Michael Block, Ben Furqueron, Katia Hage, Asim Jalis, Calvin Kavalski, Jaylen Smith, Shannon Wells, Mark West September 2002

Table of Contents
Executive Summary Product Idea Marketing Plan Sales Strategy Demographics and Market Analysis Competitive Analysis Operations Plan Management and Key Personnel Financial Overview 2 3 6 7 13 22 25 31 36


Executive Summary
Over the last fifteen years the Central District of Seattle has experienced explosive growth. This traditionally lower income neighborhood has undergone the highest real estate appreciation in the King County over the last ten years. The primary reason for this is its proximity to downtown Seattle which forms the economic and cultural hub of the city. The Jackson Street Gym Company proposes building a gym in the Central District, on the intersection of Jackson Street and 23rd Avenue. Based on its current demographics it is highly underserved in health club facilities. We will target the middle to upper income market segment which is expected to continue increasing into the foreseeable future. Besides our proximity to the residents we will create a sustainable advantage by reflecting the rich culture and history of the Central District area into the ambience of our club. According to our financial projections we anticipate profitability in 12 months. Our capital requirements are $2 million.


Product Idea
We propose building a 10,000 square foot health club in Seattle’s Central District in Building #2 (center building) of Welch Plaza.

The health club will be located at the busy intersection of 23rd and Jackson – the heart of the Central District and will complement the ongoing revitalization of the neighborhood. Exhibit 1: Welch Plaza Our goal is to build state-of-the-art club with the following amenities:            Free Weight Area Cardio-vascular Equipment Area Plate Loaded Equipment Aerobics/Group Exercise Area Selectorized Equipment Sauna, Steam Room Vending Machines Personal Training Massage Therapy Food & Beverage Sales Physical Therapy


Martial Arts

The layout will provide wonderful views of the hustle and bustle at 23rd and Jackson. There is a general rule of thumb that a health club needs to be 12 minutes or less from where customers live or work in order for the customers to use the club more than 12 weeks.1 Our goal is to serve the workers and residents of the Central District. A key advantage is that no quality health club currently exists within the neighborhood. In addition, 23rd and Jackson is a major intersection. Over 25,000 vehicles flow through the intersection on a typical day.2 (See map below.) This means a convenient location that has high visibility.

Exhibit 2: Central District Traffic Patterns

1 2 “Exercise: Selecting a Health Club”, January 1999 Seattle Department of Transportation Traffic Flow and Data Map – 2001 Data


Our main goal is to serve the needs of our customers. Most individuals including our potential customers are aware of the need to exercise regularly. Besides location, our club will provide additional needs. Our equipment and professional staff will ensure that the club provides a pleasant experience and will eliminate the drudgery from routine. The key goal is for customers to have an effective workout while having fun. This will not be your typical health club. This club will be known as a place where things are happening. Often businesses that build in urban areas provide poor customer service and higher prices – due to a lack of competition. On the other hand, we will offer a pleasant environment, affordable rates, and well-maintained equipment. In addition, the club will reflect the neighborhood. It will include a tribute to the jazz legends that once played regularly on Jackson Street such as Quincy Jones and Ray Charles. Instead of the typical techno-pop background music found in the larger clubs, our club will specialize in playing the favorites of our clientele such as Miles Davis, Marvin Gaye, and The Temptations. The thirtysomething crowd will be able to workout to the music of Earth Wind and Fire, while older club residents will be able to do low impact aerobics to Brook Benton and Dinah Washington. Besides being a pleasant place, our customers will get the results they are looking for in terms of weight reduction and/or fitness. What sets our club apart is that it will cater to the needs of the neighborhood. We envision a club with energy. The type of energy that one feels while walking down the streets of Manhattan. You cannot describe it but you just feel it. Individuals will be able to exercise, look out the windows, feel at home, feel proud about getting healthier and the ongoing revitalization of their neighborhood. They will want to come back for more. The goal is to become the dominant leader in this niche market; a niche market in which the larger clubs currently have little or no interest. Even if a larger club decided to build within the neighborhood, we will remain profitable because we know the customers and their needs much better than the competition.


