MGT8002 Strategic Management 1 Case Study: Sharp Shape Fitness Club1 MGT8002 Strategic Management © Renee Malan Introduction Gavin Miller is the owner-manager and Director of Sharp Shape Fitness Club, an independent fitness club in Brisbane, Queensland Australia. Gavin is a qualified fitness instructor. Prior to 1997, he worked at this fitness centre (then known as Village Gymnasium) as personal trainer and were informally involved in the management of the gym. The previous owner of the gym retired and Gavin bought the gym in 1997. Gavin changed the name of the business to Sharp Shape Fitness Cub and invested capital in renovating the facilities, upgrading the exercise equipment and adding a car park adjacent to the building. During the first years of Sharp Shape Fitness, Gavin struggled to increase membership numbers and run the business successfully. Although he worked closely with the previous owner, he had no formal training or experience as business operator. Through trial and error and the help of various consultants, Gavin became more competent and the business started to grow. Sharp Shape became a popular fitness club, and the membership numbers increased every year. This continued until the Global Financial Crisis during the 2008-09 period when the club experienced a significant decline in membership numbers. After the GFC, the business recovered and showed real growth for the next five years. Since 2014, the growth seems to be slowing down, and Gavin realises that he needs to change direction to ensure future growth. Gavin has always dreamed of expanding his business into other states; developing a high-end fitness chain throughout all the major cities in Australia and perhaps even beyond Australian borders. He realises that to be successful, he needs focus on following the trends in the fitness industry to ensure that the services his club offer are in line with the general demand. To help him determine the prospects of the club, he called in your services as strategy consultant. The global health and fitness industry Since the 1980s, the concept of ‘gyms’ (gymnasium/fitness centres) has changed considerably. Where gyms have previously been associated with training facilities for boxers and people (mostly men) who were ‘pumping iron’ and working-out, it evolved to a more holistic concept of fitness with expanding service offerings targeting various sub-groups in the population2 . The Australian Bureau of Standards classifies gyms as ‘Health and Fitness Centres and Gymnasia’ and defines it as ‘…units mainly involved in operating health clubs, fitness centres, and gymnasia. They may operate as participative exercise groups or allow individuals to improve their fitness level using the available gymnasium equipment. Units in this class may contain squash courts, swimming pools 1 The company Sharp Shape Fitness Club and all characters in the case are entirely fictional. The case is specifically designed for the purposes of students studying the MBA & Masters programs in Strategic or Corporate Strategy. Similar names, places or events described are purely coincidental. The background to the case has been researched based on publically available research data however third party reports and accuracy of the data cannot be guaranteed. Permission to use this case is required with the copyright, Renee Malan, USQ. 2 https://fitnessaustralia.s3.amazonaws.com/uploads/uploaded_file/file/243/Fitness-Industry-Workforce- Report-2010-2020-full-report.pdf MGT8002 Strategic Management 2 and other sporting facilities provided their primary purpose is the provision of a range of fitness and exercise services’ 3 . According to the International Health, Racquet and Sportsclub Association’s (IHRSA) Global Report of 2016, the global health club industry reached an estimated total industry revenue of US$81 billion in 2015, increasing from US$75 billion in 20134 . Worldwide, the top 10 global markets are shown in Figure 15 below: Figure 1: Top 10 Global Markets (Source: IHRSA Global Report of 2016) The number of global health and fitness clubs increased from about 150 000 clubs serving 130 million members in 2012 to roughly 187 000 clubs serving 151 million members in 20156 7 . The United States is leading the market with an estimate of one out of every five Americans paying for gym membership8 while Africa and the Middle East have the smallest market share9 . The Asian- Pacific region is the third largest region for health clubs with most of the region’s industry revenue generated in Japan, followed by Australia, Mainland China, and South Korea10 . Notable players in the global health and fitness industry include Fitness First, 24 Hour Fitness, Fitness International LLC, Contours Express, Amazonia, Konami Corporation and Health City 11 . Other key players included in the Entrepreneur magazine’s annual ‘Franchise 500’ list (2013), are Zumba, Anytime Fitness, Jazzercise, Snap Fitness, Planet