Business Analysis: Gym users opt to fight their debts rather than the flab

Public warnings on the dangers of obesity and unhealthy living have never been so prominent, but for the first time in years, Britain's consumers, weighed down by debts, appear to be turning their backs on the gym.

Public warnings on the dangers of obesity and unhealthy living have never been so prominent, but for the first time in years, Britain's consumers, weighed down by debts, appear to be turning their backs on the gym.

Whitbread, the owner of the David Lloyd health and fitness club chain, said yesterday a downturn in consumer spending power had caused membership numbers to fall by about 10,000 compared with this time last year, and that persuading new customers to stay on the gym treadmill was proving ever more difficult. It is now cutting the number of new sports clubs it is building this year from six to two and any new venues will be racquet sports centres rather than traditional gyms with weights and rowing machines.

Alan Parker, the chief executive of Whitbread, said: "As consumer confidence weakened, we have seen increased attrition and slowing new-member sales. Where we have lost members, it has been those who are purely using us for health and fitness purposes, not those who have full membership of David Lloyd racquet centres. We are not going to build any more pure health and fitness clubs. That sector is still very competitive and recent pronouncements from other operators show it is a difficult market."

~bread about the slowing consumer spend on gyms follows a similar announcement by LA Fitness, one of the UK's leading health club chains. It warned last week that trading in the health club sector was tough. January and February, when new recruits are full of resolve to fight the festive flab and are lured in easily with offers of no-joining fees, proved disappointing for sales. Fred Turok, the founder of LA Fitness, said customer retention rates had slipped and now only two-thirds of its gym-goers were making it through the year. Not only are existing customers finding their gym regime is falling by the wayside, but new converts are also thin on the ground.

Mr Turok said last week: "We drove up sales and put up prices, but we found the actual number of people coming through the door to ask about membership has dropped. I've spoken to many other operators and they are experiencing the same thing."

LA Fitness and Whitbread say consumers are now tightening their money belts, putting financial health above their physical waistlines. While the Government wants us to shed pounds on the scales for the sake of our general health, consumers have been happily piling pounds on their credit cards while interest rates have been low.

The housing boom and wealth created by rising property prices have made carefree spendthrifts of millions. But with interest rates creeping back up and the housing market slowing, consumers are more nervous about unnecessary spending. This is in evidence on the high street.

John Butler, an economist with HSBC, said: "Consumer spending has already slowed amid growing concern about rising interest rates and the sustainability of the housing market. These concerns undermine confidence and you are seeing consumers tighten up what they spend on."

This stricter financial diet is now spilling over on to recreational and leisure spend. Whitbread also said yesterday that sales in its pub restaurants, which operate under the Brewers Fayre, Brewsters and Beefeater brands, were also seeing a slowdown. Mr Parker said: "Brewsters, in particular, is aimed at young families. It has struggled as they are being more cautious about what they spend on eating out." Whitbread's Pizza Hut and TGI Friday's restaurants have seen like-for-like sales slow from above 3 per cent in 2003 to about 1 per cent over the past year. Mr Parker said: "Spending on small ticket items, like in our Costa Coffee chain, is resilient. As is the spend on budget hotels. We still see tremendous growth in the budget sector. But I am being very cautious about the consumer overall."

When faced with the prospect of higher mortgage and credit card repayments and a slowing housing market, cancelling gym membership is an easy item of spending to cut.

Ciaran Barr, the chief economist at Deutsche Bank, said: "Household incomes are being squeezed and the first thing people look to cut is their discretionary spend, which would include things like gym membership."

Why pay to spend hours as a slave on a treadmill or exercise bike? After all, if you want to keep fit, a run in the park is free. James Wheatcroft, at Investec Securities, said: "At the moment, it is easier for people to drop their membership rather than for operators to persuade people to join."

Whether the consumer is set to become even more nervous about parting with cash hangs on the prospects of the labour market. Economists are divided on whether or not employment levels will remain steady. Should they fall, this will prove another negative blow to consumer spending ability.

Until these latest signs of a possible dip in spending on gym membership, the health and fitness sector has been one area of consistent year-on-year growth.

Membership numbers have risen steadily from fewer than 2 million in 1998 to nearly 4 million this year. One person in 10 is now a gym member and recent figures from the research group Mintel show consumer expenditure on health and fitness activities rose 73 per cent between 1994 and 2004.

It is this growth in the industry that is largely responsible for the current trading difficulties. In the health and fitness boom of the Nineties, operators came to market and tapped investors for capital to expand around the UK. But economic worries after 2001, when thousands of suddenly unemployed City workers could no longer afford membership fees, exposed the overexpansion of many operators and damaging price wars set in. Holmes Place, Cannons, Esporta and Fitness First went into private hands, and LA Fitness is now in the midst of a private equity takeover.

The overcapacity in the gym sector still exists which, combined with slowing consumer spending, is making for an extremely competitive market and tough trading conditions.

But public health messages on fitness will not go away. Innes Kerr, of the Fitness Industry Association, said: "Our latest research on the industry shows the penetration of gym membership in the population is rising. In every newspaper and magazine there is something on how physical activity improves health. The emphasis has changed away from the vanities and faddish nature of fitness to genuine, general health concerns. The fitness industry will be reacting to that."

The glut of high street clubs must be cut to bring the market in line with demand. Once this happens, and providing the labour market remains stable and continues to act as a prop to spending ability, health and fitness looks set to become a consumer staple.