Marketing Plan
Basic Need and Company Solution According to a survey conducted by the National Center for Health Statistics (NCHS), nearly 31% of American adults exercise regularly, 31% occasionally, and 38% perform very few physical activities in their leisure time.3 As nearly two thirds of the population recognizes the need for physical fitness, health club memberships are on the rise. In 2001, club memberships grew by 3% to 33.8 million, with non-member gym use up 12.9% from the previous year.3 The demand for memberships spawned a 5% increase in the number of commercially owned fitness centers and health clubs.3 As fitness facilities gain in popularity, a major consideration in which gyms are patronized is location. Proximity not only determines how many members will join the club, but also the frequency with which members will utilize the facilities. Seattle’s Central District does not currently have a health club suitable for its residents. An easily accessible, reasonably priced gym would fulfill the need for health and fitness in this neighborhood. A medium sized facility of approximately 10,000 square feet will be large enough to allow members to exercise in comfort without having to wait in long lines for equipment, yet maintain a close community feel. Branding Plan In an homage to the history surrounding the Central District, the Jackson Street Gym will sport a jazz motif. Photographs with jazz related themes will be placed around the gym, and jazz music will be played periodically for people to listen to while working out. The intention in selecting a jazz theme for the club is to establish the facility as part of the community. Residents of the Central District should feel comfortable and relaxed in the club. It will be marketed as a place where friends can gather to shed the stresses of the day and work

International Health Racquet & Sportsclub Association Vol. 9


out in comfort. Members will look forward to time at the gym to not only keep their bodies fit and healthy, but also to forge new friendships and catch up with old acquaintances. Families will be encouraged to join and work out together. The community feel will be enhanced by the placement of windows around the outside perimeter of the club. Members will be able to look out the windows and view the community while working out. The windows serve a dual purpose. Not only can gym members see out, but members of the community can also see in. Passersby can look into the windows and see how much fun their friends and family members are having in the gym.

Sales Strategy
Advertising The first step in advertising the club will be to place fliers on the doors of neighborhood homes, and on the windshields of cars in the Central District. Coupons will also be mailed out utilizing zip code specific Val-Pak. New entrants to the neighborhood will receive fliers and coupons for the Jackson Street Gym in the welcome wagon packets provided to new homeowners. A non-invasive marketing technique will be to buy advertising space on local taxi cabs. There are currently only two cab companies located near the Central District: Orange Cab, and North End Taxi. Orange Cab carries an exclusive advertising contract with a local business, so will not be an option. According to Baze Kashef of North End Taxi, the cost of a two-paneled illuminated sign on the top of a cab is $150 per month per cab. Throughout the month, the sign on top of the cab may be changed at any time per the gym’s discretion. This is a relatively inexpensive advertising option. As North End Taxi is based out of the Central District, its cabs drive through the neighborhood whenever they go out to pick up a fare, which would make the sign a frequent sight in the neighborhood. 8

The most effective advertisement for the gym will be the club itself. Its location on a high traffic corner of Jackson Street and 23rd Avenue will ensure that thousands of cars pass the gym every day. As members of the community drive by the facility on a daily basis and see their friends and neighbors working out through the windows, they will be inspired to join the club. The neat, clean, new building with its colorful sign hanging above the door will be an inviting oasis for all those interested in keeping physically fit and maintaining the optimal level of health. Promotion Prior to opening the club we plan to promote the facility by offering three hundred complimentary charter memberships. Community members that are willing to sign an annual contract prior to the grand opening of the club will not be charged an initiation fee. By giving away three hundred memberships, the club can get people in the door. The hope is that charter members will not only renew their memberships in the coming years, but will also refer friends and family members to the club. Upon opening the doors to the club, a community wide event will be held. An open house will allow neighborhood residents to inspect the facility and get a feel for the community atmosphere. Not only will people be able to see the types of equipment available, they will also get the opportunity to converse with the friendly and knowledgeable personal trainers and instructors working at the club. Prospective clients can talk to them to learn about the club as well as to hear about the programs designed to help them realize their fitness goals. Another promotion to get customers into the facility will be free health seminars provided by club employees. Tae-bo nights will attract health conscious residents of the community, and should be a fun group activity for the whole family. Celebrity endorsements and events sponsored by local heroes should also bring in patrons.


Partnerships with schools are planned in order to talk to children about the value of keeping in shape and healthy. According to a representative from Garfield High School, community businesses are encouraged to participate in the learning process. The school could stage an assembly where instructors from the gym can demonstrate work out techniques, and display some of the portable equipment available at the club. The hope is that the children will act as marketing tools when they discuss what they learned in school with their parents. In an effort to give back to the neighborhood, the club will affiliate itself with the annual United Negro College Fund health walk. The affiliation will alert residents to the existence of the club, help out a worthy cause, and increase awareness of the need for exercise in a healthy lifestyle. A further benefit of the community wide event will be to bring residents out of their homes to mingle together with their friends and neighbors. A close knit neighborhood will enhance the quality of life for denizens of the Central District. Ideal Customer and Value Proposition The ideal customer for the health club is any resident of the Central District with an annual household income of between $25,000 and $75,000 dollars per year. According to industry analysts, this income bracket generates 48% of health club customers4. Additionally, the targeted age bracket is between 18 and 55+ years old. Currently the 1835 age bracket holds the largest portion of health club memberships, but the more seasoned members of society are the largest population growth area and have increased their memberships in health clubs over 380% since 19874. By focusing on this income and age bracket we will fall within the general demographics of the Central District as outlined by recent US Census Bureau data. Once a primarily black neighborhood, the Central District is seeing a change in demographics, as lower income families are moving out, middle and upper income families are moving in. This is supported by the 1999 and 2000 census data for the neighborhood.