Fitness, Gold’s Gym International and Retro Fitness LLC 12 . The ‘Franchise 500’ list considers factors such as a firm’s financial strength and stability, growth 3 http://www.abs.gov.au/AUSSTATS/[email protected]/Latestproducts/435AE1F1B8E5DD19CA257D240011D304?open document 4 http://download.ihrsa.org/pubs/2016_IHRSA_Global_Report_Preview.pdf 5 Ibid 6 http://www.statista.com/topics/1141/health-and-fitness-clubs/ 7 http://download.ihrsa.org/pubs/2016_IHRSA_Global_Report_Preview.pdf 8 https://www.franchisehelp.com/industry-reports/fitness-industry-report/ 9 http://www.statista.com/statistics/273065/total-revenue-of-the-health-club-industry-worldwide/ 10 http://www.statista.com/statistics/275035/global-market-size-of-the-health-club-industry/ 11 http://www.transparencymarketresearch.com/fitness-products-market.html 12 Op.cit. 4 MGT8002 Strategic Management 3 rate and size of the franchising system in selecting successful franchises for inclusion in their top 500 list 13 . The growth in the health and fitness industry can be linked to various factors. One of the main reasons could be the World Health Organisation and governments’ efforts in promoting healthier lifestyles to curb the rising cost of healthcare. US statistics indicate that healthcare costs make up around 25% of the federal budget, and 60% of healthcare costs arise from chronic diseases (cardiovascular disease, diabetes, stroke, pulmonary disease and some cancers) 14 . The role of nutrition and physical activity in preventing these chronic diseases has been well established. According to earlier studies, 14% of all US deaths in 1990 could be linked to poor diet and low activity levels, and 23% of chronic disease- related deaths were related to sedentary lifestyles15 . Other factors that may have fuelled the growth of the industry significantly include the increasing spending capacity in developing countries, and the opening of new fitness clubs and gyms with large- scale modernisation and the use of highly-advanced wireless healthcare technologies16 . Although the industry revenue shows a steady climb over the last five years, the Global Financial Crisis (GFC) had a significant impact on the industry during the 2008-09 period. The health and fitness industry relies on discretionary spending. While most health-related spending can be considered as non-discretionary spending (such as medical related costs); fitness expenses are mostly viewed as discretionary. Gym membership is considered a non-essential item because consumers can find alternative and cheaper ways to exercise and increase fitness levels (walking, running, participating in sport) 17 . As with other non-essential items dependent on consumer choices in discretionary spending, the health and fitness industry is sensitive towards economic fluctuations and growth. Following the period of GFC or Great Recession (as some analysts refer to), a period of more stable growth is predicted from 2014 to 2020 with an anticipated return to annual global growth of approximately 3 to 4 percent (See Figure 2 below) 18 : 13 Op.cit. 4 14 https://health.clevelandclinic.org/2013/04/how-a-healthier-lifestyle-will-reduce-the-deficit/ 15 http://www.cdc.gov/healthyyouth/publications/pdf/pp-ch7.pdf 16 http://www.transparencymarketresearch.com/fitness-products-market.html 17 http://www.ibisworld.com.au/industry/default.aspx?indid=658 18 https://www.atkearney.com/gbpc/thought-leadership/issue-deep-dives/detail/- /asset_publisher/qutCpQekuJU8/content/beyond-the-crisis-sustained-global-economic-growth-global- economic-outlook-2014-2020/10192 MGT8002 Strategic Management 4 Figure 2: Global growth: 2010 - 202019 (Source:https://www.atkearney.com/gbpc/thought-leadership/issue-deep-dives/detail/- /asset_publisher/qutCpQekuJU8/content/beyond-the-crisis-sustained-global-economic-growth-global-economic-outlook- 2014-2020/10192 ) During the period of economic recovery over the last five years, discretionary income has grown due to interest rate cuts but also as a result of an emerging propensity towards saving in consumers’ spending patterns of discretionary income. The savings in household discretionary income rose from 3.9% in 2007-08 to 8.8% in 2008-09 and continued to grow during 2013-1420 . With consumers’ frugal approach to spending discretionary income, budget gyms became a popular option and these gyms have driven the fitness industry over the last few years. This resulted in intense price competition among fitness centres and even in the structuring of membership contracts. Expensive long-term lock-in contracts are no longer popular as consumers demand more flexibility and ‘pay as you go’ arrangements where members can pay through direct debit and cancel membership at any time. The demand for lower cost fitness services led to the boom in budget 24-hour gyms. These gyms provide members not only with access at any time of day, but also membership at lower prices. Costs are driven down