Supplier Implications

In January 1, 1998, there were 14,100 health clubs listed in the Yellow Pages of America's phone directories. On average, these facilities spend approximately $20,000 per year on fitness equipment over any five-year period, including the start-up phase. Thus, in any five year period, the average commercial health club spends approximately $90,000 on fitness equipment. Current annual spending on fitness equipment by these 14,100 facilities (at an estimated of $18,000 per year) approximates $275 million.

In 1998, total institutional fitness equipment sales by U.S.-based suppliers approximated $560 million. Commercially-operated facilities constitute approximately 50% ($280 million) of total U.S. institu- tional fitness equipment sales. Next, 30% ($165 million) comes from sales to the military, governmental agencies, colleges, universities and prep schools, hotels, corporate fitness centers, private clubs, resorts, spas, and community centers, etc. Finally, 20% ($110 million) comes from international sales (Figure 5.1).

Thus, in 1998, total institutional fitness equipment sales by U.S. fitness suppliers to American fitness centers approximated $445 million ($254 million to commercial fitness facilities and $181 million to private and tax-exempt operations). In aggregate, the U.S. currently has approximately 30,000 fitness venues.* Approximately half of the U.S. facilities are commercial (listed in the Yellow pages) and open to the public. Half are private and open only to a specific clientele (e.g., corporate fitness centers, university fitness centers, military facilities, etc.).

In the 16-year period between January 1, 1982 and January 1, 1998, the number of commercial U.S. health clubs listed in the Yellow Pages increased from 6,211 to 14,100 (Figure 5.2), representing a compound annual growth rate in the number of fitness facilities for the period of 5.62%. In the shorter term, in the five years between January 1, 1993 and January 1, 1998, the number of U.S. health clubs grew from 11,655 to 14,100 (Figure 5.3)-a compound growth rate of 3.88%.

Assuming a modest 2% compound annual growth rate in the total number of commercial fitness centers over the 12 year period beginning on Jan. 1, 1998 and ending on Jan. 1, 2010, the number of U.S. commercial health clubs listed in the Yellow Pages will, by the year 2010, increase to approximately 18,000

Correspondingly, during the same 12-year period, the number of non-commercial fitness facilities will also increase by approximately 35%: from 16,000 to almost 22,000 facilities (Figure 5.5).

Thus, by the year 2010, there will be approximately 40,000 fitness venues in the U.S-18,000 commercial and 22,000 private.

EQUIPPING CLUBS TO GROW

Allowing for an annual, upward adjustment in institutional fitness equipment spending by existing facilities (including start-ups) of approximately 2%, the average expenditure on institutional fitness

*For purposes of this report, a fitness venue or fitness center is defined as a facility which has at least 10 pieces of institutional fitness equipment.

4,000 equipment by commercial health club facilities will increase by 27% from approximately $18,000 in 1998 to approximately $23,000 in the year 2010. Correspondingly, the average expense on fitness equip- ment by private centers will also increase by approximately 2% per year, from $13,000 to $16,500. Under this scenario, the annual expenditure on institutional fitness equipment by U.S. facilities by the year 2010 will approximate $800 million (Figure 5.6). This would represent a compound annual growth rate in U.S. purchases of institutional fitness equipment of 5.4%.

Assuming a continuation of current trends, the total number of institutional fitness facilities outside the U.S, which now stands at 40,000, will grow to 80,000 by the year 2010. This figure is slightly more than double the number of institutional fitness facilities in the U.S. If current trends continue, there will be approximately 40,000 fitness centers within the U.S. and approximately 80,000 fitness venues outside the U.S. by the year 2010. Of the international centers, approximately 40% will be in Europe, and 60% divided among Asia, South America, Australia, Africa, and elsewhere. (Data on the total number of fitness facilities outside the U.S. was developed through country-by-country estimates by IHRSA's International Department.)

Because non-U.S. fitness facilities are, on average, smaller than U.S. facilities, these facilities are pro- jected to spend, over any five year period, approximately $10,000 per year on institutional fitness equipment. Thus, by the year 2010, assuming 120,000 worldwide fitness facilities (40,000 U.S. and 80,000 non-U.S.), and assuming annual spending on institutional fitness equipment as stated above, the worldwide market for institutional fitness equipment in the year 2010 would approximate $1.6 billion (Figure 5.7).

Assuming that the total worldwide market for institutional fitness equipment in 1998 approximates $777 million, of which approximately $550 million is generated by U.S. suppliers and $200 million by non-U.S. companies (Figure 5.8), this projection of $1.6 billion in worldwide institutional fitness equipment sales by the year 2010 represents an annual compound growth rate of 6.5%.

Further, assuming a leveling-off of the 10:1 ratio between current U.S. retail spending on home fitness equipment (1998 U.S. retail sales: $4.5 billion) and current U.S. spending on institutional fitness equip- ment (1998 U.S. institutional sales: $450 million) to 9:1, U.S. home fitness equipment sales would, by the year 2010, approximate $7 billion (Figure 5.9), representing a compound annual growth rate of 3.5%.

Thus, from the perspective of fitness equipment suppliers, the successful achievement of 50 million by 2010 has immense positive implications. From the "everyone wins" perspective that permeates this report, these relatively few companies become major beneficiaries of the successful implementation of the plan.