Economic outlook
More than half of all respondents to FICS (54%) said that the economic climate as it relates to the health and fitness industry will get worse in the coming year. Some believe that the industry is facing a perfect storm of falling yields, increased attrition and slowing sales. Conversely, some operators are confident about their ability to weather the storm and they see opportunities in the years to come. Steve Philpott, CEO of DC Leisure, says, “We’ve weathered the recession well and feel stronger for the experience. Our outlook is now very optimistic because of the great opportunities going forward, particularly when it comes to improving the health of the nation. However, the combination of a rise in VAT and the uncertain economic outlook has made us all feel very cautious about the short term.”
Cuts
With spending cuts leading to significant redundancies, the public sector is going to be directly affected. And, in the short term at least, there will be repercussions for the private sector: how many private club members work in the public sector and face redundancy? In local government, most of the services across culture and sport are discretionary. Cuts mean competition for each pound spent and this is where those services that are mandatory – like education and housing – have an undeniable advantage. However, there is some good news for leisure services:
- In some areas it’s tough to cease provision. For example, it’s very difficult to shut a park or an open space.
- Cutting services like pools, play schemes etc. is likely to make the Government and local Councils deeply unpopular.
- Most managers in the leisure sector are very good at minimising the effects of cuts by re-using facilities, forming strategic partnerships and sourcing alternative funding, and those skills will be hugely valuable going forward. Interestingly, sporta, the representative body for Trusts in the UK, is already experiencing greater interest from councils where services are still provided in-house.
Public sector
The key issues for public sector providers are:
Demonstrating value
The argument that cutting funding for sport and active leisure will have a negative impact on the nation’s health and other issues such as crime is a powerful one.
Influencing local decisions
Local leisure providers need to link in with the Government’s new Big Society agenda, which is all about communities taking on local service delivery – often replacing what is currently being provided by local authorities. In fact, the Government is looking at the idea of having a “right to request”, with local communities being able to lobby their local authority to set up replacement organisations. Leisure Trusts in particular are in a great position to build on their current situation and relationships here.
Craig McAteer, the managing director of Rochdale Boroughwide Cultural Trust, says, “Trusts have proven themselves to be viable alternative delivery models for councils not only wishing to reduce their costs, but also improve service delivery, increase income and improve community accountability. The challenging times ahead provide real opportunities for more local not-for-profit organisations to grow, and our model fits in perfectly with the Government’s new Big Society agenda.”
Personalised budgets
Social services are beginning to give people the right to decide how to spend their money. The question is: will clients of adult social services, for example, choose to spend their money on physical activity?
Partnerships to reduce overheads
We’re seeing councils share chief executives, so expect the concept of combining resources to proliferate across all services. As an example, the minister of libraries has asked for a reason why there should be exactly 151 library authorities in England – why not 100 or 50?
Delivery options
Expect councils to be more open to procurement options, allowing them the flexibility to look at private-public partnerships and joint delivery of services with neighbouring councils.
2012
The Government has withdrawn the targets for participation in activity, but it is still looking for a “soft legacy”. So we may see some short term protection of leisure and activity during which other ways to accommodate cuts can be explored.
National Lottery
The Department for Culture, Media & Sport (DCMS) is likely to decide that Lottery funding should revert to its original good causes. This means that there will be more capital available for the development of physical facilities, such as leisure centres.
Income generation
The protection afforded by the 2012 Olympics and the availability of Lottery money may allow time to build up income-intensive services like health and fitness.
Private sector
So what does all of this mean for the private sector?
It means private clubs will be affected unless their members don’t work in the public sector, don’t have mortgages and don’t spend money on taxable goods.
The FICS Survey gives some indication of the thoughts of private sector operators about the current climate and about the future. It suggests that primary income streams are holding up relatively well but operators do expect a decline in secondary revenue (personal training, treatments, clothing sales etc.) as discretionary spend comes under increasing pressure. This may not be helped by the forthcoming VAT increase due to happen in January 2011, which will either have to be absorbed by operators or passed on to customers in the form of increased prices.
It also suggests that membership enquiries are increasing but so is the competition. As consumers continue to shop around for the best deals, the sales environment remains challenging to say the least.
Arthur McColl, business and brand director at LA Fitness, says, “I’m not convinced the industry is facing the perfect storm, but I do think in tough economic times it’s too easy to cut costs and short-change the consumer. In a climate where disposable income is being squeezed like never before, we have to deliver real value for money in order to justify our existence.
“This means a relentless focus on delivering the basics well. Organisations that are able to control costs and still invest in the customer – look no further than Aldi, Premier Inn and Ikea for examples – will have a massive advantage as the economy recovers.”
In the next three years, smart marketing, great sales processes and customer retention will become more important than ever before. With potential customers on tighter budgets and more competition across the board from budget to premium offerings, the winners will be those organisations that develop a reputation for delivering results, giving value for money and providing great service.