because they generally do not offer group classes and therefore require fewer staff to supervise members; resulting in lower operating costs and reduced membership fees. The smaller, local fitness centres not only face the fierce price competition created by the budget gyms, but they also compete with large, global fitness chains (such as Anytime Fitness or Snap Fitness). These chains have big budgets for marketing and advertising that make them ubiquitous and help to attract more members. This allows them to offer special deals and low starter rates that smaller businesses cannot afford. Apart from the challenges related to competition, price comparisons, and big budgets of global chains, there are also other challenges for independent smaller size fitness centres in this industry. 19 https://www.atkearney.com/gbpc/thought-leadership/issue-deep-dives/detail/- /asset_publisher/qutCpQekuJU8/content/beyond-the-crisis-sustained-global-economic-growth-global- economic-outlook-2014-2020/10192 20 Op. cit. 17 MGT8002 Strategic Management 5 Consumers have various options when it comes to fitness services; such as hiring a personal trainer for private sessions at their homes, or making use of the online options such as exercise videos, or joining virtual communities to share training experiences. Wearable technology with biometric data where consumers can get real data about their workouts can also replace or lessen the need to join a gym to have access to a personal trainer or group exercise classes21 . The Australian market Australia is part of the Asian-Pacific region which, as noted previously, is the third largest region for health clubs. Since 2009, the Australian fitness industry has grown at a steady pace of 4.8% and generated an average of one billion dollars in revenue annually22 . A report conducted by Access Economics in 2009 found the contribution of the fitness industry to the Australian economy for the 2007-08 period at a total of $872.9 million23 . The Australian Fitness Industry Report of 2012 (published by Fitness Australia in conjunction with Deloitte Access Economics) estimate the physical health and fitness industry to be worth $1.2 billion in 201224 . In 2014, this increased to $1.3 billion (according to IBISWorld statistics) 25 ; showing a compounding growth rate of more than eight percent over a two-year period26 . By the end of 2013, the estimated number of fitness centres and gyms was 2,856 in Australia, serving 3.3 million customers and providing employment for about 17,000 people27 . Many world-class fitness chains and centres are operating in Australia, including budget 24-hour gyms such as Anytime Fitness, Jetts Fitness, Plus Fitness 24/7, and Snap Fitness; women-only gyms such as Fernwood and Curves and Contours; as well as full-service gyms such as Fitness First, Goodlife Health Clubs, and Fitness Enhancement Personal Training2829 . Figure 3 below shows the major players in the Australian market and their market share. Figure 3: Major players in the Australian market Source: IBISWorld: Gyms and Fitness Centres in Australia January 214. 21 https://www.franchisehelp.com/industry-reports/fitness-industry-report/ 22 http://www.businessreviewaustralia.com/leadership/153/Australia's-fitness-sector-sees-growth-in-the- billions 23 https://fitnessaustralia.s3.amazonaws.com/uploads/uploaded_file/file/243/Fitness-Industry-Workforce- Report-2010-2020-full-report.pdf 24 Ibid. 25 Op. cit. 17 26 http://blog.deloitte.com.au/deloitteprivate/2014/12/17/health-and-wellbeing-franchising-the- future/#.V2cxElt97IU 27 http://www.businessreviewaustralia.com/leadership/153/Australia's-fitness-sector-sees-growth-in-the- billions 28 http://blog.deloitte.com.au/deloitteprivate/2014/12/17/health-and-wellbeing-franchising-the- future/#.V2cxElt97IU 29 http://fitness.org.au/articles/research-publications/australian-fitness-industry-report-2012/1/47 MGT8002 Strategic Management 6 The competition in this industry is high and ever-increasing; competition is based on price, location, services and quality of facilities. Some fitness centres target niche markets such as children, older people or pregnant women, to gain competitive advantage. The industry also faces external competition from all substitute forms of exercise (such as organised sport) which further fuels the intense competition in the industry30 . The growth in the Australian fitness industry is closely related to consumers’ approach to improved health and fitness. According to the Australian Bureau of Statistics, the prevalence of obesity and overweight increased from 56.3% in 1995 to 61.2% in 2007-08. The percentage rose to 62.8% in 2011- 12 with 35% Australians overweight and 27.5% obese31 . Following current rates, it is estimated that two-thirds of Australians will be overweight by 202532 . A global survey in 2013 reveals that Australia is one of the fattest nations, taking 25th place in the obesity ranking33 . A concerning