Challenges & Opportunities in Finance as Gyms Reopen

It’s no surprise that the government-ordered shutdowns came with financial challenges for health and fitness clubs. We estimate that health clubs across the globe were losing a total of $1.3 billion in revenue per week at the height of the pandemic. Many fitness facilities are small businesses whose revenue is 90%-100% based on “in-club” activity.

What is a business to do when—through no fault of its own—it loses its primary source of income?

In Part 2 of our four-part series with Catic Wellness Group Owner Loni Wang, she opens up about the financial burdens that hit her facility during the COVID-19 pandemic, and how she and her staff overpowered them.

This series covers the challenges and opportunities Catic Wellness identified during the coronavirus pandemic in Shenzhen, China, and breaks Wang's advice for health clubs into four categories:

1. Strategy,
2. Finance,
3. Member Retention, and
4. Leadership.

Club Financial Challenges and Opportunities

Wang spoke of three financial challenges for health clubs:

1. Paying Staff and Keeping Them Employed
2. Managing Cash Flow
3. Paying Rent

Along with these issues, she took advantage of the following opportunities:

1. Negotiating Rent with the Landlord
2. Exploring Alternative Sources of Revenue
3. Working Together with Other Trainers

Whether you’re a business owner or employee, finances have been on everyone’s mind since this virus forced companies to close their doors indefinitely. This ever-changing crisis didn’t give anyone a free pass on paying bills, so let’s start with the three challenges that Wang and the Catic Wellness staff tackled.

Challenge: Paying Staff and Keeping Them Employed

“We have a thousand people working here and no revenue,” said Wang when we spoke to her in early May. “So, this is a big problem for us.”

With thousands of clubs across the world and 3 million part- and full-time employees, this crisis has forced fitness facilities around the world to lay off much of their staff. In the U.S. alone, the total number of people that have filed for unemployment has exceeded 44.2 million as of June.

Challenge: Managing Cash Flow

The challenge of managing cash flow was apparent for Wang. “[If] we have no cash flow, we cannot lead [our club],” she said.

Wang is right. Less revenue coming in means less money to pay bills and an influx of debt. During a time of such uncertainty, it can be tough to stay positive and keep your business out of the red.

For health clubs that are preparing to reopen, review our financial considerations list to navigate a financial strategy to maintain control of your business.

Challenge & Opportunity: Paying Rent, Negotiating Rent with the Landlord

At the beginning of the pandemic, with mandatory shutdowns and no source of income, health clubs across the globe immediately felt the financial pressure building. Like consumers, club owners and operators were looking for ways to cut costs and pay bills. One of those major bills is paying rent.

In addition to reducing their costs, Wang said, “We discussed [rent with our landlord] because we have no income, no revenue, and [we aren’t] open, so we want them to reduce the rental fee.”

Catic Wellness worked with their landlord to negotiate rent as one way to lessen the financial weight. Of course, keep in mind that all landlords are in different financial situations as well and may not be able to afford to cut you a break. For more information on negotiating with your landlord, review Chris Craytor and Brad Simpson’s five tips.

Now let's talk about the financial opportunities available for health clubs.

Opportunity: Exploring Alternative Sources of Revenue

Catic Wellness did everything in its power to keep paying its 1,000 employees, and took the shutdown as an opportunity to explore alternative sources of revenue.

New sources came from the increased use of digital platforms and apps as a new way to provide training and nutrition as well as focusing on the medical benefits of exercise. Wang admitted, “I think we are better off than other clubs because our products we have here and also we have the doctor...working with our [members].”

Another stream of revenue that Catic Wellness made available directly to employees came from selling the company’s pre-existing skincare products.

“We asked … our employees if they can sell [the skincare products] and then we give their commission to them,” said Wang. “So, they have some revenue and income for their salary.”

Not only did these alternative sources of income help their employees, it also provided more cash flow for Catic Wellness—that’s a win-win.

Opportunity: Working Together with Other Trainers

“We needed [members to] come and to give [a] service,” said Wang. “So we needed to find some solution.”

To keep a steady flow of cash coming in, Catic Wellness introduced their trainers to outside trainers. The goal was to learn from one another and share members, so that both trainers could be compensated for their work.

Wang said, “I find [it] is a good result because you can [get to] know each other and the [members] they can share.”

What Comes Next for the Fitness Industry

How do we preserve the future of the fitness industry? Wang says, “We need to, step-by-step, take care of our customers.”

Continuing to take care of our members is so important for any gym to be financially successful.

Right now, the safety and health of members, staff, and the community is the number one priority for all health and fitness facilities—regardless of where they are in the reopening process. The fitness industry relies on consumers to keep it afloat. During this pandemic, we have to keep chugging along and provide members with the best services possible.

This brings us to the next topic: membership retention.