like health and fitness appraisals, weight training, smoking cessation programs, and stress management, they incurred more liability. Herbert emphasized that "once a facility does more than merely rent space, it is likely that it will be required to exercise due care to protect users from unreasonable risk of harm or to insure compliance with safety-related game rules." Fitness centers and their employees who did not properly screen or test participants before exercise, improperly prescribed activities, and improperly or negligently supervised activities opened themselves to lawsuits, according to Herbert.

The Americans with Disabilities Act (Public Law 101-336), which went into effect in January 1992, added another legal challenge to fitness center management. The law, which prohibited discrimination by places of public accommodation against those with disabilities, compelled architectural and program changes, such as the addition of ramps and changing screening systems, for example. Herbert warned that "Health and fitness facilities that presently utilize screening systems to admit or exclude individuals to particular exercise or recreation programs may have to modify their policies to accommodate the provisions of the law." However, prospective members whose medical histories forbade particular activities would not be able to gain access to those programs, regardless of the law's stipulations.

Major Challenges.
In 1993 IHRSA members claimed that the five most pressing external challenges to the industry were the local economy, price sensitivity of the market, competition from clubs, taxes, and unfair competition from non-profit establishments like YMCAs. Those responding to a survey specified member retention, personnel management, advertising and marketing, cost control, and sales management as their top five internal priorities. Although home exercise was farther down the list of external threats, some industry analysts have noted that "the boom in home fitness is cutting into the health club business." The National Sporting Goods Association reported that sales of home fitness equipment in the United States more than tripled over the course of the 1980s, from $54.17 million in 1980 to $1.79 billion in 1990. Home exercisers cited convenience and privacy as advantages, but most consumers conceded that they could not recreate the variety of activities possible in a multipurpose fitness center.

A recession in the late 1980s and early 1990s challenged U.S. fitness centers. Conventional wisdom predicted that consumers who had less discretionary income would eliminate health club memberships from their personal budgets. However, the performance of the fitness industry in past economic downturns showed that people often focused more on their health during stressful economic times. Membership in virtually every age group rose continuously in the 1990s. Memberships for those over the age of 55 and those under the age of 18 were particularly active areas of growth during this time. Women constituted another major area of growth for the industry. By 1997 women made up 57 percent of health club patrons, almost triple the number in 1981.

During the economic downturn of the early 1990s, fitness centers that were already weak or questionable were "shaken out." One observer noted that during recessions, financially sound health club businesses often captured their failing competitors' members. Industry statistics supported this observation with the total number of commercial clubs decreasing for the first time in the history of the industry, from about 13,500 in 1990 to 12,000 in 1991, remaining at that level through 1995. By 1997, however, the number had climbed again, reaching more than 13,000.

The fitness center industry continued to grow throughout the decade. The number of adult users of clubs increased from 18million in 1995 to 22.5 million by 1998. Despite dire predictions, there was no "credit crunch," and low interest rates helped boost the average pretax net income of fitness centers 41.2 percent. This increase was due in large part to debt restructuring. Great potential for increased membership remained since only 8.5 percent of the population belonged to health clubs in 1998.

Despite a sluggish economy, health clubs fared well in the early twenty-first century. According to Bank Loan Report, 17 of the country's largest health clubs increased revenues almost 15 percent during the first quarter of 2002. The day spa industry in the United States generated approximately $7.3 billion in 2001. More than 12 percent of Americans, 80 percent of whom were women, attended a day spa between 1999 and 2001.

The vitality of the health club industry can be at least partially attributed to the changing demographics of the U.S. population and the industry's response. Traditionally, health club membership was dominated by the 18- to 34-year-old age group. However, in 2002 the 35- to 50-year-old group became the largest age segment of health club membership with 37 percent, while those ages 18 to 34 held a 34 percent share. The largest percentage jump came in the category of those members over 55 years old that grew from just 9 percent of all health club members in 1987 to 23 percent in 2001. Health clubs also began catering to the youngest crowd, those who were 6 to 18 years old, a category that also posted significant growth.

Although most clubs continued to offer traditional workout equipment and programs that focused on aerobic and strength training, clubs responded to their changing clientele base by offering more activities for children and teenagers and catering to the older crowd by focusing on wellness, not just exercise. For example, yoga became the latest health club fad during the early years of the 2000s, emphasizing stretching and mental relaxation. Health clubs also tapped into programs and services that appealed to women. As a result of these changes, the health club industry was working to provide a well-balanced program with something for everyone.

A survey conducted by American Sports Data Inc.(ASD) found that of the 41.3 million health club members at the end of the first decade of the 2000s, one-quarter were over the age of 55. According to ASD president Harvey Lauer, this "represents not only a vast change in American attitudes and perceptions, but also an imminent restructuring of the health club and fitness industries, and most crucially--the seed of monumental healthcare reform in the United States." Among the 55-plus segment, 35 percent were members of what the industry considered "other" fitness clubs, such as Curves and the YMCA, that had a significant impact on market share within the industry.

