Health clubs in the Washington area, once beset by excess and bloat, are slimming down.
The last few years have seen a wave of closings that has left the industry more concentrated, reflecting a national trend, and has led to larger clubs offering a wider variety of services.
New bonding requirements in the District, Virginia and Maryland have increased consumer protection against closings -- although a full refund is still not guaranteed -- but have made it harder for small operators to get in business or stay in business.
Gone are many of the independent "storefront" spas in shopping malls, victims of bad management, unwise pricing policies and a glut of facilities brought on by the fitness craze.
In their place are large chains with 20 or more clubs each, or mega-clubs covering thousands of square feet.
"There is truly a shakeout in the industry, and only the best will survive," said George M. Stevens, vice president for finance of Spa Lady, a local firm that now has 52 clubs in the Atlantic region.
The roughly 100 health clubs in the area cover a wide variety of services. They range from a tiny, basement Nautilus center on Vermont Avenue where customers groan and strain at weight machines under each others' noses -- with powerful effect -- to the 72,000-square-foot Sporting Club at Tysons Corner with indoor and outdoor swimming pools, karate lessons, two floors of weight machines, two basketball courts and a bar overlooking the handball courts.
Many of the clubs don't compete directly with each other, either because they offer different kinds of athletics or because they aim at different income segments of the Washington market.
But critics of monopoly have little to fear so far: Competition, in price and promotion, is intense between such chains as Holiday Spa and Spa Lady.
Those two companies account for roughly 40 percent of the health clubs in the area. Their advertising is the most displayed, their competition the most obvious -- although officials at each say they don't fight for the other's customers.
"We don't see ourselves as having any significant competition," said Frank Bond, president and chairman of U.S. Health Inc., which owns Holiday. "Spa Lady builds small clubs; we don't build anything smaller than 30,000 feet."
The markets of the two chains don't fully overlap. Holiday is coed, while Spa Lady only accepts women. But the firms are the two largest chains in the area that offer, for a price on the low end of the scale, a range of fitness programs and equipment.
Spa Lady, with corporate headquarters in Annandale, opened its first center in 1979 in Fairfax. With revenue last year of $16 million, the privately held firm would rank 72nd among the area's businesses if it were publicly owned. To finance more acquisitions, Spa Lady plans to go public some time before the end of the year.
Already, the company is growing fast: Fifteen of its 53 clubs were opened last year. By the end of the year, Spa Lady executives hope to have between 70 and 80 facilities. Some will be opened in new areas, others acquired. All will be streamlined clubs, not gigantic facilities.
"We're sort of like a 7-Eleven," Stevens said.
Holiday, based in Towson, Md., is one of the few health club chains that already is publicly held.
One-third of U.S. Health stock is owned by Health and Tennis Corp. of America, a wholly owned subsidiary of Bally Manufacturing Corp. Another third is owned by Bond, and the remainder is publicly traded.
Holiday has 10 facilities in the area, and has been in business since 1963. The chain started with old-time gymnasiums (men only) and gradually added pools, tracks and weight equipment as interest increased -- and investment capital followed it.
"The facilities have become far more sophisticated and comprehensive," Bond said. "A lot of that has to do with capitalization."
U.S. Health owns 24 fitness centers altogether, operating in the District, Maryland, Virginia, Pennsylvania and New Jersey. Altogether, according to a company prospectus, those clubs have 147,600 members.
More than 50,000 of them are in the Washington area. The company plans to double the size of its Loehmann's Plaza club this year and will add a new facility in the area during the next two years, Bond said.
Holiday and Spa Lady seem to dominate the area health market because they have a large number of clubs, but there are many others. Courts Royal, with eight tennis-and-racketball clubs in the area and one in Richmond, claims to have more square footage than any other health chain. Founder Cwi Steiman says he has succeeded by adding new services, such as weight machines, as customer tastes changed.
"This is the era of the multipurpose club," Steiman said. "The era of just offering tennis or Nautilus or racketball are pretty much gone."
This is also the era of giant health clubs, spreading over several acres and offering socializing, recreation and sporting goods as well as athletics. Court Control Inc., the same company that owns Courts Royal, also owns Bethesda Racquet and Health Club and the Regency Racquet Club in McLean.
Holiday's ESPRE center in Rockville (for Experiential Social Psychological Recreational Center) is another example of the trend toward large-scale facilities.
Covering 100,000 square feet, the center is "the most advanced fitness center in the world, combining exercise and entertainment in an exciting computer-coordinated environment," according to a gushy description in the U.S. Health annual report.
The large-scale clubs cater unabashedly to the upscale. The Sporting Club at Tysons, for example, charges a $500 initiation fee plus about $85 per month. Members who drop out for any reason have to pay the initiation fee again to rejoin.
