Aug 1, 2007 12:00 PM

As former Home Depot executive Carl Liebert makes a home for himself as the new CEO at 24 Hour Fitness, he is moving the chain into new markets on the East Coast, in Asia and into the world of children’s programming.

Q: So does that mean your advertisements will feature more realistic-looking people than a lot of health club advertisements generally do?

A: This is one of those things. My marketing department will kill me for this. I grew up in the Midwest. I was fortunate enough to play high school basketball. I came from a very, very small town. I played college basketball. I never considered myself much of an athlete, but I always considered myself a hard worker. I think the best commercials we have in our clubs are the people’s lives that we changed. You asked me what I learned. It’s funny. When I was at Home Depot, the best commercial we had was when we told a story that one of our team members told us about. It was a story where somebody came in and did something special—the tree house commercial where the dad came in and built the tree house and Home Depot helped him or enabled him to do that. It was one of our best consumer marketing campaigns because it really made do-it-yourself projects realistic and it made them impactful. You will begin to see—certainly from me and from my team—the ability to leverage our brand and all the members that we have touched over the last 24 years. Twelve million plus members have touched our brand in one way, shape or form over the last 24 years. One of the things I think—and really “The Biggest Loser” has enabled this—is being able to change people’s lives. So you’ll begin to see us talk about how we changed people’s lives, and if I have my way, you’ll see us be able to use real-life examples of folks’ lives that we’ve changed. And we’re pretty excited about that.

Q: We’ve been talking about bringing in new members. What are you planning to do to increase member retention? Because I know for a lot of clubs, that’s a main problem that they deal with is once you get the member in there, how do you retain them? What are your plans there?

A: Number one is we’ve added and put in place what I call some diligence around focus on that member and really the team member for us. It’s interesting. As I look at the clubs that have the best retention of members, those clubs also have the best team member retention. In other words you really like to see the same person when you come into your club that’s at the front desk. You like to see the same trainers. My clubs with the lowest team member turnover also have the lowest member turnover. I’m sure people listening in on the podcast or reading the interview are saying, “Well, gosh, Carl, that’s not really rocket science.” It’s one thing to understand that. It’s another thing to go after that and then understand the drivers of why people leave your club.

So one of the things that we’re spending a lot of time with our consumer insights group is to make sure we understand what are the key drivers of member satisfaction. What’s interesting is you can get that through a whole host of ways. So you go out and do surveys. Members say that they are leaving because the club isn’t as clean as they like or the equipment they want is not available or it’s too crowded or it’s not convenient or I’m moving. So one of the things we see as a big factor in making sure our members stay with us is the ability to really leverage our trainers and making sure that personal training in some shape or form is involved with our members. For example, in the month of June to celebrate our 24th anniversary, we ran a special for the month: Bring a friend in to work out for free. There was a great article in USA Today last week where it talked about your influencers. And the group that you associate yourself with has an impact on whether you are in shape or you are obese. For us, we wanted to create a hassle-free way that if you wanted to bring a guest with you for the month, you could.

In addition, in the month of July, we took four days and said bring a guest to your personal training session with you. So while the trainer was working with you, the trainer would work both of you out during this four-day period. Because one of the things we know—and we have great data around this—is when we teach people the right way to work out and we do that in a way that is non-threatening and we attach that to what I think is one of our best assets and that’s our personal trainers, those folks never leave us. So we are focused on making sure people that come in our doors are exposed to the opportunity to train and to receive the right amount of training from personal trainers. So, we are so focused on it that in many cases we are giving that away to let people experience that because it’s one of those things that you really have to touch.

The other thing is as we look at and benchmark ourselves against other service brands—and I think this is one of the things that my team spends a lot of our time on—is that customer retention or member retention really comes down to a mindset within the club that you are going to take care of your members no matter what. We spent quite a bit of time and energy reorganizing our field structure to make sure we support the member and that’s really making sure our club managers who run these clubs understand that their most important role everyday is to support the members they have. I’m not sure if that was always the case. I think sometimes we get caught up in acquiring new members. But we really know that keeping the members we have is a big deal because those members, they recommend us to a friend. And one of the things that we’ve spent a lot of time and energy on is understanding how many of our members would likely recommend us to a friend. In the clubs that we get the response where they would recommend us to their friend, those clubs have the highest retention rate. So we are diving into those clubs. We’ve got quite a few resources doing some human resource analysis as well as service analysis to make that happen.

Thirty days ago I announced the hiring of Michelle Crosby, who was the senior HR professional for Starwood Hotels. She spent over 15 years of her career in the hospitality space. I went out and found her because I felt like fitness is a lot like hospitality in that most of my members they come and stay in my club three to four to five times a week. It’s a lot like a hotel in the importance of seeing the same people, getting the quality experience, making sure the equipment I need is working, making sure it’s clean and kept up to date. I just felt like Michelle could come in and add a lot of her experience in the hospitality space. I think it’s going to play very well toward member retention and team member retention because that’s a big, big focus for us.

Q: As you mentioned, you are in 16 states now, but you’re moving into New York, and Washington, DC, and Baltimore. What attracted you to those regions, and what sort of challenges do you anticipate facing there?

