BY BRIAN KANE

HOW TO CREATE A BOUTIQUE WITHIN YOUR TRADITIONAL HEALTH CLUB

A Note from the Author: Insights from IHRSA 2016My name is Brian Kane and I lead the Precor® marketing research and commercial management team. It is an amazing time to be in the industry! The number of clubs, gym members, and total gym revenue continues to grow. There are exciting new business models, innovative approaches to training, and a constant stream of innovations in fitness technology.

The following is a combination of my personal opinions, education sessions from IHRSA 2016, and many conversations with studio owners and the companies who serve them.

I’d like to give a special call-out to Club Intel, who prepared an amazing presentation on studios at IHRSA this year.

Precor is excited to share with you a collection of insights from the thought leaders of our industry. To more fully experience any of the sessions, full-length videos are available for purchase at ihrsastore.com.

Brian Kane Global Research Manager

IntroductionThe continued growth of boutique clubs is the hottest trend in the fitness industry.

In the United States alone, 42 percent of all club members are also a member of a boutique. Boutiques, also referred to as studios, provide specialized experiences of high value to their members. Their success is driven by a focus on being great at a few things – often only one thing – versus trying to be all things to all people.

Most think of the boutique concept as related to small facility size, but only one of the top ten drivers of boutique growth is related to size. Facilities of all sizes can learn from and leverage the underlying consumer experience drivers which have led to boutique success.

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Table of Contents Boutiques Are Not a Storm, They Are a Category 5 Hurricane . . . . . 2Boutiques Are Winning in a Mature Market . . . . . . . . . . . . . . . . . . . . . 3More on Millennials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4The Broader Consumer Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5The 10 Key Drivers of Boutique Success . . . . . . . . . . . . . . . . . . . . . . . . . 65 Ways to Create a Boutique in a Traditional Health Club . . . . . . . . . 8Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2 How to Create a Boutique Within Your Traditional Health Club

Boutiques Are Not a Storm, They Are a Category 5 HurricaneAccording to IHRSA’s 2015 Health Club Consumer Report, boutiques drive $2.45 billion in monthly subscription revenue versus $1.49 billion for traditional commercial fitness clubs. That’s a staggering 61 percent more subscription revenue for boutiques than clubs. If you’ve been ignoring the boutique space, now is the time to pay attention.

The enormous success of boutiques demonstrates how much the fitness industry is valued by consumers, which should be extremely exciting and motivating to every fitness facility operator. Boutiques show that when you deliver an impactful experience, members are willing to pay.

Additionally, the fitness industry has strong tailwinds, which is driving a lot of outside players to take an interest in us, especially from the technology and investment communities. The growth of disposable income, interest in personal health and wellness, increased purchasing power of women, the growth of active aging, and the emerging millennial view of fitness are all driving forces for our future growth.

Fitness clubs now constitute a fully mature industry in most developed markets, and industry growth rates are falling in line with overall economic trends. Budget clubs and studios are contributing to an overall growth in health club membership, but not significantly. The profile of the typical health club member remains the same, as does the percentage of adults who are health club members. In simplified terms, there are now more facilities competing for the same number of members.

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Boutiques Are Winning in a Mature MarketIndependent mid-tier operators have seen the largest hit from the cannibalization of budget clubs and studios, as more members choose to leave their mid-tier club for a self-bundled option. Rather than a $60 membership to a big box with a wide variety of amenities, many of their consumers are getting a budget club membership for $10 or $20 and also going to a boutique.

The underlying drivers of this shift in consumer behavior include the following:

1. Consumers are increasingly seeking unique, personalized experiences. They have shown a willingness to pay for best-in-class experiences.

2. Women continue to gain purchasing power and seek brands that provide community and branded experiences. For boutiques, the brand can include the boutique itself and/or the head trainer.

3. Most consumers live an over-stimulated life and seek escape from an always-connected world. It is common for the member-only boutique to provide that escape.

4. Millennials seek uniqueness, variety, and adventure more than any other generation. For them, the boutique provides highly specialized content that appeals to their low boredom threshold and desire for experiences. Most innovations are first adopted by the younger demographic before cascading to older consumers.

5. Consumers are increasingly seeking digitally enhanced and delivered fitness experiences, such as basic activity tracking, remote coaching, and deep social media engagement. Digital companies continue to aggressively invest in fitness technology, with a particular focus on extending existing business models like Uber, Netflix, and remote patient care into the fitness space.