fact is that about one-quarter of Australian children are either overweight or obese. Obesity impacts not only on the obese individual, but also on other stakeholders including the government, broader society, private health insurers, carers/family and employers. Direct costs (such as hospital care and pharmaceuticals) and indirect costs (such as government subsidies, absenteeism, and inability to take up employment) resulted in an estimated expenditure of $8.6 billion in 2014-1534 . This places a considerable financial burden on Australia as the direct costs of obesity would be equivalent to around 2.6% of the national healthcare spending35 . Although there is no simple solution to the obesity crisis, governments focus on promoting preventative interventions such as healthy and active lifestyles. The media and entertainment industry also plays a role in creating awareness of the obesity crisis and contribute to interventions focused on health and well-being. Television shows such as ‘The Biggest Loser’ help to create awareness of the role of exercise in achieving a healthy body weight 36 while online weight loss/fitness programs aim to support members in achieving their goals (for instance, Lisa Curry’s ‘KiSS 10-week weight loss program37 ). On the other hand, the myriad of cooking shows on national television may just be counteracting this! Apart from the reasons related to preventing or addressing obesity and overweight, there are also other reasons why people join as members of fitness clubs. The trend towards a healthy lifestyle to promote wellbeing as well as quality and length of life, is one of the important motivators for regular exercise. The motivations of club members are also related to age; the majority of members over 66 years of age exercise because they ‘need to stay healthy’ while the majority of younger members are more focused on improving their physical appearance, sculpting their bodies and controlling their weight 38 . The aging Australian population contributes to the prediction that fitness centre members in the older age group will drive growth in the industry in the future. This group has the capacity to pay for memberships and has a propensity for spending on fitness activities that are structured, leisure-based, and impact-free; typical of the full-service fitness centres39 . 30 Op. cit. 17 31 http://www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/4338.0~2011- 13~Main%20Features~Overweight%20and%20obesity~10007 32 https://www.nhmrc.gov.au/health-topics/obesity-and-overweight 33 http://www.smh.com.au/lifestyle/life/obesity-rates-soar-in-australia-a-global-survey-reveals-20140528- 394s4.html 34 www.obesityaustralia.org/_literature_191759/Weighing_The_Cost_Of_Obesity_Paper 35 Ibid. 36 Op. cit. 17 37 http://www.lisacurry.com.au/ 38 http://www.statista.com/topics/1141/health-and-fitness-clubs/ 39 Op. cit. 17 MGT8002 Strategic Management 7 The Australian and New Zealand Fitness Industry Survey of 201440 identifies some trends in this industry for Australia. The boom of 24-hour gyms indicates that it is not only the opening hours but also the cost-effectiveness of this model that seems to support the growth of these fitness centres. The lower cost bases and smaller size of the 24-hour gyms make it more affordable to enter the market through opening budget gyms. While this enables industry revenue growth, it also lowers barriers to entry which increases competition41 . Although budget gyms are less cost intensive to operate, the start-up of a new facility requires significant initial capital investment: purchase or rent of the property and equipment, potential franchising fees, and public liability insurances. To remain competitive, these gyms are compelled to find ways to reduce operational costs and often they resort to cutting down on sales promotion, the number of staff they employ and the quality of the service that they offer. Typical budget gyms do not have the financial backing to research trends in the market or the status of competitors and this could potentially be detrimental to providing services related to the changing needs of customers. Together with the high competition in the industry (including strong global chains such as Anytime Fitness, Virgin Active and Curves entering Australia), these issues present a significant barrier to success for new budget gym operators42 . In comparison to the budget gyms, the global chains that offer full-service gyms have the financial backing to research competitors, market trends and focus on sales promotion. They have sufficient capital investment to develop their services and address industry changes. To enable the successful management of these international chains operating in multiple centres, the organisational structure is more complex with multiple levels of managerial positions which increases the costs (and in some instances the effectiveness) of running these gyms. Online technology