On a recent visit to the gym in my neighborhood, I walked up to the front door to find a mob of members yelling as movers hauled the equipment out of the building. I realized that I wouldn’t be renewing my membership. The owner had cleared out with all the money.
This has become commonplace in Shanghai as gyms struggle to sign up new members to make ends meet.
My understanding is that gym owners can recover their initial investment quickly. One fitness trainer told me that the owner of his gym spent about 1 million yuan ($150,000) setting up the business, and was able to recoup his investment in two months. For most gyms, it’s not difficult to get enough members to cover their initial costs. The question is whether they can hold onto the members that they have and maintain the pace of recruitment.
Most gyms hire a swarm of salesmen to sell memberships. You can often see them hanging out outside of the gyms where they work. These salesmen have monthly sales targets they must hit. I believe that most gym owners put too much focus on getting new members, as opposed to keeping up their facilities and enhancing service.
Joining a gym used to be expensive, but prices have fallen as more gyms compete to sign up members. Unfortunately, service and quality have fallen with prices, which has caused gyms to lose members. My gym had almost every kind of exercise equipment and offered a lot of classes, all for an annual membership fee of 1,200 yuan.
When I joined the gym last year, everything was brand-new. But as the months went on, equipment broke and the managers dragged their feet about getting it fixed. Class schedules changed constantly and instructors sometimes failed to show up.
Members complained, but the owner seemed more focused on gaining new members than taking care of the ones he had.
By the time I found the angry mob outside the gym, I was already thinking about letting my membership lapse. Fortunately, I never had to make that decision, but many members who had just renewed their memberships were clamoring for refunds.
The government has instituted regulations over schools and training centers that require their clients to pay large fees upfront, but these regulations don’t apply to all businesses. In light of my recent experience, I believe they should. First and most importantly, the government should have strict rules governing businesses that ask their clients to pay large membership or other fees upfront, making it difficult for owners to set up fly-by-night operations that will likely close down when business drags. In addition, a margin system needs to be established to ensure that the business maintains enough cash on hand to compensate members if the owner takes off.