A: One of the things you started the interview asking [about was] my experiences. I’ve had the privilege to run Circuit City and Home Depot stores in every state, in Canada, in Mexico, in China. One of the most exciting things about when Mark talked to me about 24 Hour Fitness was we’re mostly a West Coast-based company. Having run stores and run markets on the Midwest and the Eastern side of the U.S. for most of my career, I felt like it was a significant opportunity for us—and not just from club opening perception—but a significant opportunity to go learn some new things. One of the things I always try to emphasize to my team is that competition makes you better. And competition, if you’re a company that gets excited about the competitive nature and being competitive, one of the things I know that New York Metro and the whole Eastern seaboard, DC, and even if you went down into the Carolinas, the competition and the fitness base is terrific. And there are great fitness companies that occupy those areas. And I think if I look at my company, one of the things we can get better on is there’s still a lot we can learn. We’re 24 years young, but there’s a lot that we can learn from the folks in New York metro, in DC, Baltimore, Boston, in Florida. As I look at what we need to improve upon, I do know that the consumer, or intender or perspective member in New York or Delaware or Baltimore they’re a little different than the average California consumer. I think it’s going to make us a better company. And in turn, I think that competition is not only going to make us better, but it’s going to make our competition better. And if we are doing our jobs as a fitness industry, more people will join clubs. More people will live a healthier lifestyle. I kind of say, we’re going to raise all boats. And so as we come into these markets, it’s going to expose, we hope, more consumers to the offerings that we, 24 Hour Fitness have, and in turn that’s going to allow our competitors to continue to succeed. I think it’s a win-win all the way around the industry, certainly, but also for consumers. If we were a country full of saturated workout folks [with] 95 percent fitness penetration in fitness club membership, it would be a little different. But as I mentioned, obesity is a huge issue. So I think it’s going to be a fun opportunity for us.

Q: I would think that most people would see the Northeast as probably one of the most competitive markets in the U.S., but as you stated only about 14 to 15 percent of the population actually belong to a health club. There’s obviously people out there who aren’t being reached by the fitness facilities there in the Northeast already. When you move into those markets, what markets will you be moving into? Will it be the suburban markets, or the urban markets, or a little bit of both? And what sort of club model will you be using there mostly?

A: Great question. You know, I think having operated stores both in New York metro and in the boroughs, and certainly Long Island, and up and down the Eastern seaboard, what happens in the Eastern part of the United States is commuters and traffic—what I call this hustle-bustle style of living. This is an opportunity for us to make both clubs that are convenient for the folks who are on a commute and who are working within the city or near their homes, but also for those parents and/or members who aren’t commuting to have an affordable place to work out and receive the amenities that are important to them.

You’ll see us with a variety of formats. One of the things that has been so beneficial to us [has been] to be in Asia with our California Fitness brand. We open our first club in about eight weeks in Beijing under that brand with our partner Yao Ming. It’s really allowed us to learn how to design and operate clubs in what I call high-density, urban populations. Our Hong Kong clubs have been exciting learning laboratories for us as we get ready to go into the urban markets, and I think it’s going to play well for us as we think about the New York metro and Manhattan. But we’ve also had a privilege, in some of the new territories, for example in Hong Kong, of being able to put a club in what I call the residential area and provide amenities that are important for people [who] in the evenings or on the weekends want a great place to work out at. The great news is, I think you’ll see a variety of formats from us for a typical city kind of club. We’ll be working diligently with our construction and real-estate teams to make sure that we’re in convenient spots for the traffic—and that includes public transportation. That also includes important arteries. But also it plays well into making sure that we have clubs that are open 24 hours a day and that they have the amenities that those members want. A broad brush to your question, Pam, but I think it gives perspective that I don’t think there’s one single strategy that you can implement on the East coast that will allow you to be successful. It’s the breadth of strategy that allows members to say, “Hey, I want to be part of that fitness network.” I think what we’re talking about as we go East is making sure we leverage that 24 Hour Fitness brand and reach. When a person joins our club, we feel like we should be able to talk about, “You’re going to be part of 400-club chain that is quickly expanding worldwide. Regardless of where you travel, we hope to have a 24 Hour Fitness near you.” That’s really the plan.

Q: You mention people wondering when you’re going to move into their area next? So, what are some of the next areas that you’re planning on moving into both in the U.S. and worldwide? As you mentioned, you’ve been in Asia a little bit, but where are you planning to move to next?

A: Those are great discussions. There are no secrets in the space, just like there are really no secrets in any retail space. We are looking for, obviously, real estate on the Eastern seaboard. Obviously, we’d love to be in Manhattan. We’d love to be in the island and in the boroughs. We’ve made no secret that we like DC, Baltimore and that whole corridor. One of the things is that convenience and location are so important to our members. It’s a little difficult to predict which market, which city we’ll go into first. We are working on numerous real-estate deals and relationships on the East Coast. We know we’re coming. It looks like in 2008, we will open some clubs on the East Coast other than Florida. We’ve been in Florida for several years now.

I would look for us mid-year 2008 to be able to “crystallize” that East Coast expansion strategy because, what I didn’t want to do is put all my eggs in one market and say, “Okay, we’re only going to do this market because our members really value that all-club membership.” I really wanted to make sure I didn’t put all my eggs in DC, Baltimore and all my eggs in New York, and then be able to say we won’t open our new club until 2009.

Look for us on the East Coast sometime in mid-2008. As the industry knows, as soon as we get the official leases done and we start construction, the word’s going to get out which market will open first. We’re pretty excited about that.

The second side of that is globally, we feel that mainland China is a terrific opportunity for us. Our first club I mentioned in Beijing, we’ll open with our partner Yao Ming, and that will open in the September-October time frame. And then we’ll be following closely with our first club in Shanghai shortly thereafter. We see the Chinese marketplace as a great marketplace for us over the next five to 10 years. Our experience in Taiwan, our experience in Hong Kong, certainly our experience in Singapore and Malaysia are all very valuable as we enter into the mainland. We see that as a big initiative for us as well as we continue to expand our brand in Asia under the title California Fitness.

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