Keeping fit to grow

In the 1990s recession, gyms got hammered as consumers cut back discretionary spending. So how has the founder of women-only gym Fernwood Women’s Health Clubs, Diana Williams, guided the franchise through this global recession?

Amanda Gome: How many franchisees have you got now?

Diana Williams: We’ve got 78 clubs, some franchisees have multiple clubs and we now own 10. That number varies from time to time as we buy clubs back or open new ones.

I think we have stayed the same (in the last year). We have opened a couple of clubs in the last 12 months and we’ve also merged a couple of clubs and closed a club that was in the wrong location and the lease ran out and we decided not to continue there.

AG: What is your revenue now including your franchisees?

DW: It is around about the same, it’s about $100 million, a little bit under $100 million, I think we forecast to go over $100 million but then the global crisis came and we have kind of been treading water.

AG: And you are looking at putting your international expansion on hold.

DW: It put itself on hold really. We did have quite a few interested people in South Africa, one in the [Persian] Gulf region and another couple in India but they’ve got very nervous when all of this happened. It happened to a much greater extent overseas, so they’ve said [they] just want to wait and see what happens. We haven’t pushed it either. When something like this happens you have got to stay close to what you are doing, close to home, and make sure that everything you have got is secure and sound and we are a strong company. So we aren’t exploring new horizons just right now.

AG: When did you really feel in your gut that there was a downturn coming? And how did you prepare for it?

DW: I think that the media have made it quite obvious that’s something that’s going to happen, so we have been very well prepared. We prepared very early and looked at our corporate structure and we didn’t retrench anybody, we didn’t put anybody off. But what we have done is when people have left we have absorbed their roles with other roles, so we are running a lot leaner now.

The other thing that we have done in the support of our franchisees; we have taken a much closer look at how they are operating, not only from their day-to-day operations but more so how they are structured, what their level of debt is and how we can help them restructure their debt if that is an issue. That is an area that we are constantly monitoring, making sure all of our franchisees are in a strong position as much as we can.

AG: Have many failed?

DW: There are a couple. What we generally do when people are failing or looking like they will fail is encourage them to sell up before they get to that point. So we have encouraged a couple to get out before the inevitable happens. If somebody is not a good operator, then it is either the location or it’s the operator, so generally in our business when we have a business model that works very well then obviously you know that it is the location or the operator – it can be nothing else. If we identify that it is the operator then we will encourage them to sell or move on.

AG: How do they take that?

DW: I think that they know that we are there to help them and support them and they are happy to do that. We’ve never had anybody that has sort of refused to sell, although we make it pretty clear that it is obviously in their best interest if they do.

AG: You are debt free… so your focus has been on getting healthy cash flow. How have you done that?

DW: We had a very skilled CFO, who is monitoring cash flow and credit very intensely and our cash flow plans are well into 18 months from here. So we have cash flow strength not just for this current period of time but for the next 18 months to two years. Our business is very much a cash flow business. We don’t have stock, we just get royalties in and our clubs are very much cash flow positive as well as that, they have membership money coming in.

AG: Have you been more vigorous in chasing outstanding debts?

DW: Well we don’t have a lot of outstanding debts. Obviously there is a bit of debt there but they can cancel their contracts. We are not like some gyms that once they sign the contract they are locked in for life.

AG: What is happening in your industry? I know other gym chains are struggling?

DW: Well I think the gym chains are struggling. They were struggling before there was a recession. It is more the way they are run. Like anything you have good businesses, solid management and you have got some businesses that are not.

Most of our franchisees are profitable, there are probably 20 which I would say are in a situation where we have to keep an eye on them. There are probably three or four that we are really, really looking at. We get in and help them to improve their level of training or level of support that we give them and help them monitor their cash flow. We have training programs that we put them through when we feel they need more help on how to manage their finances and how to manage their cash flow. We also put them through some leadership training and that kind of thing, and that helps. One of the worst things that can happen when somebody is in business and they are not doing so well is they get themselves in a stressful situation and they become poor leaders, they don’t lead their team well. So to keep the motivation, passion and enthusiasm for their business alive, we like to spend a bit of energy and help them in that way.

AG: It is interesting noting that a lot of people running businesses or franchisees respond to tough times by burrowing down rather than doing the opposite.

DW: They do. In our franchising experience, we have had some really good times and some really profitable franchisees. They did get into a mindset of ‘it is all pretty easy here’ and they had their staff working and they probably didn’t go to work as often as they would have if things were tough. Now they have had to realise that it is time to get back in there and drive the business again. It has given them a new lease of life to get in there and see how they can make a difference.

AG: Have you increased your marketing though, this time?

DW: No not really, not our advertising. What we have done is spent time really evaluating our brand and on building our brand within the people in our organisation, that is our franchisees and their staff. This is a very important aspect of business. When you are in tough economic times you have to manage the brand well. People can be tempted to discount or do things outside what we are trying to achieve.

