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UNITING THE WORLD OF FITNESS
Health Club Management

Health Club Management

features

Market analysis: Direct hit

Sports Direct has announced that it will offer gym memberships for as little as £5 a month. Jak Phillips asks what the implications might be for the rest of the fitness sector

By Jak Phillips | Published in Health Club Management 2015 issue 1
Mike Ashley founded Sports Direct in 1982
Mike Ashley founded Sports Direct in 1982

Retail giant Sports Direct sent shockwaves through the gym industry late last year, when Health Club Management (HCM) revealed the company’s plans to take on the low-cost sector with an earth-shattering price plan.

The company’s burgeoning health club arm – Sports Direct Fitness – announced it would offer memberships from as little as £5 a month and embed new health clubs in its retail stores as part of plans to build up a 200-club empire.

In addition to the 12-month, gym-only memberships being offered at £5 a month (plus a £10 joining fee), the aggressive price plan for the new model will see gym and exercise class combos available for £8 a month.

Embracing the ethos on which Sports Direct founder Mike Ashley built his retail empire, gym memberships will be sold at this low rate in a bid to capture market share and foster rapid growth.

Head of sales and products Mel Crossland told HCM: “We’re expecting large amounts of additional spend from gym users, because of the convenience of the on-site store for impulse buys and the fact that they’re the exact target market for Sports Direct products.

“The stores will also be busy in their own right, so the gyms will benefit from increased footfall. We’re following the Sports Direct model of focusing on becoming the biggest.”

Crossland added that, despite the ultra low-cost strategy, the gym chain will avoid other traits of the growing low-cost sector, such as minimal staffing. “We want our gyms to have a personal touch – we won’t follow the budget model and do everything in pods,” she said. “We want to have a rapport with our members, so for every visit, staff will be there to say ‘hi’ and ‘goodbye’.”

Precor will be the main supplier to the new gyms, with the contract for free weights and functional training kit under discussion at the time of going to print.

Sparking debate
Sports Direct Fitness made an initial splash into the market by acquiring 23 former LA fitness sites. In addition, the new model of offering Sports Direct gym and retail outlets side-by-side was introduced with the launch of an Aintree site in mid-December, with openings in Keighley and St Helens hot on its heels. Four more new-builds – two in southern England, one in Wales and one in Scotland – are going through planning.
The masterplan for the new gym model was revealed to club general managers in November. The two-day conference presented the chain’s vision moving forward, as well as the potential awards available to staff through the company’s highly publicised bonus structure.

This conference coincided with the official announcement of Sports Direct Fitness to the national press. The move garnered a swarm of headlines, but proved unpopular with investors as Sports Direct shares fell 2.7 per cent on the day of the announcement (11 November) amid fears the move would lead to less investment and focus on the core retail business.

The announcement – and most notably the price plan – has sparked lively discussions among health club leaders about what this means for the sector. HCM editor Kate Cracknell chaired a debate at SIBEC EU on the topic (see p80), while several influential figures have also shared their thoughts.

HCM editorial director Liz Terry said: “Sports Direct is treating gym membership as an additional driver of retail sales. This is a new approach for a club operator, but we know from the experience of existing operators that a £9 membership can turn a profit without the retail element, so this isn’t a huge gap to bridge. It will be interesting to see how a company such as Sports Direct, with its expertise in consumer marketing, optimises the profit potential by upselling to customers.”

Here, we present a round-up of the prevailing viewpoints…

Sports Direct Fitness: Who’s who

Founded by Newcastle United Football Club owner Mike Ashley in 1982, Sports Direct has over 600 sports retail stores in Europe, including 400 in the UK, and also owns sports brands such as Dunlop, Everlast and Slazenger.

The new gyms will therefore have access to a mammoth database of customers from Sport Direct’s retail empire – which includes its own brand stores and website, plus those of USC, Lillywhites, Sweatshop and more.

The trio heading up the gym venture have all arrived from senior positions at DW Fitness. DW’s former CEO Winston Higham is head of leisure, former head of membership Dean Hogan has become Sports Direct Fitness’ head of operations, and Mel Crossland is head of sales and products.

RAY ALGAR,

MD,

Oxygen Consulting

RAY ALGAR
RAY ALGAR

Sports Direct has been a successful part of the British sports retailing landscape since 1982, the same year that David Lloyd opened his first club. Its core business I fully understand: through its 418 UK stores (at April 2014) and direct ownership of brands such as Slazenger, Lonsdale and Everlast, it offers a treasure chest of sports bargains with up to 70 per cent discounts. However, its strategy for the health club sector seems incoherent.

