But California Fitness has not been immune from the crisis. “Above-club costs,” that is, expenses with no direct impact on member services, were trimmed dramatically. Still, says Wong, the Asian operation is cash-rich and can call on the deep pockets of 24 Hour Fitness to continue with its expansion plans once the market starts to show steady growth again. She spoke to CFO Innovation’s Cesar Bacani.

 

It’s actually quite interesting and, obviously, we’ve been studying it. We have seen a drop since the third and fourth quarter of last year in the number of new members joining, but we have seen a slight increase in the first half of this year. We’re still seeing it turning around locally plus continuing to turn across Asia, albeit in differing degrees. People are not buying the more expensive memberships and they’re a bit more hesitant in committing a lot of money.

 

The good news is that our existing members are renewing. We’re even seeing an increase in renewal rates. So, basically, people who are committed to exercise have not changed their behaviour. People who have not included it in their lives have slowed in the commitment to spend money to change their behaviour. It’s affordability too. And those who have savings when the economy is slow, and are perhaps less busy, may consider a membership as an affordable purchase that they hadn’t time to consider before. We have seen workout frequency numbers increase. Instead of going [to the gym] two days a week, they go four days a week.

 

There is some hesitancy [among other members] to buy [premium] packages in this economic climate. Discretionary spending is a little affected. So were in the past you used to come three times a week [to train] with a personal trainer, you might now come twice a week and just exercise on your own. We don’t see a complete non-renewal in personal training services; we see people coming for a little less, which is understandable.

 

We don’t want to go down the trail of cutting prices, because it’s just suicidal, really. So what we want to do is provide our members with excellent value, as opposed to cheap facilities and services. In fact, we want to improve members’ experience while keeping the price firm. For example, we still invest in our clubs i.e. we refurbish, we put in better equipment, thus nurturing a better workout environment.  

 

COST CUTTING

In a downturn every single dollar counts. When you go through huge growth,  sometimes you don’t focus on the back of the “house”, so it gets lumbered with a lot of inefficient, labour-intensive tasks. Nobody thinks of cutting these costs first, so it’s up to the CFO to review these costs and trim expenses, especially in a downturn.  

 

We have had to do it, because we were structured for growth; to build new clubs and so on. We had to let go off just over 30 people regionally, but we didn’t touch frontline staff. It mainly affected colleagues who were helping us find new sites and build more clubs. We still have about 2,000 staff.

 

The first focus for me is how to get front-line staff to be not encumbered with paperwork. We used to have things like [paper] contracts and travel and entertainment claims. We have a system now in place that deals with [these processes] electronically. We’re building a platform that makes [processes] more efficient, so you don’t have to pass a piece of paper from Hong Kong to the Singapore office, which then couriers it back.