DDI Article - The Market Driven Club

The Market-Driven Club:
Designing for the Future

By Donald DeMars

Over the past fifteen
years, as the fitness
industry has changed,
and changed again, I
have been faced with
the challenge of trying to
understand this "moving
target," and designing
facilities to keep pace
with the emerging
trends.

In most cases, there is and always has been very little understanding on the part of
owners of the direct relationship between specific market dynamics and club type, size,
format, programs, and financial performance. To cope with the challenge of helping
owners advance along their own learning curve, Donald DeMars International developed
a three-stop methodology for both new projects and renovations. This process is market
driven, and works to keep risk at a manageable levels until enough information can be
obtained to justify moving forward.

The first step is market discovery. This phase identifies the consumer, projects the
potential revenue of the club, and assesses the optimal mix of programs and
components. All of this data gathering and analysis is most easily obtained by employing
a research and consulting organization that is experience in a project of this type. To
determine proper market positioning, you must know:

The specific characteristics of the local marketplace and how they will affect demand for
your club;

The typical demographic data on health, fitness, and sports participation;

How the characteristics of the local market compare with those of other areas, and what
opportunities your club has for competitive positioning in specific market niches;

The typical operating and pricing characteristics of competing clubs, and how they limit
your club’s ability to control its own operations;

The distinguishing characteristics of the club’s regional competitive environment, and
how they affect the parameters of achievable performance for your club;

What should be the appropriate concept and market orientation of the club;

Which programs and facilities would best suit the club’s market orientation;

Foreseeable membership and club utilization levels;

The pros and cons of the club’s location, and how it will impact the club’s economic
performance.

The ultimate economic performance of a project is largely dependent on the correct
sizing and placement of the physical elements; hence, the second step in determining
financial feasibility is designing the project and estimating its costs. This is the phase
during which most programs fall apart. The owner should only work with an architect
experience in club design, and have him rough out the plan initially; drafting complete
plans prior to true feasibility analysis is suicide. The architect should then determine the
construction format, systems, and finishes in the building program, and complete a
detailed construction estimate. Finally, the owner should have an experience construction
estimator check out the costs for the project (this is a relatively inexpensive step). Add
realistic allowance for furniture, fixtures, and equipment.

The final step, the financial analysis, will determine whether you can afford the venture, or
whether you will have to return to step two and rethink the design and construction format.
A financial analysis should include figures on land cost, projected revenues, equity
percentage requirements, depreciation, loan rates and capital payback requirements,
build-out period, club membership pricing levels, membership sales percentages by
category, and other revenue categories over a period of time, and total operating
expenses (including property taxes, salaries, energy, and maintenance). This will be set
forth in a five-year, pro-forma financial statement of the club, which also includes a return-
on-sales and return-on-equity profiles.

If the financial model is computer-driven, the exercise of going back and forth between
design and financial analysis until target investment numbers are achieved is relatively
simple. This "warranted investment analysis" - which includes market study, preliminary
design and costing and detailed financial model - will cost from $10,000 to $25,000 for a
new multipurpose project. Remodeling projects, depending on the size and scope of the
work and the extent of the market competition, usually cost far less.

Every design project, whether large or small, must begin with a total knowledge of what is
needed and justified. With that information, you will have a much better chance of "hitting
the target."

For more information about
Donald DeMars International, Inc.,
email us at donald@donalddemars.com