will play an increasing role in a variety of aspects of this industry43 . From internet marketing and social marketing to computerised customer databases, online membership sales, online reservations for programs, mobile applications44 and fitness products such as MYZONE 45 (wireless technology to monitor physical activity), state-of-the-art facilities and equipment, and virtual classes; technology will become more and more critical in this industry. With the government focus on preventative health care and the alarming rate of child obesity, the focus will be on fitness programs tailored for specific groups: children, employees, retirees and community groups46 . Fitness professionals and fitness centres will increasingly concentrate on offering personalised and tailored services to these groups. There will also be a continued trend towards integrating health, fitness, lifestyle and wellness. In this regard, there will be a closer relationship between medical professionals and fitness professionals where patients will be referred to fitness professionals to initiate evidence-based exercise programs to manage or prevent chronic diseases47 . The popularity of specific fitness activities offered by fitness centres changes regularly. Regular surveys are conducted to predict health and fitness trends and rank fitness activities to identify top trends. Currently, the top ten activities include: Body weight training, High-intensity Interval training, Personal training by educated, certified and experienced fitness professionals, Strength Training, Exercise and weight loss training, Yoga, Fitness programs for older adults, Functional Fitness and Group personal training48 . Activities that were previously included in the top ten activities are Zumba, 40 https://www.ezypay.com/files/downloads/2014%20Fitness%20Industry%20Trends.pdf 41 Op. cit. 17 42 Ibid. 43 https://www.ezypay.com/files/downloads/2014%20Fitness%20Industry%20Trends.pdf 44 http://www.climbingbusinessjournal.com/fitness-industry-trends-report-2015/ 45 http://www.myzone.org/meps/ 46 https://www.ezypay.com/files/downloads/2014%20Fitness%20Industry%20Trends.pdf 47 Ibid. 48 http://fitness.org.au/articles/latest-industry-news/top-fitness-trends-in-2015/45/605/184 MGT8002 Strategic Management 8 Pilates, Indoor Cycling, Stability Ball and Balance training. Over time, they became less popular and were replaced by the top ten activities mentioned above49 . Future potential areas of growth may include high-intensity martial arts training and CrossFit. These activities became very popular in the United States recently, and Australia may follow suit in this direction50 . The Australian health and fitness industry recovered well after the GFC and achieved even better growth than prior to the GFC but the potential consumer markets are now getting closer to saturation. Although growth will continue over the next five years51 , the fitness industry seems to have reached the mature phase of its industry life cycle. Due to market saturation, limited technological change and relatively slow-moving changes to the business structures without any prospects of dynamic new structures, the growth rate is slowing down. The rapid growth of the 24-hours budget gyms is expected to taper off, and membership uptake is likely to reduce. Because of the severe price competition, some operators may be forced out of the industry. Even with the predicted decline in growth of the 24-hours gyms, they will still be better off than the full-service gyms as it is expected that continued migration to the 24-hour gyms will occur. Consumers will move to the budget gyms for the benefits of lower membership costs, despite the absence of staff and structured group exercise classes52 . As about half of the industry revenue for 2012-14 is produced by the largest four players, the market share concentration can be deemed as moderate. The four most significant players in the Australian market include Fitness First, Goodlife Health Clubs, Anytime Fitness and Jetts Fitness. These companies are in strong competition with other gym chains such as Genesis Fitness, Fernwood Fitness, and YMCA Australia53 . Lauretta Stace, CEO of Fitness Australia summarises the main issues of the fitness industry as follows: ‘The main challenges for the fitness industry are to keep pace with changing consumer trends and to consistently deliver professional, client-centred, safe and effective services so that the client experience is always positive, they get results, see improvements in their physical and mental wellbeing and remain engaged for the long-term.’ 54 IBISWorld55 identifies a number of key success factors for this industry. Among these, the most important factors for success in the fitness industry relate to how consumers experience their fitness club. Clubs need to be clean, well-maintained, and all facilities need to be in good condition. Class instructors and trainers need to be