Industry aiming to shed baggage of the 1980s

PAUL Gregory got a call one Sunday afternoon with word he should come to work. The request wasn't entirely unusual, as restaurant designers were accustomed to working for all sorts of people at irregular hours, and few bosses had the grand expansion plans of Mr Gregory's employer. Those on his good side would be rewarded handsomely.

The new restaurant had to have all natural wood seating with lamb's wool fabric, decorated with live plants and flowers, suitable for the exclusive clientele it would serve. Some of the best shop-fitters and caterers in the state were hired to work on the project.

The health food restaurant was to be called Cravings - a catchy name Mr Gregory's boss took credit for, despite the collaborative nature of its creation.

Indeed, everything linked to another side of his boss's business interests - a growing health club network - had to be fresh and first-class. Demand for fresh orange juice at the clubs was so great that Mr Gregory had his brother and father-in-law working day and night buying truckloads of oranges to keep up with requirements.

His boss wanted to become the best orange juice manufacturer in all of Western Australia.

But the problem Mr Gregory was called on to fix that Sunday afternoon had nothing to do with restaurant fit-outs, orange supplies or the 12 juicing machines tucked away in the back of the health club. There was a problem with the contents of the refrigerator. The fruit and vegetables weren't all facing the same way.

On September 15 1987, the grand plans of Mr Gregory's boss, Laurie Potter, officially ended. Laurie Potter's chain of Western Australian health clubs collapsed, leaving 82,000 members without access to the facilities they paid for. The health clubs were selling life memberships up until the day before the closures.

More than 20 years later, the name Laurie Potter still casts a shadow over the state's fitness industry. "There are so many people who still come into clubs and talk about how much they lost," says Louise Ferguson (pictured above), owner of Healthy Life Fitness Centres in Hillarys and Cottesloe.

Those same baby-boomers who bought Laurie Potter life memberships in the 1980s are now in positions of authority, making it a constant battle for the industry to prove it has changed.

"Policy makers still have a view of the industry that is 25 years old," says Robert Barnes, general manager of operations for industry body Fitness Australia.

In spite of some major failures, which include the fall of fitness chain Healthland, figures coming out of the industry look impressive. Up to 1.7 million Australians regularly use fitness centres, and there are 300 or so places to do a pump-class or lift some weights in WA, according to Fitness Australia. Victoria-based fitness chain Fernwood is nearing its target of a $100 million in annual turnover, while UK giant Fitness First - the buyer of Healthland - generates three times that amount in Australia alone.

Industry profits are projected to grow at 7 per cent this year, during a time of economic uncertainty, and new entrants are still being attracted to the market, with the high-end Virgin Active finding room to start carving its niche on the east coast.

The growth isn't expected to subside, as report after report shows Australians are getting fatter, with the fitness industry the logical provider of a remedy.

WA has a few peculiarities that shape the local fitness industry. Mine site operators regularly build employee gyms, creating an opportunity for local fitness equipment distributors. Urban sprawl and a comparatively small population have been blamed for keeping many of the major fitness chains concentrated on the east coast, leaving WA more fragmented, or diverse, than other states, with a greater range of public and commercial ownership structures.

The one thing all fitness centre operators have in common - and always have - is that they are running businesses with huge start-up costs, large ongoing expenses, while relying on a constant flow of new members to keep afloat and turn a profit. It is in this context that marketing campaigns are designed, sales techniques sharpened and gym contracts drawn-up, all of which have at times attracted criticism from the general public.

"I definitely agree that some gyms use horrible sales techniques," says Gavin Pratt, part-owner of Warehouse Fitness Centre in South Fremantle.

Much of the criticism - which recently gained attention following an investigation into the fitness industry by consumer organisation Choice - has been directed at the large chains in general and at Fitness First in particular.

"They have huge budgets to meet and there's a lot of pressure on them to get the results," one independent operator told WA Business News.

Mr Barnes of Fitness Australia says media reports haven't highlighted the positive aspects of the industry, such as how good a person feels after a workout.

"The idea that fitness centres only care about getting as many people through the door as possible and bugger what happens to them after that isn't true," he says.

Ms Ferguson of Healthy Life, who took over the ailing Kicks The Fitness Club in Hillarys and turned it around, nominates controlling cash flow as the most important factor in running a successful operation, alongside close involvement in the business. One of the sure signs a club is in trouble, she says, is when 'buy six months get six months free' deals arise. The deals are designed to get cash immediately into a gym to pay off immediate debts, leaving nothing for the longer term.

Large gym fit-outs can cost millions of dollars in equipment alone, not to mention ongoing rent and wages. High-end providers, such as Next Generation in Kings Park, have the added expenses of upkeep on pools, tennis courts, spas, saunas and steam rooms.

Andy Bray, general manager of Next Generation Kings Park, says the "city-based country club" obviously needs large amounts of capital behind it. "There is a critical mass you need on a subscription-based model to be viable," he says.

The same cash-flow problem faced by fitness centre operators these days also hindered Laurie Potter. He used the revenue raised through life memberships to keep the chain afloat - for a time.

"I bought one and I got about six months out of it," recalls Queensland radio presenter Bob Crouch. Mr Crouch, who was at one stage a part owner of the now defunct Kicks The Fitness Club, likens the structure of life membership sales to Bernie Madoff's ponzi scheme. In both schemes, the money runs out as soon as conditions worsen or a market is saturated. "If you ever hear of someone offering life memberships you know they are in trouble," he says.

Pay-upfront life memberships have since been banned, with monthly direct deposits becoming the norm. A recent promotion between women's-only fitness chain Curves and rewards program Flybuys awarded 2,500 points to gym-goers signing up for a 12-month direct debit program.

One of the cheapest items on the Flybuys purchase list, a kids Meccano set, costs 6,000 points. Alternatively, points hunters can accumulate credit and look after their health, without contracts, by regularly purchasing fruit and vegetables at grocery stores linked to Flybuys.

Once the fruit and vegetables in Laurie Potter's health club were facing the right way Mr Gregory went back to work on the restaurant.

"Unfortunately, like a lot of my designs and project ideas, when they get to the finishing stage, that is to say up and running, the owner or client seems to find a reason for no longer needing my services," Mr Gregory says.

"Laurie Potter was no different. So, one rainy afternoon, the short little guy and I parted company. I have not had contact with him since."