(This is a chapter from my forthcoming book, co-written with Tess Read, “The Secret Life Of Money”. The book deals with all sorts of fascinating facts and business things from our careers in banking and consultancy. This chapter deals with the economics of gyms, and how the observed charging and usage practices can be explained pretty simply by thinking about how they have to cover their costs)
If you’re a member of a gym, you will be aware that for the first month of the year the place is horribly packed out with sweaty and unfit people, all the classes are booked up and you can’t get on any of the machines you want. If your interaction with the keep-fit industry is more along the lines of walking past the gym on the way to the cake shop, you might be more aware of the equally curious fact that commercial gyms always seem to have a heavily advertised ‘special’ membership deal going on. Paying the full whack listed rate at a gym is actually a pretty difficult thing to do — much more so than paying full freight rack-rate for a hotel room — unless you do the single most expensive thing you can do in physical culture, and join the gym shortly after the Christmas holidays.
Having seen the books of a gym chain or two, we can tell you that the ‘Sweaty January’ phenomenon is not an urban myth or a joke — it’s absolutely fundamental to the economics of the industry and it’s basically impossible to run an economically viable gym without taking it into account. Usually about 75 per cent of all gym memberships are taken out in the month of January. Not only this, but the economics of the industry absolutely depend on the fact that a very great proportion of January joiners will not visit more than three or four times in total before their membership comes to a floundering flop of weight not lost at the end of the year. The founder of Colman’s Mustard used to claim that his fortune was based on the bit of mustard that everyone left behind on their plate, but gym memberships have really pushed things to the limit when it comes to this model of making people pay for a lot more of the product than they have any likelihood of using.
It all starts with the subscription. There are many commercial gyms that won’t let you in on a ‘pay-as- you-go’ basis at all, even if you beg. There are plenty of others that do, but, unless you are going to a local authority or otherwise subsidised facility, as a single- time visitor you are going to be paying the equivalent of full January prices and then some. Gym owners do not want anyone to be creating the mentality that going to the gym is something that you can pick up and put down, and enjoyed only over the beginning of the year in exactly the same way as a puppy over the Christmas period. Obviously, a lot of the people who run gyms are true believers who really want you to make a proper commitment to your own physical health and fitness, but, whether they are or not, they’re subject to the same commercial pressure.
LIFE FOR RENT
And that commercial pressure is, basically, rent. A gymnasium is a high-fixed-cost business and the driver of those high fixed costs is the fact that a gym customer needs quite a bit more space compared to the retail customers in the rest of the high street, has significantly more exacting needs on the specification of that space and tends to occupy it for longer. Think about it this way: Make a mental picture of your local supermarket, or a smallish department store or clothes shop, at a reasonably busy period. Now make another mental picture of your local gym at an equally busy period and let’s start comparing them. We can note that:
- The retail shop has more people per square foot, doesn’t it, even in a snapshot? Most people tend to agree with this when we put it to them — even in the best case (for the gym owner) of row upon row of people pounding away on identical and compactly placed treadmills or exercise bikes, you just can’t pack them as densely as shoppers. Very few retail customers will jig from foot to foot and wave their arms about, but people in aerobics classes do.
- Now consider that the gym customers, unlike the customers of cafes or supermarkets, expect to be able to store their clothes while they’re on the premises and to take a shower afterwards. So, for every square foot of space occupied in your mental picture of the gym, you need to allocate some changing-room space for every customer too. This probably needs to be gender-segregated too (most attempts to break this taboo have failed pretty disastrously), further increasing the amount of space you need.
- Now here comes the real killer — the people in the gym are likely to be staying for at least an hour per visit, while the majority of the people in the shop will wander in, buy something and leave over a period of no more than twenty minutes. The footfall has to be measured on a per hour basis, and, on this basis, gymnasia are amazingly inefficient in terms of the usage of space.
WHEN FIXED COSTS MEET FIXED BUDGET
In terms of the fundamental equation of retailing (revenue = footfall x purchases per visit x average ticket size), gyms have pretty lousy footfall built into the business model, but excellent conversion percentage; more or less by definition, everyone occupying the space is paying to do so and thereby making a purchase. But they are so inefficient in terms of generating the customer turnover that it’s really difficult to make the fixed cost economics work, because the amount you’d need to charge per ‘sale’ would end up being beyond the means of most of the users. Unless … unless you could push the purchases per visit much higher than 100 per cent, by having people paying for the gymnasium services while not actually using them. Hence, Sweaty January. Here you have customers paying upfront, but turning up only once, twice, perhaps four times in total during the year. They then either, realistically, conclude that they have given enough free money to the gym, that gym membership is not for them, and don’t renew. Or the gym owner’s dream, they repeat to fade every year — joining each January with good intentions, and never turning up beyond each mid- March, until expanding waistlines and increasing guilt hold sway each coming Christmas time and they renew.
The moral of the story is either use it or lose it — the membership that is. Or, if you’re planning to have a short burst of good intentions, make sure you do it in midsummer when gyms are desperate for new members and will slash prices accordingly.