"Yoga in America," a survey conducted by Harris Interactive Service Bureau for the Journal of Yoga, found that the popularity of yoga had increased 43 percent since 2002. The survey also found that "yoga hybrids," such as Budokon, were growing in popularity. These hybrid forms of yoga included everything from nude yoga to disco yoga, offering a wide variety to the nation's more than 16.5 million yoga enthusiasts.

The National Sporting Goods Association (NSGA) reported that the number of people exercising at a gym grew 9.2 percent in 2005, representing 34.7 million people. Aerobic exercising increased 14.4 percent, representing 33.7 million people. The largest increase was in weightlifting, which rose 35.4 percent to 35.5 million Americans in 2005. In 2010, the NSGA reported that $5.3 billion was spent on exercise-related equipment, an increase from $5.1 billion in 2004.

At the end of the first decade of the 2000s, the industry contracted due to a weak economy as well as increased competition from such brands as 24 Hour Fitness, Lifestyle Family Fitness , and LA Fitness. Clubs were either shutting or filing for bankruptcy. Although independent gyms were especially hard hit, large chains were not immune. In May 2009, New York-based Crunch, which operated 25 fitness locations, filed for bankruptcy. According to a July 2009 report in Crain's New York Business, New Yorkers were turning to running in increasing numbers. "A big part of the appeal, of course, is that running is free. People are axing their pricey gym memberships as they take stock of their slimmer household incomes."

However, not all clubs were feeling the pinch of the global recession at the end of the first decade of the 2000s. Although membership did not increase, some club owners found that members were making more frequent visits to the gym. "I don't think we've been hit as hard as retail businesses because people still value their health," Ed Williams, owner of four Colorado Athletic Club locations, told ColoradoBiz in September 2009. Williams was planning to expand to two more locations.

Current Conditions

The physical fitness facilities industry held up relatively well during the economic recession at the end of the first decade of the 2000s compared to most other industries that involved Americans' discretionary income and recorded slight growth of about 1 percent annually between 2007 and 2012. A 2012 report by IBISWorld predicted this growth would expand into the first half of the 2010s, noting that "Demand for gyms and health and fitness clubs will continue to rise over the next five years, as the general public becomes more health-conscious and the aging population places a greater emphasis on staying fit." In addition, "growth in household incomes will positively affect businesses, leading operators to expand into larger facilities."

Although aging Americans were an important market for the industry, health and fitness clubs also targeted a younger crowd. According to the IHRSA, 19 percent of Generation Y Americans were members of a health club in 2011. Also boding well for the industry was the prediction that 2012 trends would boost growth. These major trends included more people working out in clubs and gyms, more club members placing an enhanced importance on the social aspects of the facility as well as the technology offered, and more companies offering gym memberships to their employees as a way to keep them healthy and happy.

Industry Leaders

This industry is fragmented, and the top four firms account for only about 13 percent of industry revenues. Because of the low entry barriers in the industry, the number of owner-operated businesses that had no employees was high, comprising about 36 percent of U.S. establishments in 2012. These non-employing firms accounted for about 12 percent of total revenues.

24 Hour Fitness was the nation's largest privately held fitness club in the early 2010s. The chain boasted more than 3 million members at over 400 clubs in 17 states and 20 "California Fitness" clubs in Asia. True to its name, the clubs were open 24 hours a day. Its annual revenues topped $1 billion at the end of the first decade of the 2000s.

Curves was a female-only fitness club that targeted busy working women. It had 10,000 franchised locations around the world in the early 2010s. Other leaders in the industry were Equinox, which offered not only exercise equipment but also opportunities to participate in "mental engagement, music, breath work, movement quality, community and respect to life"; Minnesota-based Lifetime Fitness; Crunch; Gold's Gym; and Anytime Fitness.

Former industry leader Chicago-based Bally Total Fitness operated 330 clubs in the United States, Mexico, the Caribbean, South Korea, and China at the end of the first decade of the 2000s. In July 2007, Bally filed bankruptcy, listing $397 million in assets and $761 million in debt. In February 2008, Bally settled a lawsuit with the U.S. Securities and Exchange Commission (SEC), which had accused the company of accounting improprieties. According to the SEC, Bally overstated its year-end 2001 shareholders' equity nearly $1.8 billion and understated its net losses in 2002 and 2003 more than $183 million. In December 2008, Bally again filed for bankruptcy protection, reporting $1.4 billion in assets and $1.5 billion in debt, and in 2009 the firm struggled to emerge from bankruptcy for the second time. In 2011 and 2012, respectively, Bally sold 171 locations to L.A. Fitness and 39 facilities to Blast Fitness but continued to operate about 100 sites in major cities.

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