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South Australian fitness and lifestyle leader shares experiences of doing business through COVID

South Australian fitness and lifestyle leader shares experiences of doing business through COVID
March 19, 2022

Graham Mowatt, Director of South Australia-based Wellness Lifestyle Facility Pty Ltd - the operator of Spa Clubs Fitness as well as a number of other industry brands - has shared his experience of the financial business environment the group is operating in through the early months of 2022.

In an open letter distributed to various stakeholders and interested parties including other facility owners and operators, the South Australian Small Business Commissioner, local government representatives, AUSActive and the media, Mowatt sets out his current experience, stating “over the years I have developed a large network of fitness facilities in South Australia and around Australia and I would like to share my thoughts with them”.

Mowatt addresses the stakeholders as follows:

Small Business Commissioner
“I believe it is important for all small businesses to provide information to the Commissioner about our ongoing situations so they may better represent our views.”

“As I understand the delicate nature of this proposal I wish to be upfront with government about what I feel I am forced to do.”

Local Government Councillors
“As representatives of my business and residents with the communities, I wish to furbish you with all the reasons why I have taken this action.”

Mowatt references a special letter written to chief executives/general managers of local governments by the South Australian Government, stating “I understand that the SA State Government has already written the CEO of all councils requesting them to provide assistance to small businesses like ours that are struggling. I am unaware of the contents of this letter as I don’t believe it has been made public but I wish to draw particular attention to this letter for councillors so they can request a copy.”

“There are various publications, including industry publications, whom I hope will see some relevance in this discussion.”
AUSActive (formerly Fitness Australia)

“As the representative body of my industry within Australia I would like you to understand the situation I find myself in as I know I am not he only one of us in this situation.”

Health/Fitness clubs as a business
Mowatt goes on to explain that “health clubs (and sporting clubs in general) have a large social component, as they are seen as the ‘third place’ of the majority of members (the ‘third place’ is a term coined by US sociologist Ray Oldenburg in his 1989 book The Great Good Place describing a place outside your home or work where you can relax and hang out). 

“This is more so for health clubs than other parts of our industry, like personal training which has a large health prescription element, gyms which don’t have as large a social aspect and ‘Mind Body’ studios which have a more lifestyle reason for being. And while the physical health benefits of ‘Health Clubs’ are recognized by most, this ‘Third Place’ phenomenon has enormous mental health benefits for every member but is not generally recognised, even within the industry.

“Within the COVID environment, this ‘third place’ social element has both a positive and negative impact. As a social space for many members it is not seen by them as essential in the short term and hence hesitancy to join and increased suspensions are putting stress on Health Club finances. The positive is that once the pandemic is ‘normalised’ within the general population (like a flu virus) we can expect to see these people return to their ‘third places’ as they seek out spaces of social interaction after the isolation imposed by the pandemic. This has been borne out by the surge in outdoor restaurant and café businesses when restrictions are eased as humans are genetically wired towards social contact and it is essential for our mental health.”

Mowatt’s letter continues:

Recovery only reached 80-85%
During the last 24 months we have seen devastation to our industry followed by fairly strong recovery once we in South Australia saw the Virus brought under control. The recovery began to slow at about 80% of pre pandemic levels with the majority of health clubs reaching a 80-85% limit. This limit seems to be due to continued anxiety about the virus and/or members have found other ways to exercise. As a result, the last 15% are not expected to return to ‘clubs’ until ‘normalisation’ of the virus. 

2022 COVID situation
Given the current wave of infections due to the Omicron variant there has been a reversal in this recovery with membership beginning to drop again to a level closer to 70% pre-pandemic levels

The messaging from the government, albeit correct, has not been helpful to our industry specifically. The public are being told that fitness facilities are high risk and curbs on our industry are being brought in at the smallest hint of trouble. This has had the effect of discouraging members, leading to exceptionally high levels of suspension and stopping new members from joining.

We had expected that over the last 12-24 months these levels would have crept back to pre-pandemic levels. But due to new variants, continued restrictions etc this has not happened. The result is that most of us have struggled to meet expenses after the Government subsidy was removed and are now in negative financial territory as a result of the latest wave.

Financial effects of these numbers
The majority of Health Clubs overheads are fixed as opposed to being consumption based such as say hospitality and retail. As such there is a break even number of members that is required to cover these expenses. This level is general around 80-85% of pre-pandemic income levels. Over the past 12 months our business has been hovering around this level. Able to just meet its financial commitments with pressure on maintenance and staffing etc. More recently our income has dropped significantly below this level and we are now losing money. While it is a moving feast, we estimate that our current income is now below 70% pre-pandemic levels.

Our Health Clubs, when financially healthy operate within the following parameters.

Staff costs: 45% to 50%
Rent: 15 to 20%
Other: 20%

These figures vary within the industry but for Rural Health clubs, with high staffing/ service levels and small populations limiting numbers, these figures are a good guide.

When things become tight there are limited opportunities to reduce these overheads. Staffing can be reduced slightly but the provision of classes etc. require staff regardless of numbers within each class and staffed hours have already been pared down due to the introduction of ‘24 hour’ operational competition (a model which has minimal staff). 

Effects of omicron and future variants
Mowatt’s open letter also covered rates of ongoing international infections, pointing out that the Australian COVID curve is a lot flatter than that of Europe and anticipating “that we will see a peak much later perhaps towards the middle of the year.”

Comparing Australasia with the rest of the world he wrote “Australia and New Zealand, through the benefit of geography and relative wealth, have so far been able to slow this process and reduce the number of deaths. I expect we will continue keep the progress slower than other developed countries in order that out health systems can cope with this this massive surge in numbers. 

“This will reduce deaths but will also draw out the process of ‘normalisation’. I expect that the rates of infection will peak towards the middle of the year and that we will eventually see 50% of the population having had the virus by the end of the year.”

Graham Mowatt, Director of South Australia-based Wellness Lifestyle Facility Pty Ltd, the operator of industry brands including:
Spa Clubs Fitness - Owns and operates commercial fitness centres in Goolwa, Victor Harbor and soon to open in Hahndorf
Health Clubs Australia - Importer of commercial equipment, developer of fitness related apps and consulting to independent fitness providers
Intelligent Building Solutions - Designs and installs 24 hour access control systems for clubs.

IImages: Spa Clubs Fitness Victoria Harbor (top) and Graham Mowatt (below).

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