well trained, reliable, punctual, friendly and supportive. Regular cancellation of classes due to the absence of the instructor is demotivating to class members, and members will soon lose interest in the class. The location of the facility is also important. Fitness centres must be in close to target markets with easy access and parking facilities to make it easy for members to visit the centre56 . Having a high profile in the market is a good way of attracting new customers. Credibility can be gained by relationships or associations with prominent sports men and women, celebrities or sporting 49 Ibid. 50 Op. cit. 17 51 http://www.prweb.com/releases/2012/8/prweb9758008.htm 52 Op. cit. 17 53 Ibid. 54 https://www.ezypay.com/files/downloads/2015-AU-FIS-Guide.pdf 55 Op. cit. 17 56 Ibid. MGT8002 Strategic Management 9 organisations. Online promotion, word-of-mouth, and social media could be valuable tools in creating a high profile57 . Pricing and cost management strategies are essential in this highly competitive industry. Fitness clubs must develop unique strategies to stay ahead of competitors. Another way to gain advantage over competitors is to provide value-added services such as child-minding services while parents are working out or nutritional advice to enhance weight loss training58 . Other services could include massage therapy or other holistic treatments such as acupuncture or aromatherapy. The two largest cost components for fitness centres are the rent for the facilities and the wages for staff. The rent of a physical property is a primary requirement for operation and the majority of operators also rent the exercise equipment to reduce the capital investment and allow for update and replacement of the equipment. Labour is one of the major expenditures to cover staff for exercise and class instruction, customer service, marketing and personal training59 . Other costs include insurance (which is higher for 24-hour gyms because these facilities are understaffed), marketing costs, maintenance costs and, where applicable, brand royalties for franchises60 . The Australian fitness industry is lightly regulated with consumer protection laws as main regulation. The Australian Consumer Law (ACL) applies to the industry concerning membership contracts, the disclosure of terms, high-pressure sales tactics, misleading communication and confidentiality to ensure fair contract terms. During 2011, approximately 29,875 people were employed in Australia as fitness professionals with about 90% registered as gym instructors and around 80% registered as personal trainers with either Fitness Australia or Physical Activity Australia (Australia’s fitness industry bodies). Certification of Fitness professionals are not compulsory but in order to qualify for professional indemnity insurance, these professionals are required to be certified61 . Staff in this industry use the job title ‘Fitness professionals’ to refer to those who help people improve and maintain their physical strength and fitness through exercise programs and classes. They work with groups or individuals assessing their fitness, designing exercise programs, helping them to use equipment correctly and exercise in safe and effective ways. Fitness professionals are not qualified to provide medical or health advice such as advice about diet or physical activity aimed at rehabilitation. If the fitness industry intends to link with health services in the future, the training and qualifications of fitness professionals should be enhanced to enable them to address clients with specific health needs62 . The 2011 Fitness Australia survey63 shows that 68% of fitness professional workforce were employed on a casual basis, 12% permanent part-time, 18% permanent full-time and 2% are working proprietors and partners64 . Casual staff are paid between $30 and $90 per session and full-time staff between $40,000 and $55,000 per annum. Fitness qualifications include a Certificate III in Fitness, Certificate IV in Fitness or a Diploma of Fitness. Although there are various university degrees in Exercise and 57 Ibid. 58 Ibid. 59 Ibid. 60 Op. cit. 17 61 http://www.ibisworld.com.au/industry/default.aspx?indid=658 62 https://fitnessaustralia.s3.amazonaws.com/uploads/uploaded_file/file/243/Fitness-Industry-Workforce- Report-2010-2020-full-report.pdf 63 Ibid. 64 Ibid. MGT8002 Strategic Management 10 Sports Science (under-graduation and post-graduation qualifications), the statistics show only a very small number of graduates becoming fitness professionals after attaining their higher education qualifications65 . It is projected that the supply of fitness professionals will continue to exceed the demand; this is expected as the major growth in this industry is in the 24-hour gyms where low numbers of fitness professionals are employed66 . The main supply issue is the level of turnover of staff in this industry. The average turnover of staff across