How to Build a Successful Health Club Franchise Model

“You adapt, evolve, compete, or die.” — Investor Paul Tudor Jones

As new IHRSA data shows, the state of the fitness industry is the best it’s ever been. According to the 2018 IHRSA Global Report, the health club industry totaled $87.2 billion in revenue for 2017. That report also states that health club membership in the U.S. grew to 60.9 million, an increase of 33.6% since 2008. More recent research published in the 2018 IHRSA Health Club Consumer Report puts the membership total at 70 million—a record high.

Despite the success of the industry, launching a health club is no slam dunk. Some estimate that as many as 81% of fitness studios close or fail in the first year. Even brands with long track records need to continue evolving their business models to keep up with emerging trends.

Startup struggles and a fast-changing marketplace could be one reason why health club franchising is on the rise. In the U.S., fitness franchises generate an estimated $4 billion of the industry’s $34 billion in annual revenues, according to the IBISWorld 2018 Gym & Fitness Franchises Report. Between 2013 and 2018, this segment grew at an annual rate of 5.2%, a figure the industry is set to maintain until 2023.

“Fitness franchises offer individuals, who often have no formal fitness education or background, a purposeful platform to make a difference,” says industry expert Brent Darden of Brent Darden Consulting. “In addition, many fitness franchises have a proven track record of success and can generate significant profit margins with relatively low startup costs.”

If you’re looking for a franchise opportunity, how do you know you’re signing on with a brand that transforms themselves in order to remain competitive and avoids the mistakes that lead to customer attrition?

First ask yourself this: Is the brand a Netflix or a Blockbuster?

Anticipating Trends Before You Fall Behind

If you don’t remember, Blockbuster was a company popular in the ’80s and ’90s that rented videotapes and DVDs to consumers. At one point there were more than 90,000 Blockbuster stores in the world. Now there’s only one, located in Bend, OR.

Netflix provided a similar function to Blockbuster (content delivery), but did so as a mail-order business, renting DVDs to customers through the mail. But Netflix executives anticipated the consumer demand for streaming content and changed their entire business model. They began delivering content digitally and transformed themselves into content creators. Today, according to Forbes, Netflix has a market capitalization of $152.7 billion, which is greater than Disney and Comcast.

This success reflects Netflix’s ability to adapt, evolve, and grow. The question is, how can you replicate Netflix’s ability to anticipate consumer trends in your own business?

Make no mistake, the market continues to change, sometimes drastically. Decades ago, health clubs were more uniform in their equipment and programming options. Those days are long over. Today’s consumers can choose a low-cost club, a full-amenity gym, a boutique studio, a high-value club—there’s never been as much variety in club options as there are now.

You can’t adapt, evolve, and compete with a cookie-cutter business model. You have to satisfy consumer demands in fitness programming, equipment upgrades, and digital services. If you don’t, your members will look elsewhere.

“The fact that the industry is so highly fragmented means that there are significant variations in the quality of health clubs and, as a result, in the quality of members’ health club experience,” according to the IHRSA Health Club Business Handbook.

Most fitness trends are developed by entrepreneurs outside of established health club ecosystems (think about specialized boutique studios and CrossFit, two of the great disruptors of recent history). Eventually, these trends are assimilated into full-service clubs.

For instance, 15 years ago, nobody talked about HIIT or functional training. Now, it’s an integral part of almost every group training concept. And group training continues to be a driver of industry expansion.

If you’re a full-service club, how do you deliver all of these options under one roof?

And for established clubs, how do you stay true to your brand while continuing to differentiate yourself?

A Franchising Success Story

The story of the health club industry is the story of Gold’s Gym. Founded by Joe Gold, the first Gold’s Gym opened in Venice, CA, in 1965 and soon established itself as the center of the bodybuilding world. Nicknamed the “Mecca of Bodybuilding,” Gold’s Gym Venice drew physique athletes from all over the world, including an Austrian named Arnold Schwarzenegger.

While the flagship Gold’s Gym is still in Venice and is still called the Mecca—and, yes, Arnold still trains there—Gold’s Gym is global. The company started franchising in 1980, and today there are more than 700 Gold’s Gym locations in 29 countries.

In 2018, Gold’s Gym had the biggest quarter of growth in company history. This success was driven by their franchising division under the direction of Ken Phipps, the director of global franchise development for Gold's Gym. This expansion wouldn’t be possible if Gold’s Gym didn’t capitalize on the legacy of their brand while evolving their strategy to build a defensible fitness model.

So how did Gold’s Gym maintain the leader in the fitness industry while reinventing themselves?

According to Phipps, it’s about building a defensible fitness product that is differentiated by our people, our processes and our programming. It’s not just about co-opting the latest industry trends, it’s about brand innovation and offering enhanced products and services.

“We noticed as a company that the boutique concept was very classroom- and community-based driven,” Phipps says. “But many of these boutique concepts are classroom only. There’s no club. As a company we asked ourselves, ‘How do we create our own programs but within the four walls of a full-amenity gym?’”

The answer was GOLD’S STUDIO, a coach-led, community-driven collection of enhanced group training programs giving members access to boutique-style classes including:

• GOLD’S FIT—a group training community committed to the shared goal of full-body fitness. Classes take functional fitness to the next level by combining strength and endurance training with the use of bands, kettlebells, dumbbells, medicine balls, and bodyweight exercises.
• GOLD’S CYCLE—an innovative fitness experience featuring the latest, real-time leaderboard technology to track progress. With motivational music and effective coach-led HIIT-style programming, this high-energy and fully immersive class drives you to get the most out of each workout.
• GOLD’S BURN—is the ultimate combination of cardio and strength training. This coach-led, fast-paced fitness experience utilizes treadmills, dumbbells, assault bikes, and TRX bands for an efficient workout as you rotate from station to station.

What makes GOLD’S STUDIO so valuable to franchisees is that the programming is available in an evergreen database, alleviating the need for each franchise club to develop their own programs. This also creates a consistent experience for members.

“You could be in Cairo taking a GOLD’S FIT class, then fly to Dallas the next day and take the exact same programming class,” Phipps says.

Gold’s Gym elevated its own model to offer a broader variety of unique, high-quality fitness experiences and create deeper coaching relationships and engagement opportunities through programming. Including GOLD’S AMP, the first digital personal training app from a brick-and-mortar gym that combines audio and video cardio and strength coaching from Gold’s Gym Experts with a custom music library.

Gold’s Gym offers different tiers of membership status for those who choose not to take advantage of GOLD’S STUDIO and other services like Kid’s Club. It’s about making your members feel that they have everything they need in a single membership.

“Retention is based upon customer service and the amenities that you're offering,” says Phipps. “We've developed a defensible product for franchisees around the world that is based upon the people, the process, and the programming.”

Learn more about GOLD’S STUDIO and their franchising program and see how you can enjoy the advantage of one of the industry’s strongest brands that never stops innovating while staying true to their roots.