Many customers work in the nearby skyscrapers and join through corporate plans that are only slightly less expensive. If they don't think the monthly outlay is high enough, exercise addicts can spend their extra dollars at the sporting-goods store in the same building, or on Mai Tais while meeting members of the opposite sex at the bar.
"We don't have massive overcrowding, because we price some people out," said David Tashiro, athletic director of the Sporting Club. "It's a different kind of clientele."
At the lower end of the price scale, a health club can cost as little as $200 to $300 per year, although many of those memberships are for limited use of the facilities, for only one club in a chain or for only a few days per week.
If health clubs have learned a lesson from the failures and bankruptcies of the last few years, it's about the dangers of collecting a year's fee from new customers and then trying to make it through the next 12 months with no cash. Many of the clubs that have gone under -- Barbara Ellen, Fun & Fitness, Club Nautilus at White Flint, Congressional Fitness Center -- did just that.
"They offered ridiculously low prices to get anybody in. What they failed to do is keep them in," said Gregg LaPedus, managing editor of Fitness Industry magazine.
"If they spent too much of the initial front money in a three-year contract, for example, and don't have a cash reserve to see them through hard times, they're not going to be in as good a shape as a spa with monthly fees coming in," said Daniel W. Zipperer, assistant director of Virginia's office of consumer affairs.
Peter Berns, assistant Maryland attorney general for consumer affairs, advises consumers to pay on monthly installments to protect themselves against a possible club failure. But he admits that the high interest rates that many clubs charge make that option more expensive in the long run.
Nonetheless, paying monthly is still better, he notes, than being one of the thousands of people in the area who have been stuck when their club failed.
Even the bonding requirements in area jurisdictions don't fully protect consumers, Berns said.
Under Maryland law, health clubs must post a $50,000 bond that the state will distribute to members if they go under. But that $50,000 is a flat amount with no relation to the number of members a club has. Maryland already has received $60,000 worth of claims against the bond for Club Nautilus of White Flint, for example. Payouts will be prorated based on the amount of the claim.
In Virginia, recent amendments set a sliding scale for the bond based on the size of the club -- but the top amount is still only $50,000, Zipperer said. Clubs selling only short-term memberships are exempt.
The D.C. City Council also recently passed legislation requiring health spas to post a $50,000 bond, several months after more than 400 customers were left in the lurch when the Congressional Fitness Center closed in late 1983.
D.C. consumer officials had reviewed and approved its finances only six months before -- just one sign that governmental diligence won't keep all clubs from closing, experts say. In fact, bonding requirements may have unpleasant side effects, especially for undercapitalized clubs.
"The smaller owners apparently can't cope with the bonding provisions the states are passing," said Jimmy D. Johnson, president of the Association of Physical Fitness Centers. "We're seeing bonding bills passed, and we're seeing people go out of business as a result."
Analyst Harold Vogel, vice president of Merrill Lynch Capital Markets Inc., said the bonding requirements actually may be enhancing the trend toward concentration. "It's always the person who has the most capital who can meet the requirements."
And Stevens of Spa Lady says his company supported the requirements when they were being debated in state legislatures, and that Holiday did not work to oppose them, as some smaller spas did.
Berns said it was unlikely that in Maryland, at least, bonding requirements were putting health clubs out of business. They can get out of the requirement entirely if they collect money every three months or less often, and the state has permitted smaller clubs to post bonds of less than $50,000. Nor is the actual cash outlay involved in posting a bond very large for a club that is financially sound, Berns said.
Cash management is a problem throughout the industry, not just at the smaller spas. Holiday, for example, keeps a reserve fund related to the number of new members it signs up, but has trouble with renewals.
The prospectus for a new bond offering says that 83 percent of the company's operating revenue in 1984 came from new memberships and only 5 percent from renewals.
"Accordingly, the success of the company's operations is dependent on its ability to attract new members on a continual basis," the prospectus says.
That message can be seen on the bulletin boards of health clubs all over the metropolitan area: Attracting customers is the way to succeed, and failing to do so can lead to disaster. Many clubs offer prizes for customer referrals, low prices for renewals and "sales" to attract new customers.
They rely heavily on word-of-mouth: Spa Lady telephones customers who haven't been showing up lately to encourage them to keep coming in.
"The more people who use the facility, that's advertising," said Susan Charles, area supervisor for four Spa Lady clubs.
Media advertising is crucial as well. Holiday uses such healthy celebrities as Brooke Shields, Cher, Joe Theismann and Victoria Principal in television advertising to attract members; Spa Lady's new "Gotta Move" radio promotion is aired on local stations.
Does all that make customers think they can pay a few dollars and transform themselves into Brooke Shields or Arnold Schwarzenegger (another Holiday celeb)?
Most club owners say they sell life style and mood, not just muscles -- but they deny that they promise too much.
"It's like going to a theater," said Stevens. "It's an escape, if the facilities are being run properly."