Having entered the health club market in June of this year with the acquisition of its first LA fitness site, I can currently buy a full membership at its Sale club for £35 a month, with no contract, while the most frequently used price is £36 a month across the 18 purchased clubs it now operates. The site in Aintree, Liverpool, is its first purpose-designed hybrid retail store and gym, but the £5 membership fee – which has generated significant press interest – is a limited offer promotional price, subject to a 12-month contract, £10 joining fee and missed payment fees.

There has been speculation Sports Direct will also embed gyms into some of its existing stores. This means it may be pursuing three distinct club formats at different price points, which feels as jumbled as its retail stores. My sense is the company wants to compete in the mid-market, but the Liverpool site sends a mixed message.

Sports Direct has enormous scale and influence and I would like to more clearly understand the big idea driving this new project, and how it intends to create a remarkable consumer experience that will support more people to become more active.

JOHN TREHARNE,

CEO,

The Gym Group

JOHN TREHARNE
JOHN TREHARNE

The entry of new competition keeps us all on our toes, and anything that increases accessibility to health and fitness is to be welcomed – after all, it’s what The Gym pioneered.

That said, it’s understandable that the market will wait to see what the product offering is, and whether the price is real, before reacting. Loss leading has a patchy record, especially where lack of investment and strategic focus can be a concern in the long run.

A few other questions on the strategy are also immediately clear. Will high quality staff engage with the product if they perceive their value-add isn’t recognised when it’s sold at a loss? How will customers react to the hard sell of being a retailer’s warm leads? Will consumers be able to square their expectation of customer service in the gym environment with the mass-market, low-cost retail service experience?

But of course, if £5 really is to be the new low-cost price floor, then the mid-market bracket just got redefined. Those already struggling to deliver value in this space could be hurt further, with other operators currently positioned as ‘budget’ being left in no-man’s land.

“Loss leading has a patchy record, especially where lack of investment and strategic focus can be a concern in the long run”

TIM BAKER,

Research director,

Touchstone Partners

TIM BAKER
TIM BAKER

The Sports Direct move into the low-cost gym sector is a potential game changer, with three key factors in its favour: using existing, known sites means there’s already an opportunity to win back those who left LA fitness on cost grounds; embedding the gyms within retail stores gives the best opportunity to upsell; and, of course, the genius that is Mike Ashley.

But at £5 a month, this is perilously close to – or even over – the financial edge. Also weighing against the venture is the probability that, even though they will likely have to walk through the store to get to the gym, members are unlikely to want to buy something each time they visit. This may be critical to long-term success.

Promising a higher level of service and layout than is often found in low-cost gyms, it will be interesting to see where Sports Direct Fitness is this time next year. If this were being done by anyone other than Mr Ashley, I wouldn’t expect to see it still here this time next year. I wouldn’t like to bet either way just yet.

“If this were being done by anyone other than Mr Ashley, I wouldn’t expect to see it still here this time next year”

DAVE WRIGHT,

CEO,

Creative Fitness Marketing

DAVE WRIGHT
DAVE WRIGHT

This low membership fee, with a view to making revenue from auxiliary products, is not a new play. It’s something JJB tried five or so years ago with its Mi-Gym brand, before the recession hit its retail business.

Sales are the only thing that can drive revenue to a business, so what Sports Direct will be working on very closely is the revenue per visit. In the same way that the fitness industry looks at selling supplements, these guys will be working on the retail play.

This will be a massive threat to other operators – particularly the budget operators – because the rent will be low, the location will be convenient and they are saying that the service will be personable. (But we all say our service will be great!)

There’s no doubt it will be busy, and if they’re not going 24/7, then workout hours are going to be crammed into a shorter time period. This could lead to the sites being too busy – from the gym equipment all the way to the car park – which could negatively impact on the user experience. I think that will be one of the key issues to deal with.

PETER ROBERTS,

CEO,

Pure Gym

PETER ROBERTS
PETER ROBERTS

The Sports Direct £5 gym membership is unsustainable if it wishes to make a genuine commercial profit. However, it’s an attention grabbing marketing tool and will no doubt help sell its sports goods in-store, which are being overtaken by online sales.

The low-cost gym market has many established operators offering a wide range of facilities, and experience shows the members are looking for high standards in services and products; they’ll walk with their feet if these are not provided. Service and standards, location and products will become the most important elements in customers’ choice, rather than an obviously unsustainable low membership fee that cannot fulfil all these essentials or give a satisfactory return to the operator.