4 How to Create a Boutique Within Your Traditional Health Club

More on MillennialsBoutique growth is driven by millennials, who make up 32 to 48 percent of boutique members in the United States, varying by boutique type. For comparison, active aging (55 and older) ranges from zero to 13 percent of members.

More than any other generation, millennials want the following:

• Inspiration. The boutique is an experience that provides motivation for fitness as well as other areas in life.

• Uniqueness and adventure. Millennials believe that fitness should be fun and different. They notably still use treadmills, ellipticals, and selectorized strength for their primary workouts.

• Authenticity and transparency. Boutiques have a non-membership model typically with upfront pricing and boutique information. Most of this engagement is from a mobile app, which is highly desirable to millennials.

• To be part of a tribe. In our increasingly non-social world – which is, ironically, largely driven by social media – millennials seek the deep sense of connection and belonging with like-minded peers that boutiques provide.

• To express their individuality. Millennials often bundle multiple studios as part of their “wellness wallet.” They see the variety of brands and activities they consume as a reflection of their unique identity. They find brands that align with their sense of identity particularly appealing, which is a core driving force in the fragmentation of boutique offerings.

• A local feel. Millennials aren’t satisfied by just a friendly hello from the front-desk staff. They want staff who truly knows, respects, and cares about them. This principle is core to the club industry, however, boutiques are executing it better.

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The Broader Consumer ContextThe trends of the fitness industry are similar to those of the broader consumer industry. Retail, restaurants, hospitality, and many others have faced the growth of smaller, specialty concepts. The connecting thread of these industries is, in a word, focus. Rather than trying to be good at multiple things, the focused brand consciously chooses to be great at one thing (often for one specific consumer segment). Here are just a few examples:

• Sephora pulled the cosmetics department out of the department store and made it into a destination location with tremendous energy and a clear brand statement.

• Food trucks have enabled the personal trainers of the culinary world, cooks and chefs, to have a restaurant on wheels, usually focusing on just a few menu items.

• Apple stores offer a narrow focus of products with limited variety and configuration in the consumer electronics retail sector, which is usually littered with SKU proliferation.

For the club industry this likely means the following:

1. Members are willing to pay for focused, high-quality experiences that are deeply relevant to them. This is true in clubs of all sizes.

2. Low-price providers will continue to grow, especially because of boutiques. Members are willing to create their own bundle of basic-gym and specialty-gym memberships.

3. The mid-tier operator will also continue to grow but must adopt a new pricing model approach to compete with the low-cost competitors and provide the experiences boutique-goers seek.

6 How to Create a Boutique Within Your Traditional Health Club

The 10 Key Drivers of Boutique SuccessNote, size is only related to one of the top 10 success drivers. This reveals a strong opportunity for traditional gyms to duplicate and monetize the studio experience.

1. Specialized expertise. Boutiques consciously choose to be great at a limited set of offerings, often one training style for one target consumer. This focus leads to perceptions of them being “best-in-class,” allowing them to target a much broader geographic base.

2. Tribal ideology. Boutiques provide purpose and meaning to a targeted and passionate group of like-minded purists, which creates a sense of connection between their members. To build on this, they use rituals, traditions, and events to encourage members to prepare, perform, and celebrate with each other.

3. High-touch coaching. Boutique instructors and trainers are perceived by their members to be part of their exercise journey. Members value the watchful, caring eye of their coach, who helps them reach their goals. Unlike the traditional club, the boutique delivers this promise consistently and continuously. High-touch coaching is core to the boutique model.

4. Local flavor. Boutique members seek authenticity and trust, which being local imparts. With the visible trainer and authentic, home-grown content, the boutique is perceived as a truly craft experience, similar to the brand authority craft beers have garnered.

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5. Real-time convenience. Boutiques are usually located in close proximity to members’ places of work or homes. Many boutiques have a limited set of programming that is offered multiple times throughout the day. This provides further convenience by allowing a member to do the workout of the day at the time that works best for them. Another benefit is easy access. Studios are masters at making it a breeze for members to spend money with them through the use of mobile apps, which provide services like class sign-up, ancillary spend opportunities, and even remote coaching.

6. Iconic leadership. The greatest strength – and also the greatest business-model risk – of the independent boutique is the power of their lead trainer, who is typically perceived as being larger than life. Members find the lead trainer’s passion infectiously inspiring. Boutiques can minimize the risks of giving the lead trainer this power, but having a leader with a sense of autonomy and ownership is core to the model.

