Bruce Carter, President of Optimal Design Systems International, discusses some key renovation tips.
What Is The Relationship Between Club Design And The Prices It Can Charge?
By: Bruce Carter
There’s a purchase psychology saying that the “Eye Buys.” In other words, what someone “sees” strongly determines what he buys. Relating to clubs, things like facilities, programs and price are all key. Yet, what a club looks like plays heavily in someone’s decision to join or not.
When opening a new club or renovating an existing club, a decision has to be made on how much to spend. Often the question comes up, can a better club design (in this case we are referring to primarily what a club looks like) and spending a higher amount to build a club result in higher club prices? If so, is there a relationship between the amount spent to build or renovate a club and how much more prices can increase?
The initial answer to this is yes, but very importantly, only to a point. The formula of, “if you spend more and more, you can then charge more and more,” does not hold up. It appears that, at some point, you cannot charge more, no matter how much you spend to build. And, this relates to both membership dues and non-dues revenue sources.
Why is this? Primarily because the health club industry sells a product that most people dislike: Exercise. Yes, there are many who love exercise. But, most of the population does not put a high value on health clubs. They put a high value on their health and on the “need” for exercise (and clubs) but not on the “doing” of exercise and joining clubs. As a result, the health club industry is a very price sensitive industry. One of the reasons lower priced clubs have increased is that they appeal to the low value people put on clubs. The, “If I don’t go, it does not cost me much, so I don’t worry about it.” mindset prevails.
Now, it is understood that a certain percentage of people, about 10% – 15% of the population, loves exercise and will pay more for better clubs. The growth of boutique clubs, smaller facilities that offer group and personal training (but not the traditional memberships of larger clubs) are able to charge upwards of $100 – $300 per month. They seek out those people in the marketplace who have the ability and desire to pay more to get a better, more specialized club and programs. These type of clubs should definitely look upscale to help justify their higher fee, in addition to their specialty programming. The range of build-out (from a vanilla box starting point) should be $50 – $75 per square foot or more for this type of club.
But, spending a great deal more thinking that extra costs in custom architectural features and more costly finishes will motivate people to spend higher dues only works for a small group in the marketplace and not enough to justify the expense. A number of expensive-to-build clubs have gone bankrupt thinking they could get considerably higher dues to justify the higher expense to build.
As a general rule, if a club offers about the same facilities, programs and location but is significantly nicer than a competitor, it could potentially charge up to 30% more for a membership. But, other variables, such as the number of competitors and weaker demographics, could easily lessen that amount. Lower priced clubs could potentially be able to go from $10 to $20 per month, but the variables of competition and demographics mentioned above still apply. For example, what happens if two or more lower-priced clubs exist in the marketplace offering about the same facilities and location? The “Eye Buys,” and if one club looks substantially better than the others, it should draw the most members.
If your club is $30 per month and your main competitor is $10, your club should “look” like it should cost more the moment someone walks in to it. They can see why your beautifully inspiring club environment costs more. If your club is $30 per month and a new $10 or $20 club opens and looks nicer than your club, you will need to upgrade or lower your price. Generally, if a club does not look that good, it is far more sensitive to price.
The important point to understand is that there are ways to have your club look like it costs a lot more to build than what you actually spend. This is prioritizing where to spend more dollars and where to save on areas. As an example, putting more dollars in the lobby can make the whole club “feel” better when someone walks in. Then, less can be spent elsewhere. For a great example, see the “Before” and “After” photos of the lobby remodeling done at Shula’s Athletic Club in Miami, Florida.
It takes time, but shopping around (often on the internet) can result in a more upscale environment and costing no more than an average environment. There are many lower-priced choices available when it comes to finishes such as floor and wall tile, carpet, vinyl flooring, wall coverings, laminates, millwork and more. Better lighting choices can result in dynamic looking lighting for as much as half the cost. Adding items such as large graphics throughout the club can greatly improve a club but are quite inexpensive.
Strive to make your club look beautiful and exciting for minimal dollars. This is the best and safest approach for club design in today’s highly price competitive marketplace. If only most of the population valued clubs as much as we do in the club industry…
As published on clubinsideronline.com, January 2015.