“The Sports Direct £5 gym membership is unsustainable if it wishes to make a genuine commercial profit”

JAN SPATICCHIA,

CEO,

énergie Group

JAN SPATICCHIA
JAN SPATICCHIA

Having had direct insight into Sports Direct’s plans for the fitness sector, and hearing it from Mike himself, I think the industry needs to take this move seriously. You only have to look at Sports Direct’s history to see that, when it ventures into a new area, it does so in a big way. With substantial financial resources at its disposal, as well as international reach, it will hit the market hard and fast. Operators across the industry that are cynical should, in my opinion, think again: I wouldn’t bet against Sports Direct!   

From the énergie Group’s perspective, as the UK’s leading fitness franchise, we see Sports Direct’s entry to the market being a bigger threat to the ‘big box operators’ than it is to us. For énergie, it’s our locally owned clubs – operated by passionate franchisees – that really make the difference. Anything that shakes up the market and keeps operators on their toes is very welcome and we wish them all the best.

Sign up here to get HCM's weekly ezine and every issue of HCM magazine free on digital.
Is £5 for a monthly gym membership a sustainable business model, or is it simply a headline-grabbing marketing tool? / photo: www.shutterstock.com/
Is £5 for a monthly gym membership a sustainable business model, or is it simply a headline-grabbing marketing tool? / photo: www.shutterstock.com/
https://www.leisureopportunities.co.uk/images/897146_572665.jpg
Sports Direct Fitness will offer gym memberships from as little as £5 a month. Jak Phillips asks an expert panel for their thoughts on the implications for the rest of the sector
Jak Phillips,Mike Ashley John Treharne, Peter Roberts, Tim Baker, Ray Algar, Jan Spaticchia, Dave Wright,Sports Direct Fitness, £5 memberships, pricing strategy, Mike Ashley, low-cost, budget sector, John Treharne, Peter Roberts, Tim Baker, Ray Algar, Jan Spaticchia, Dave Wright
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features

Market analysis: Direct hit

Sports Direct has announced that it will offer gym memberships for as little as £5 a month. Jak Phillips asks what the implications might be for the rest of the fitness sector

By Jak Phillips | Published in Health Club Management 2015 issue 1
Mike Ashley founded Sports Direct in 1982
Mike Ashley founded Sports Direct in 1982

Retail giant Sports Direct sent shockwaves through the gym industry late last year, when Health Club Management (HCM) revealed the company’s plans to take on the low-cost sector with an earth-shattering price plan.

The company’s burgeoning health club arm – Sports Direct Fitness – announced it would offer memberships from as little as £5 a month and embed new health clubs in its retail stores as part of plans to build up a 200-club empire.

In addition to the 12-month, gym-only memberships being offered at £5 a month (plus a £10 joining fee), the aggressive price plan for the new model will see gym and exercise class combos available for £8 a month.

Embracing the ethos on which Sports Direct founder Mike Ashley built his retail empire, gym memberships will be sold at this low rate in a bid to capture market share and foster rapid growth.

Head of sales and products Mel Crossland told HCM: “We’re expecting large amounts of additional spend from gym users, because of the convenience of the on-site store for impulse buys and the fact that they’re the exact target market for Sports Direct products.

“The stores will also be busy in their own right, so the gyms will benefit from increased footfall. We’re following the Sports Direct model of focusing on becoming the biggest.”

Crossland added that, despite the ultra low-cost strategy, the gym chain will avoid other traits of the growing low-cost sector, such as minimal staffing. “We want our gyms to have a personal touch – we won’t follow the budget model and do everything in pods,” she said. “We want to have a rapport with our members, so for every visit, staff will be there to say ‘hi’ and ‘goodbye’.”

Precor will be the main supplier to the new gyms, with the contract for free weights and functional training kit under discussion at the time of going to print.

Sparking debate
Sports Direct Fitness made an initial splash into the market by acquiring 23 former LA fitness sites. In addition, the new model of offering Sports Direct gym and retail outlets side-by-side was introduced with the launch of an Aintree site in mid-December, with openings in Keighley and St Helens hot on its heels. Four more new-builds – two in southern England, one in Wales and one in Scotland – are going through planning.
The masterplan for the new gym model was revealed to club general managers in November. The two-day conference presented the chain’s vision moving forward, as well as the potential awards available to staff through the company’s highly publicised bonus structure.

This conference coincided with the official announcement of Sports Direct Fitness to the national press. The move garnered a swarm of headlines, but proved unpopular with investors as Sports Direct shares fell 2.7 per cent on the day of the announcement (11 November) amid fears the move would lead to less investment and focus on the core retail business.