7. Nimble and quick decision making. Boutiques usually respond to industry trends much faster than larger institutions and can experiment with a lower level of risk. When a program idea doesn’t work, they are able to make quick changes with minimal impact on their business.

8. Fun and intuitive experiences. Boutiques create immersive experiences where all the member has to do is show up and then “follow the leader,” often with various stages, competitions, and milestones. Members find this to be intuitive and fun.

9. Light on assets. Most boutiques spend much less on physical assets than traditional clubs. This asset-light approach creates a lower barrier to entry and enhances operating efficiency. Boutique operators often choose to first invest in people, followed by technology and physical assets.

10. Consumer-friendly pricing. Unlike traditional clubs, most boutiques publish pricing online, have non-membership pricing, and have no hidden fees. This transparency in pricing sends a message to consumers that they are focused on earning your money with each class or training experience they provide.

According to IHRSA, up to 91 percent of boutique members (depending on the type of boutique) are also a member of another club. Sometimes this is another studio, but most often it is a traditional club. The message being sent to the traditional club is clear: “I want unique and authentic experiences that inspire and engage me. Your current group classes and training options aren’t meeting my needs.”

8 How to Create a Boutique Within Your Traditional Health Club

5 Ways to Create a Boutique in a Traditional Health Club1. Find and cultivate a specialty. Your specialty opportunity is where your key strengths and consumer demands meet.

• Begin by considering who your core customer is today, as well as who you want it to be. Your answer should align with the potential member base in your surrounding community. Take time to ask people who fit that profile what content and experiences they are interested in.

• Look inside your four walls and creatively ask yourself what you’re the very best at. This could be ballroom dancing, science-based training, active-aging programming, youth programming, or anything else.

• Remind yourself that you can’t be all things to all people. Focus on how you can create something of deep meaning and impact to your target member.

• Honestly appraise your capabilities and determine your areas of expertise. Don’t assume you can do CrossFit simply because you see that it is popular.

2. Think and act with a tribal mentality. Put your club’s vision, mission, and values aside and develop an ideology and mantra that creates an experience unique to your boutique. Develop and expand key rituals and traditions that reinforce your tribe’s ideology. Once implemented, find forums for your community to celebrate its uniqueness.

3. Engage the right people to generate a sense of ownership. Boutiques need a champion who takes ownership of the concept and infuses the passion and follow-through needed to keep the culture going. Consider compensating them such that they run the boutique as though they have partial ownership of a business. Give them enough flexibility to make it their own.

4. Design in nimble innovation. Put aside your old ways of thinking about group exercise and training. Your boutique must be willing to try and fail continuously. Your content must be engaging, entertaining, and enthralling.

5. Think like a cat, not a dog. The traditional club industry is littered with followers – dogs – who copy the generic trends of the industry. Shed this old way of thinking and focus on your brand and story. Cats are independent and not afraid to go their own way – adopt that mindset. Don’t ride the coattails of the trends. Instead, create new ones.

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ConclusionThe club industry is now a mature industry. In this new world, we must adapt how we price and deliver experiences. Clubs of all sizes are well positioned to leverage the power of the boutique, which is about the experience, community, and results they deliver. It’s not about their square footage.

Today, many traditional clubs suffer from a syndrome called “competitive homogeneity,” where in an increasingly competitive market they become more and more like each other. Boutiques are a reminder of the need to be different and focused. Being all things to all people is a strategy that is unsustainable in a mature industry where competition is greater than it has ever been.

In Ray Algar’s Health Club Industry Mid-Market Report, he wonderfully illustrates a bifurcating market defined by two extremes: those who provide value and convenience and those who provide support and experience. Every fitness facility should ask themselves which they want to be and commit themselves to it fully.

Precor Creed

The Precor Creed is an expression of the Precor employee culture.

I desire a life without limits.

I believe fitness is key to living the life I desire.

I believe in the power of the human spirit.

I believe the human body is an amazing thing.

I believe tomorrow will be even better because of my actions today.

I believe in the importance of doing things right versus first.

I believe in mutual respect and the overwhelming returns of sharing.

I am the heart and soul of Precor.

Precor is a brand of Amer Sports Corporation. For more information please see www.amersports.com

© 2016 Precor Incorporated. The information contained within this brochure is correct at the time of printing.Precor reserves the right to make any changes without prior notice. 29. April 2016, 3:50 PM.

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