May 17, 2007 4:11 PM

A Rewarding Experience

Spectrum Athletic Clubs, Los Angeles, uses a rewards program to reach people inside and outside its clubs’ four walls, a move that has helped increase revenue by $40 million in three years.

Matthew Stevens, CEO, Spectrum Athletic Clubs
Interview conducted by Pamela Kufahl, editor

Q: How would you describe Spectrum Athletic Clubs?
A: We operate 12 facilities in Southern California and now 10 in San Antonio. Our clubs are geared in the mid- to upper-scale, athletic club category. If you use the hotel industry as an analogy, we try to deliver a product consistent with Westin Hotels. We look at everything—all the components in our offerings. Like with the locker room, we look at the locker box, the size, the lock. How do we make that experience a little more special? That’s what the hotel industry does with the bathroom. What does my shower look like? What does the shower head look like? Is that what’s going to make a difference in them being willing to pay $179 per night instead of $79?
On our fitness floor, our audio-visual is upgraded so at least 50 percent [of members using the equipment] have their own personal TV. We have a stretch area with a flat-screen TV with a running loop of a stretching program.
Other amenities are that we focus heavily on the safety side. When you walk in, we have large cabinets that say Safety Zone on them. Inside are complimentary bandages, ice packs, anything members would need, plus an AED (automated external defibrillator), crutches, wheelchair—everything you would need to take care of a member. You don’t walk into many clubs that have a basketball court that have a wheelchair to transport members [if they hurt themselves].
We work hard to find a vendor [for our cafés] that makes it a perfect fit for our members with an excellent menu. To have that as an extra component takes it up a notch.
So everything is a little bit touched up.
A typical club might make people find a basketball at the front desk. On our court, there’s a rack of basketballs that get replaced every three months. Four days of the week, we provide a referee for regular pick-up games—not just league games—and this is not a regular profit center. It takes it up a notch. It keeps the game organized. It turns the court over on a regular basis. We will see 50-75 people on the court at any given time.
Our kids’ programming is off the chart. We focus on all the fun activities kids would want to do. We recruited kids club directors from schools. We pay them above what they get paid at the schools to bring in the most creative people we could have.
So it’s all the little things to make a difference and to provide the experience that a person says, “Well, if I’m going to go to a Westin, what do I expect? If I go to a Marriott, what do I expect?” The hotel industry has done a good job of defining that. We’ve used that as our guide on how we make decisions on putting together the programming and components in our clubs.

Q: You have clubs in Texas and California. Why are you focused on those two areas of the country?
A: Spectrum Club Inc. came about because of two acquisitions by our parent company, Brentwood. They bought Racquetball and Fitness in 1999 and then Spectrum from Sport Club Co. about six months later. We’ve made a decision to make the brand all the same using Spectrum. We’ve worked on bringing all the clubs up to the same level of a Westin Hotel.

Q: How have you defined your target market?
A: Our target market is predominately 30 years old to 65. Household income varies between Southern California and San Antonio—it’s $50,000 in Texas and $75,000 in Southern California. We have programming for the different groups—programs for families and for seniors. We don’t dial in any deeper than that.

Q: Do you plan to purchase or build more clubs in the next two years?
A: We plan to stay dialed into both markets. We’ve projected out a mid-market in San Antonio and a larger market in Los Angeles. We have plenty of growth plans in each market. We will fill in so we have complete control of those markets. As far as further growth from there, we will see after our three-year plan.
We have some expansion plans. We have about $12 million of capital going into our facilities. That includes adding to some clubs. So we have good capital going into existing clubs. We will add three clubs in 2008 and three in 2009 in San Antonio.
In Los Angeles, we are in an opportunistic mode.

Q: Who do you see as your competitors?
A: In both markets, we have good, strong competitors—and that’s good. It makes us do a better job. We compete with Gold’s in Texas. They have 10 stores in San Antonio. Life Time Fitness has two stores. So we compete directly with them, and they are both good competitors.
In Southern California we compete with everyone. This is a hotbed of a market. This is LA Fitness’ home. Equinox has a big presence. Sports Club Co. has a big presence. We know how to compete. We understand our niche, and we stay true to our strategy and deliver our product. Our revenue speaks for itself.

Q: Can you talk about the Health Miles program that your company offers to corporations for their employees and, more recently, that you began offering to your club members?
A: We’ve been one of the lead companies working on Health Miles, a software product with [a rewards company]. Health Miles is a Web-based product that allows a member or employee to track all their [health and exercise] data associated with measurements and activities. It creates “miles” that are converted to a rewards program. (Editor’s note: This program is similar to the rewards programs that airlines have in place.)
Today, our members can upgrade and add miles to their memberships. They can earn over $1,000 in prizes over the year. It means taking their blood pressure once a month, doing a fitness assessment twice a year, tracking activity onto the Web site using a Go Zone—a computerized pedometer that’s downloaded at a kiosk at our clubs. You earn miles, and you hit levels and earn money. You can put these miles back into things at the club or [use them at] one of 40 major participating retailers. It might be a gift card—up to $250 worth, or 12 personal training sessions, two fitness assessments, an extra $100 worth of club services or a year’s executive guest pass privileges, which allow members to bring in guests for free.
It doesn’t reward you if you are a fantastic athlete vs. a non-athlete but for tracking your activities. The concept is if you do this on a consistent basis and if you have a red flag pop up for something—diabetes, heart disease—it will trigger you to see a doctor. The challenge in the health club side of the world is that no one sees those red flags because people don’t take their blood pressure once a month. So it’s only when a shock situation takes place that people realize they are diabetic.
Health Miles is rewarding you for doing these things. So you can do that as a member or as an employee [of a corporation that has enrolled in the program]. The employer can see that they have 135 employees of whom 35 percent are in the obese category, 22 percent are classified as diabetic. Then, you can decide what you are going to do to remedy that—either a diabetic program, quit smoking program or something else.
We’ve been working with [the rewards company] for three years. We rolled it out in 2006 in San Antonio. We landed a school district with 10,000 employees in San Antonio as our first big client. Health Miles was included in their health care services. So if you signed up for health care with the school district, you signed up for a membership in Health Miles.
A typical wellness program gets 10 percent to 20 percent participation. The school district is averaging 58 percent participation in the program. That’s the lowest participation rate that we have. The average company [enrolled in Health Miles] has 90 percent participation. We have about 32 companies enrolled in it now.

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