Investment Lifts Retention Rates at Gyms

Q: How have Sports World’s specific efforts to increase customer retention been reflected in the company’s market position?

A: The company has reached a record high, reversing last year’s low retention record. In March 2016, we registered the lowest churn rate since we started operating. Today, less than 2 percent of members drop out from the club. The market’s average is between 2.5 percent and 4 percent depending on the type of business and country but below 2 percent is very rare. Thus, we are proud of our work and attribute much of the success to our strategy of continuously improving customer service. The whole company has undergone training sessions in hospitality, specifically to be able to personalize service to different kinds of clients. Excellent service philosophy must be maintained and passed on to new people that enter the company.

Analysis of classes we offer led us to identify the variables that encourage or limit attendance. Within peak hours, we identified that popularity of most classes depended on the trainer leading the class. In response, we launched a program called Start Trainers so that our 20 best trainers could guide 150 staff members to give even better classes. We encourage a community feel so that our clients integrate to a social group that will encourage them to stay in a specific gym. Those that attend two or three classes per week are less likely to cancel their membership..

We started 2015 poorly, but in 2Q15 we balanced it out to the point that we saw positive results at the end of the year. The recovery that we saw in the final quarter was partly due to market trends but also due to a focus on service. Aiming to optimize our overheads, we delayed some unnecessary renovations. However, this influenced our retention levels. We have switched the focus to correct this and we are now benefiting from increased efforts, reaching almost 70,000 members.

Q: How has corporate pushed to raise their value and stabilize the brand?

A: The company’s marketability is low although our results have been excellent. We do not expect to see a change until we have reached our full potential. Fifty clubs are not enough, thus growth will improve our position in terms of stocks. The sector itself could grow considerably and while industry players continue to make moves that intrigue investors we will see a general increase in market penetration.

As the dollar strengthened the cost of our equipment rose. Nonetheless, we have not lowered investment. In fact, instead of waiting eight years to replace machines we now make routine changes every five to six. Cardiovascular machines in particular must be changed frequently as they receive the heaviest use. Therefore, rather than cutting investment in these imported products we have found savings in other areas such as reducing the cost of infrastructure of new clubs. By negotiating better deals with construction companies we have been able to keep the same level of investment in maintenance to benefit our members.

Q: In what areas is Sports World geographically targeting growth and club inaugurations with the projected investment this year?

A: Our growth has been organic, tending to open five or six new clubs per year. Per year, the average cost of new clubs is MX$200 million (US$11 million) plus a further MX$30 million (US$1.6 million) approximately for maintenance of existing gyms. However, we aim to optimize the building costs by square meter following some positive offers from construction companies. While we have investigated and are negotiating inorganic growth opportunities few have matched our expectations and tend to be more expensive than constructing from scratch.

Every year we concentrate less on the capital city. Of the 50 clubs operating, 35 are in the city and 15 in the rest of the country. We are now focusing on balancing the quantity of clubs in and outside the capital 50/50. Three new locations will be opened in Guadalajara this year, another in Merida and in the future we will continue to increase the concentration in other states. In total, we hope to reach 70 clubs in Mexico within the next four years.