November 18, 2018

Gym Group – Expansion continues apace

Around 18 months ago the Gym Group strengthened its property and acquisitions team in preparation for increasing its rate of expansion supported by the injection of £50m-worth of funding. The wisdom of this move has borne fruit with the 24-hour budget health club operator on course to open 25 sites in 2015 in comparison to the 15 it opened last year.

“We recently opened clubs in Southampton and Newport, bringing our current estate up to 63 gyms,” explains John Treharne, CEO. “We’re now well on track to breach the 80-mark by the end of the calendar year.

“In addition to bolstering our own numbers within the internal team, we have also continued to build our relationship with the three contractors that deliver our sites. We’ve got an aggressive roll-out programme in place but we definitely have the resources to underpin our strategy moving forward.”

Jonathan Spaven, who was previously Matalan’s Director of Property, heads the Gym Group’s property team. At the time of his appointment last year Mr Spaven said: “With a solid capital base, experience and continuity in the senior management team along with rapidly growing profitability, the Gym Group is perfectly poised for rapid expansion. Landlord confidence in the brand should be high due to these covenant strengths, helping to reduce inefficiencies in lengthy negotiations when sourcing properties to house our gyms.

“The budget gym sector is growing, now occupying over 18 per cent of the total gym market. Not bad for a concept which, before 2008, did not exist in the UK. In my previous role I managed a portfolio of 217 stores, which has equipped me well for my role at the Gym Group.”

Mr Spaven sits on the board of the Gym Group heading up a team of four Acquisition Managers, giving national coverage, and a Property Development Manager. Mr Treharne adds: “Jonathan shares our common goal of providing high quality service to the budget conscious consumer and understood our brand ambitions immediately. A large part of his previous role has been to plan and implement a successful expansion strategy and it is this experience that we really hope to benefit from in order to achieve the same level of growth within our property portfolio.”

OS_SS15_Capture_138

With the right team and contractors in place, coupled with the funding it has secured to support its expansionist strategy, the Gym Group has been busying itself sourcing suitable sites in what continues to be a very competitive climate. “Obviously markets change continually and at the moment we’re seeing the economy improving,” outlines Mr Treharne. “From a property perspective the election was a positive result for the market, but also means competition for good sites remains fierce, particularly as we’re having to contend with a diversity of operators, not just health club groups, because we’re able to convert all manner of different types of buildings. For instance, in the past we’ve converted retail space and former nightclubs. One of the benefits of our concept is that we can convert pretty much any type of building we can get planning for. We’re carrying out some really quite novel developments and recently opened a site in Hemel Hempstead that involved the conversion of an old Local Authority swimming pool.”

Even in the face of intense competition for sites, Mr Treharne is confident the Gym Group is a safer option due to the stability and backing it has as a company. “Certainly in our sector the covenant we can offer is amongst the strongest. We’re very well funded and as a consequence when a landlord is deciding who to put in their property they feel very comfortable with us and our backing, coupled with the strength of our trading performance. This pedigree provides tremendous peace of mind.”

Having clocked up 63 sites since the company was established in 2008, each new opening has increased the database of information the Gym Group can tap into when designing and developing the next addition to its growing portfolio. “Having created our own software, this is very much continuing to bear fruit because having so many gyms enables us to know more about our customer base in terms of who they are and what their demographic profile is. We use that data when assessing new sites and one of the really encouraging aspects of this approach is that even though we are increasing our expansion rate, we’re actually opening better sites at the same time.

“We recently opened clubs in Southampton and Newport, bringing our current estate up to 63 gyms. We’re now well on track to breach the 80-mark by the end of the calendar year.”

John Treharne, CEO

“With each gym opening the process definitely becomes easier. We have a very consistent product so whilst we go into a range of different buildings, fundamentally we’re replicating the same model each time. We’re getting better at delivering the fit-out and operationally we’ve got a very experienced team and regional management structure that are delivering our roll-out programme day-in, day-out. As you would hope, as we get larger we’re also getting better all the time. I guess there would be something seriously wrong if we weren’t!”

Despite the progress the Gym Group has been making with its expansion, there has been one constant challenge the company has had to contend with. “The sole fly in the ointment has been the planning process, not because we’ve ever been unsuccessful in ultimately obtaining planning, more that it has a propensity to take a lot longer than we hoped. Generally speaking we need to secure change of use from retail or office to D2 and although we’ve never had a problem in achieving the end result, it definitely takes far too long to get there.”

With regards to where in the country the Gym Group is looking to expand, its aim is very much nationwide with its five-strong acquisitions team looking for opportunities throughout the UK. “We have a slight southern bias at the moment but that tends to be because that’s where the density of population is,” says Mr Treharne. “At the same time, we’re now in every major city in the UK and continue to look for opportunities within them. We’ve just opened our first site in Glasgow and we’re looking for more sites in Manchester. We’re in Cardiff and Swansea to the west, Edinburgh and Glasgow to the north, and Norwich to the east. We’ll continue to explore our options the length and breadth of the country.

“After hitting 80 sites by the end of 2015, at some point in 2016 I’d have hoped that we’d broken through the 100-mark. That’s our aim and what we’re working extremely hard towards.

OS_SS15_Capture_094 OS_SS15_Capture_143 OS_SS15_Capture_161

“In the longer term, we see no reason to reduce our rate of expansion as the potential is definitely there, particularly if the low cost German market is anything to go by. Germany has a much more mature sector than the UK and of the German consumers that are joining health clubs, over half are joining lost cost gyms. In contrast the percentage in the UK is around ten per cent. It is not beyond the realms of possibility that the UK will be the same in around five years’ time. There’s undoubted potential here, particularly as British consumers become ever-more cost conscious, time-poor and increasingly think about their health. It’s seemingly impossible to pick up a newspaper and not read an article about the health of the nation, whether it’s on rising obesity levels or the fact that we’re all eating too much fat or sugar.

“The growth of budget gyms mirrors the development that’s been seen in the hotel, supermarket and airline sectors, where low cost options have come to the fore. Factoring in inflation, the price of the first BOAC economy flight from Heathrow to New York cost in the region of £5,000, and yet the emergence of budget operators such as Ryanair and EasyJet means that flights to all over the world have become much more affordable. This is exactly what we’re doing. Over 30 per cent of our members had never been in a gym or a health club before and this was purely down to pricing. The fact that we’re also open 24 hours a day and have a variety of flexible membership options means we’re able to suit the needs of modern working hours and living.”

With consumer habits in the UK continuing to change, the demand for a flexible and affordable health club offering is clear for all to see. What’s even clearer is that the Gym Group is well placed to capitalise on this potential, as it remains focused on ploughing ahead with its ambitious roll-out strategy.