AG: So you have been very clear on holding your line on discounting?

DW: Yes we have. We are very strong about not discounting – always have been. There are other ways that you can offer value without giving away half of your business. The reason our membership prices are the way they are, is because that’s how much it costs to deliver the kind of service and if we start discounting then the level of service drops. If the level of service drops then it is a downward spiral. We have been able to sustain that so it hasn’t been an issue.

AG: How has the recession or the downturn affected your customers?

DW: Well it is interesting, you talk to members and they say the last thing I am going to give up is my gym membership, I need that.

AG: They have become a bit like the hairdresser?

DW: Exactly. So a lot of our members feel they are not going to give up their gym membership. There are also people that know the importance of exercise when they are stressed and when they have got concerns or worries, so even though it is a discretionary spend, it is not a discretionary spend in that it is more like ‘I need to have this’.

AG: Do you think that is different to the 1990s recession? Has exercise become an essential?

DW: I think in the 90s, exercise was something that helped you look good, it was all about building a beautiful body, and it is still about building a beautiful body but it is more importantly building a beautiful internal part of your body, looking after your health – and also, your mental health as well as your physical health.

AG: Did you know that the culture had changed that much until this downturn?

DW: No, that has been something that has been becoming slowly obvious over the last, probably, 10 years.

AG: And where is that trend going to go?

DW: I think it will continue to go that way. Obviously people will always know that they have to do exercise to look good, but more and more people are realising that they have to exercise for other reasons, for their health, stress levels and that kind of thing. That is going to be the trend of the future I think.

AG: What about young people?

DW: Who don’t worry about their health? They are invincible. They’ll live forever. But I think there is more young people today who are very health conscious.

AG: How’s the downturn affected your IT spend? Have you increased or decreased it?

DW: We are increasing our spend on IT, we’ve got a long term project, we are constantly developing our back office. The other area where we have changed in cost cutting is where we have spent quite a bit of money on a video conferencing unit. We are putting video conferencing cameras, webcams, and software into all our franchise clubs so we are able to communicate with them on a daily basis or however often we need to, without having to jump on a plane. So we are able to train the staff up or deal with whatever the issues are from our office, without having huge costs. So that is going to be a huge cost saving for us and it is going to provide a much higher level of service to our franchisees.

There is a lot of communication that needs to happen between franchisees and us for lots of reasons. It might be because they need help or advice with the finances, managing their cash flow, preparing their budgets, setting their targets, doing all those kind of things. Or it might be about marketing. There are also meetings between franchisees – they can communicate this way with each other as well.

AG: You are a $100 million business, it’s a very big business. Does the video conferencing help build culture and communication with the remote offices?

DW: Yes absolutely. We have got clubs in Darwin and Perth, so we can’t be flying someone up there every week or once a month, because there is only one club in Darwin. So this way the club in Darwin will be constantly communicating with us via this video conferencing.

AG: Have you changed the way you plan through this downturn?

DW: Yes. We’re probably looking [more] shorter term than longer term. We did have a three-year plan before the downturn and obviously we have still got that plan. But the period of the downturn has extended the three-year period, so it’s probably more like a four or a five year plan. We have to look short-term as well as long-term. Obviously things change day-to-day and we have got to watch trends as they change from month to month and they are very closely monitored.

AG: What is happening within the industry? What are the new trends?

DW: I think there are a lot of niche trends out there that have moved into various aspects. The market for the fitness industry is growing at a very fast rate. There are more people realising they need motivation or some kind of structured program rather than thinking “I will just go for a walk every morning”, because that doesn’t last very long.

More and more people are taking on formal gym programs or fitness programs, so while there are a lot more suppliers in the industry there’s also a lot more consumers in the industry. There are all kinds of gyms in the industries, personal trainers, mixed gyms that are all hyper and there are mixed gyms for the families. There is us and there are the gyms that are a little box circuit in the room.

AG: You are getting a lot of those niches and you are also getting a lot of consolidation with large chains.

DW: There is much more of that. There is much more focus on bigger chains and people merging or becoming part of a chain.

AG: What are your plans, are you still loving it?

DW: It is our 20th birthday this year. Personally, I do enjoy it, I obviously don’t get involved in the day-to-day operations the way I used to. I still keep my finger on the pulse, but I have a very strong team of senior people here who can run the day-to-day operations – unless I see a need, I don’t get involved with any of that. I just give advice.

AG: What is your position there?

DW: I am the executive chair. It is a good position, I can come in and out as I please. I took that up four or five years ago.

AG: And your CEO is responsible for all the day-to-day?

DW: Exactly. It is a very nice, comfortable place to be.

AG: And you’ll stay in that position for quite a while?

DW: Yeah I would say so. Our plan is obviously to get ourselves to a point where there needs to be an exit of some kind, whether I stay in the business or I don’t, we become a public company or whatever happens, our three-year plan, which is now a four year plan, is to set the business up so it is becoming investor ready and then we’ll see what happens.