launch a new growth curve from a carefully positioned and
executed remodel
By Donald DeMars
Published in Fitness Management, January 1989
difference in market share between commercial renovation and
new commercial construction. What is abundantly clear in this
documentation is that the "building boom" in new buildings has
slowed, and that 59 percent of existing commercial buildings are
in need of remodeling and restoration.
When you apply this comparison to the health club industry,
where the sorting out and settling process and the growth in
competition elements has been even more dynamic, the need
and future need for remodeling will continue to court the pressing
concerns of club owners and managers.
On the average, 1988 has shown an increase in net profits;
however, it has also shown a falling off of growth in membership,
sliding gross sales and higher attrition. Clubs are being forced to
remodel to create new and better programs and to offer a better
level of service to the members they keep.
As an industry, we have moved beyond the time when excellent
markets will bail out antiquated facilities and poor management.
"Better mouse traps" are popping up on every corner, and the
consumer is crystal clear about what he expects in terms of
quality and service.
Industry has historically been driven by the "raw entrepreneurs."
With minimal knowledge of the industry, and now awareness of
market-sizing criteria, these driven individuals have taken their
dreams to good general architects for embellishment and
development. However, with no sizing formulas to work from, the
architect is unable to take responsibility for the developer's
learning curve, and he simply designs what he is asked to do.
To make matters worse, the architect then selects his team of
project engineers, who are also on learning curves with this
"systems' type building" and unique needs. The performance
program and specifications for the club are undersized based
upon the measuring device of general commercial buildings.
Finally, the plans are prepared with marginal details and
specifications (such information is not available in any
architectural standards books in print today) and then bid out,
normally to contractors who have never built such a project
before. Where the plans and details are not clear, the contractor
usually fabricates something to meet the need.
Obviously, what the owner ends up with is a nightmare: A
building, for example, that is oversized for the revenue potential
inherent in the market to support it; will exhibit too large a
mortgage; requires too much energy to heat and cool; too much
maintenance and replacement to sustain; and too much staff to
fill. All of the net profit that the developer hoped for is usually
gone before the project opens its doors!
In large measure, the majority of club buildings requiring
remodeling today present great challenges even to those of us
who have worked exclusively in this industry for many years. I
would recommend the following step-by-step approach in
evaluating the scope, type and feasibility of a remodel project
and a similarly controlled methodology of implementation.
Step 1: Raising questions and doing a project inventory
Normally, clubs renovate or remodel out of need: The club has
lost market share to new clubs that have entered the market;
attrition is up; member interest in the club's program mix has
changed; a new club is expected to be built nearby; etc. But
where do you start? Where do you find the answers? How far
should you go?
This first thing that must be done is to do a market inventory.
Obviously, the market has changed since the project was first
built, but how has it changed? Proper market positioning is the
principal determinant of how well a club will do. What the market
wants, and what the competition has left to take advantage of,
are what the market study seeks to determine.
Without an informed and sophisticated evaluation of the club's
position in the existing market, and how that will change with a
specifically targeted remodeling objective, the chances are that
the remodel program will be no more successful than the original
design. Understanding the market subjectively and objectively
leads to proper component selection and proper sizing of the
overall remodeling program.
The second thing that must be done is to do a facility inventory.
This means that you must document what you facility consists of
overall. If existing plans are available on the facility, this is very
helpful. If as-built plans are available (there are the architects'
original plans that show the adjustments that were made to them
by the contractor when it was built), you are in a much better
position. With or without the plans, adequate investigation should
be done on the building to document and determine structure,
systems and finishes, as well as the local building and safety
codes in place that will affect the remodel approach.
The third thing is to inventory the attitudes of your existing
members. Although it is true that club members will often want
more than they can afford, the likes, dislikes and general
attitudes of your captive members are your closest avenue to
consumer acceptance or rejection of your planned components
and programs.
Step 2: Identifying an experienced club consultant
All of this documented information should be shared with an
experienced club planning consultant who can develop rough-cut
optional approaches on the remodeling of the existing building,
develop rough-cut costs and , after selecting one direction,
develop a five-year financial analysis that looks at detailed
operating expenses, fixed costs, etc.
Step 3: Determining the method of financing
When a successful formula is reached (i.e., the plan works, the
costs are acceptable, the operating costs are workable and the
return on investment is adequate), you must consider the method
of financing the remodel. Without a realistic assessment of this
objective, the remodel program might well end at this point.