The announcement – and most notably the price plan – has sparked lively discussions among health club leaders about what this means for the sector. HCM editor Kate Cracknell chaired a debate at SIBEC EU on the topic (see p80), while several influential figures have also shared their thoughts.

HCM editorial director Liz Terry said: “Sports Direct is treating gym membership as an additional driver of retail sales. This is a new approach for a club operator, but we know from the experience of existing operators that a £9 membership can turn a profit without the retail element, so this isn’t a huge gap to bridge. It will be interesting to see how a company such as Sports Direct, with its expertise in consumer marketing, optimises the profit potential by upselling to customers.”

Here, we present a round-up of the prevailing viewpoints…

Sports Direct Fitness: Who’s who

Founded by Newcastle United Football Club owner Mike Ashley in 1982, Sports Direct has over 600 sports retail stores in Europe, including 400 in the UK, and also owns sports brands such as Dunlop, Everlast and Slazenger.

The new gyms will therefore have access to a mammoth database of customers from Sport Direct’s retail empire – which includes its own brand stores and website, plus those of USC, Lillywhites, Sweatshop and more.

The trio heading up the gym venture have all arrived from senior positions at DW Fitness. DW’s former CEO Winston Higham is head of leisure, former head of membership Dean Hogan has become Sports Direct Fitness’ head of operations, and Mel Crossland is head of sales and products.

RAY ALGAR,

MD,

Oxygen Consulting

RAY ALGAR
RAY ALGAR

Sports Direct has been a successful part of the British sports retailing landscape since 1982, the same year that David Lloyd opened his first club. Its core business I fully understand: through its 418 UK stores (at April 2014) and direct ownership of brands such as Slazenger, Lonsdale and Everlast, it offers a treasure chest of sports bargains with up to 70 per cent discounts. However, its strategy for the health club sector seems incoherent.

Having entered the health club market in June of this year with the acquisition of its first LA fitness site, I can currently buy a full membership at its Sale club for £35 a month, with no contract, while the most frequently used price is £36 a month across the 18 purchased clubs it now operates. The site in Aintree, Liverpool, is its first purpose-designed hybrid retail store and gym, but the £5 membership fee – which has generated significant press interest – is a limited offer promotional price, subject to a 12-month contract, £10 joining fee and missed payment fees.

There has been speculation Sports Direct will also embed gyms into some of its existing stores. This means it may be pursuing three distinct club formats at different price points, which feels as jumbled as its retail stores. My sense is the company wants to compete in the mid-market, but the Liverpool site sends a mixed message.

Sports Direct has enormous scale and influence and I would like to more clearly understand the big idea driving this new project, and how it intends to create a remarkable consumer experience that will support more people to become more active.

JOHN TREHARNE,

CEO,

The Gym Group

JOHN TREHARNE
JOHN TREHARNE

The entry of new competition keeps us all on our toes, and anything that increases accessibility to health and fitness is to be welcomed – after all, it’s what The Gym pioneered.

That said, it’s understandable that the market will wait to see what the product offering is, and whether the price is real, before reacting. Loss leading has a patchy record, especially where lack of investment and strategic focus can be a concern in the long run.

A few other questions on the strategy are also immediately clear. Will high quality staff engage with the product if they perceive their value-add isn’t recognised when it’s sold at a loss? How will customers react to the hard sell of being a retailer’s warm leads? Will consumers be able to square their expectation of customer service in the gym environment with the mass-market, low-cost retail service experience?

But of course, if £5 really is to be the new low-cost price floor, then the mid-market bracket just got redefined. Those already struggling to deliver value in this space could be hurt further, with other operators currently positioned as ‘budget’ being left in no-man’s land.

“Loss leading has a patchy record, especially where lack of investment and strategic focus can be a concern in the long run”

TIM BAKER,

Research director,

Touchstone Partners

TIM BAKER
TIM BAKER

The Sports Direct move into the low-cost gym sector is a potential game changer, with three key factors in its favour: using existing, known sites means there’s already an opportunity to win back those who left LA fitness on cost grounds; embedding the gyms within retail stores gives the best opportunity to upsell; and, of course, the genius that is Mike Ashley.

But at £5 a month, this is perilously close to – or even over – the financial edge. Also weighing against the venture is the probability that, even though they will likely have to walk through the store to get to the gym, members are unlikely to want to buy something each time they visit. This may be critical to long-term success.