most industries is about 15% per annum while the fitness industry’s turnover of fitness professionals is about 19% per annum. The above average level of turnover is linked to low remuneration, undesirable hours, lack of a career path and the inability to work in full-time capacity67 . Sharp Shape Fitness Club Sharp Shape Fitness Club is located in the suburb of Albion, within a distance of approximately five kilometres from Brisbane city centre in Queensland Australia. Close to Sharpe Shape Fitness, the Albion Mill Lifestyle Village is currently under development with new apartment, retail and dining offerings. It is expected that this development will contribute to a projected population growth of 7.2 percent in this suburb between 2011 and 201668 . Sharp Shape Fitness is close to the Albion train station, bikeways, public transport and major road networks. There are about five private and state schools in the vicinity of the club. Sharpe Shape Fitness is managed by Gavin Miller as the Director and Steve Jacobs as the Club Manager. Steve reports to Gavin and manages the pool of full-time and casual Fitness Professionals. Currently, there is a group of twelve full-time Gym Instructors, and eight Personal Trainers/ Group Trainers employed on a casual basis. Steve is assisted by Mary Jones as his Administrative Assistant. Lauretta Lowe is the Marketing Consultant and reports directly to Gavin. She is responsible for all of the marketing and sales aspects of the business. The flat organisational structure and clear and simple lines of reporting contributes to the effectiveness of managing the gym. The facilities and services that Sharp Shape Fitness currently offer include Circuit Training, Strength Training, Free Weights, group and individual Personal Training, Yoga, Pilates, and a Cycle Studio. Gavin regularly attends international health and fitness conferences to keep track of the worldwide trends in the fitness industry and adjusts the services according to the latest trends. He also realised that renting rather than buying gym equipment is a better decision to ensure that the gym has the latest, state-of-the-art equipment without the burden of owning outdated equipment for which there is no further interest. Balancing the labour cost and needs of clients, Gavin runs the business from 5 am until 9 pm Monday to Friday and 9 am until 5 pm on Saturday and Sunday. 65 Ibid. 66 Ibid. 67 Ibid. 68 http://albionmill.com.au/investment/ MGT8002 Strategic Management 11 There are a number of gyms and fitness centres in and around Albion including full-service centres such as First Choice Fitness, The Tough Spot Gym, Goodlife Health Clubs, and PCYC Gym + Fitness; as well as 24/7 gyms such as Create Fitness 24/7 and Fernwood Fitness. The membership fees and charges for the full-services fitness centres are more or less the same. The 24/7 gyms’ membership fees are lower than the full services gyms but there is little variation in the charges among these gyms. Although membership numbers have been slightly down over the last three years (See Figure 4), Gavin sees an opportunity to increase member numbers with the new Albion Mill Lifestyle Village. He played around with projected figures and compiled a forecasted profit/loss statement (See Figure 5). He realises that he needs to update the services that the club currently offer to attract the anticipated new residents and target groups in the area. He also decides to review the business hours by monitoring the attendance numbers during specific times for the next two weeks to check the peak times and perhaps informally talk to regular gym clients about their preferences for gym opening hours. Apart from possibly growing the current club, his financial forecasts indicate reasonable growth in future years and he wants to explore the possibilities of opening a branch in Sydney, NSW Australia. He would need additional capital through a bank loan to start up this new venture to fund new facilities and equipment. Although expanding his business to other major cities will be a dream come true for Gavin, he is cautious of market saturation and competition with global fitness companies. Gavin knows that the only way to be successful will be to offer customers unique experiences and something that the international companies cannot provide. After examining the membership numbers of the last year and thinking about the growth projections for the future, Gavin is convinced that he needs help and advice from a strategy consultant to advise the business and assist in creating fresh ideas and strategies going forward. He decides to contact you early the next day. MGT8002 Strategic Management 12 Figure 4: Sharp Shape membership numbers 0 200 400 600 800 1000 1200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Current members New membersMGT8002 Strategic Management 13 Figure 5: Sharp Shape Fitness Club Forecasted Profit/Loss statement (2010-2020) THE END