Remember: The poorer the potentials for financing , the better
you must prepare you presentation materials. Banks and
investors will measure your project through the principal device
they have to measure it with - what you and your consultant have
prepared for them.
Step 4: Selecting the remodel team
Once the potential for financing looks good, the process of
developing a winning team begins. A very important aspect of
remodeling is to select a team of individuals in different
disciplines who will work together to create excellence. This
requires that a climate of winning be established.
Select a local architect with a good reputation to work with your
club consultant. The local architect will provide coordination for
local engineers and local governing agencies. Have the club
design consultant provide this architect with the schematic phase
of design; specialized details and specifications that the
architect may be on a learning curve with; and the performance
criteria for local structural, mechanical, electrical and acoustical
engineers. The architect will consolidate the drawings for bidding
and further refinement.
First-cut drawings, or about 35 to 45 percent of the total overall
drawings, are done first for pricing purposes. These are given to
knowledgeable contractors for a first-stage costing. The
contractors are asked for a rough-base bid and suggestions,
recommendations and cost-cutting ideas. If they respond, the
contractors are allowed to bid the final plans. Adjustments are
made to the original plans to take advantage of everyone's good
ideas, and the plans are sent out for bid. The contractors are
interviewed, and one is selected.
Step 5: Instituting controls on the team
When the contractor has been selected, the owner should require
a meeting between the architect, consultant, superintendent and
all subcontractors on the project. Everyone should be required to
"debug" the drawings. In other words, all of the oversights, errors
and omissions that are found in any set of plans should be
identified prior to having them built incorrectly. If the
subcontractors proof the drawings before they start, and, after
corrections warrant that they are OK, they will be unable to
charge for an "extra" later on. Extras, delays, down time and
overages require such cost-control measures if the project is to
develop on budget. Weekly coordination meetings are essential.
The superintendent must be required to submit a critical path
chart (CPM or PERT) of the entire construction sequence before
the job begins. This will show a monthly breakdown of every
activity and subcontractor (weekly mini-schedules can also be
asked for), and a breakdown of budget funds in each section of
the schedule.
When the contractor breaks down his requests for funds, the
owner should require that each request for funds be specifically
tied to work completed, and the breakdown should profile labor,
materials, overhead and profit. Without this detailed breakdown,
the contractor may front-load his profit, and when the project is
winding down, and you are pushing hard to complete the final
items, the contractor may not be as accessible. With most of his
project out of the job, he is off somewhere starting another
project! By repositioning more of his profit to the final 15 to 20
percent of the project, the contractor will by very attentive to
completing the final punch list of unfinished items quickly.
Additional control measures for the owner are as follows:
The owner should reserve the right through his contractor to
replace the superintendent (or any subtrade) if the project falls off
schedule or if the subcontractors are unhappy due to the
superintendent's failure to properly interface the sequencing of
their trades.
The owner should require two-year guarantees on
high-maintenance items.
Sixty percent of all delays in construction are caused by the
failure of subcontractors to order material on time. Owners
should specify in their construction contract that a supplier
confirmation letter will be required for all materials for all
subtrades for their project within 10 days of the contractor's
signing of his contract with the sub. This will allow a checking
system with the CPM schedule to keep the subtrades and
contractor in step.
No payment should be made to any subcontractor at any point in
the construction sequence if all lien releases are not submitted,
along with a list of every person who worked on each trade
during that time frame.
A final control that can be placed on the contractor is also an
incentive. Time is money, and if the contractor is late in
completing the project, it will cost more construction interest and
will potentially delay the opening of the new facilities. Give the
contractor a reciprocal penalty and reward clause in his contract.
As a minimum, if the project is late, he pays the additional
construction interest. And, if he finished early, he gets to keep the
budgeted construction interest not used.
Properly positioning your remodel to meet the demands of the
market; selecting and controlling an effective project team;
keeping cost control criteria a high priority; and building for
maintainability. These are the important issues to keep in mind
when considering a remodel project.
Markets do not remain static, but facilities do. Chances are very
good that if your facility is a number of years old, it may very well
perform better through a program of remodeling. Take it one
step at a time!
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Donald DeMars International, Inc.,
email us at donald@donalddemars.com
Copyright ©2003 by Donald DeMars International, Inc.