Promising a higher level of service and layout than is often found in low-cost gyms, it will be interesting to see where Sports Direct Fitness is this time next year. If this were being done by anyone other than Mr Ashley, I wouldn’t expect to see it still here this time next year. I wouldn’t like to bet either way just yet.

“If this were being done by anyone other than Mr Ashley, I wouldn’t expect to see it still here this time next year”

DAVE WRIGHT,

CEO,

Creative Fitness Marketing

DAVE WRIGHT
DAVE WRIGHT

This low membership fee, with a view to making revenue from auxiliary products, is not a new play. It’s something JJB tried five or so years ago with its Mi-Gym brand, before the recession hit its retail business.

Sales are the only thing that can drive revenue to a business, so what Sports Direct will be working on very closely is the revenue per visit. In the same way that the fitness industry looks at selling supplements, these guys will be working on the retail play.

This will be a massive threat to other operators – particularly the budget operators – because the rent will be low, the location will be convenient and they are saying that the service will be personable. (But we all say our service will be great!)

There’s no doubt it will be busy, and if they’re not going 24/7, then workout hours are going to be crammed into a shorter time period. This could lead to the sites being too busy – from the gym equipment all the way to the car park – which could negatively impact on the user experience. I think that will be one of the key issues to deal with.

PETER ROBERTS,

CEO,

Pure Gym

PETER ROBERTS
PETER ROBERTS

The Sports Direct £5 gym membership is unsustainable if it wishes to make a genuine commercial profit. However, it’s an attention grabbing marketing tool and will no doubt help sell its sports goods in-store, which are being overtaken by online sales.

The low-cost gym market has many established operators offering a wide range of facilities, and experience shows the members are looking for high standards in services and products; they’ll walk with their feet if these are not provided. Service and standards, location and products will become the most important elements in customers’ choice, rather than an obviously unsustainable low membership fee that cannot fulfil all these essentials or give a satisfactory return to the operator.

“The Sports Direct £5 gym membership is unsustainable if it wishes to make a genuine commercial profit”

JAN SPATICCHIA,

CEO,

énergie Group

JAN SPATICCHIA
JAN SPATICCHIA

Having had direct insight into Sports Direct’s plans for the fitness sector, and hearing it from Mike himself, I think the industry needs to take this move seriously. You only have to look at Sports Direct’s history to see that, when it ventures into a new area, it does so in a big way. With substantial financial resources at its disposal, as well as international reach, it will hit the market hard and fast. Operators across the industry that are cynical should, in my opinion, think again: I wouldn’t bet against Sports Direct!   

From the énergie Group’s perspective, as the UK’s leading fitness franchise, we see Sports Direct’s entry to the market being a bigger threat to the ‘big box operators’ than it is to us. For énergie, it’s our locally owned clubs – operated by passionate franchisees – that really make the difference. Anything that shakes up the market and keeps operators on their toes is very welcome and we wish them all the best.

Sign up here to get HCM's weekly ezine and every issue of HCM magazine free on digital.
Is £5 for a monthly gym membership a sustainable business model, or is it simply a headline-grabbing marketing tool? / photo: www.shutterstock.com/
Is £5 for a monthly gym membership a sustainable business model, or is it simply a headline-grabbing marketing tool? / photo: www.shutterstock.com/
https://www.leisureopportunities.co.uk/images/897146_572665.jpg
Sports Direct Fitness will offer gym memberships from as little as £5 a month. Jak Phillips asks an expert panel for their thoughts on the implications for the rest of the sector
Jak Phillips,Mike Ashley John Treharne, Peter Roberts, Tim Baker, Ray Algar, Jan Spaticchia, Dave Wright,Sports Direct Fitness, £5 memberships, pricing strategy, Mike Ashley, low-cost, budget sector, John Treharne, Peter Roberts, Tim Baker, Ray Algar, Jan Spaticchia, Dave Wright
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Property & Tenders
Diary dates
07-09 Jun 2021
Virtual summit,
Diary dates
12 Jun 2021
Worldwide, Various,
Diary dates
13-14 Jun 2021
Online,
Diary dates
01-04 Jul 2021
Expo Centre & Riviera di Rimini, Italy
Diary dates
18-19 Sep 2021
Locations worldwide,
Diary dates
21-24 Sep 2021
Messe Stuttgart, Germany
Diary dates
28-29 Sep 2021
ExCeL London, London, United Kingdom
Diary dates
04-07 Nov 2021
Exhibition Centre , Cologne, Germany
Diary dates
01-07 Dec 2022
tbc, Dunedin, New Zealand
Diary dates
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FIBO Exhibition
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