The International Health, Racquet & Sportsclub Association (IHRSA) (


The primary differentiator for this club over competitors in downtown Seattle will be its accessibility to the residents of the Central District. By locating on a prominent corner in the district, accessibility will be greatly improved over its competitors. This advantage will be leveraged by providing the services that these residents most desire at an affordable rate, while evoking a sense of community awareness and involvement. The health club will not be just another service business within the Central District, but also a prominent force in the revitalization of this transitioning neighborhood. As a health club in an urban neighborhood, the variety of services will differ from a traditional athletic club and focus more on the overall health of the community. We will offer the traditional methods of exercise such as Nautilus machines, treadmills, exercise bikes, stair machines and free weights. In addition, we will offer community-based workouts and group activities in our common rooms. These will include aerobics, jazzercise, and kickboxing. We will also make our large multi-purpose rooms available to outside organizations like karate schools or community groups for their meetings. These different services will complement each other and bring people from the neighborhood into the club, thus reinforcing our desire to see this community succeed. One of the features that will make this health club stand out from potential competitors will be the availability of a special family account for parents with children ages 12-18. We will invite them to join their parents in establishing fitness habits that will last a lifetime. By creating goodwill in the neighborhood we anticipate that we will be able to work with community leaders and schools to focus on bringing good health habits to the children of the community. We also plan to have a juice/snack bar and a pro shop. This area will be subleased to another business specializing in this type of arrangement. The availability of these services will enhance the experience of people working out in the gym and will also provide a comfortable place for social interactions between the clientele.


Below is a listing of the categories of people in which Jackson Street Gym would like to attract: Type Student Homemaker Age 18-25 35-55 Income Fixed Fixed Medium to High Medium to High High or Fixed Fixed Family Distant Full nest Bachelor or Married Married and No Children Empty Nest Empty Nest or Assisted Living Location UW Campus Central District Central District Central District Central District Central District Occupation Student White or Blue Collar White Collar White or Blue Collar White Collar or None None

Young 25-35 Professionals Young Couples Older Couple Elderly 35-55 55-70 70+

Exhibit 3: Target Customers Distribution Channels Our distribution channels will include local restaurants that serve healthier foods, such as Teriyaki restaurants, both retail and grocery stores, churches, and HMO style clinics of the neighborhood. Within these establishments we will place brochures for our club. These will be in the style of a contest form where once per week we will have a drawing for a membership with waived activation fees. All of these locations will be within a ten block radius of the Jackson Street Gym. In this way the visitors of these businesses will have a better chance of being familiar with the club. In return for allowing our club to post these contest forms, the owners/managers of each business will be granted a charter membership into the health club. Additionally, as part of our community involvement, we will attend as guest lecturers to local schools, elementary and higher. At these lectures we will present facts about staying fit and help to create awareness around remaining physically fit and developing


good fitness habits. In this manner the children of the Central District will begin to associate fitness and well being with the Jackson Street Gym and may refer their parents or eventually become members themselves. Stores, churches and local businesses should attract the curious health club visitor. As these establishments are frequented by the general public, they will provide the most diversified clientele. HMO style clinics would offer a referral as opposed to just the curious visitor. We will offer charter memberships to local nutritional counselors and physicians. In this way they will see the enjoyment and community involvement associated with the Jackson Street Gym. In this manner they will be more likely to refer their patients to the gym as a convenient and easy way to become physically fit. In addition we will equip them with one month free trial coupons to give to their patients giving the patient the ability to judge for themselves whether this is an alternative that will work for their particular needs. Strategic Partners The primary strategic partners for the Jackson Street Gym will be community based organizations and churches. As this neighborhood is just beginning a transition from traditional lower income families to medium to high income families, it is important for the initial phase of operations to establish ourselves as community leaders and be involved in the revitalization of the Central District area. The best way to accomplish this is to form strategic partnerships with local community groups such as the Central Area Development Association. This non-profit group is dedicated to assisting business in revitalizing the Central District. By going to them early and showing our desire to give back to the community, we will not only establish ourselves as willing to help the community, we can count on their assistance in contacting individuals, such as angel investors, that have the same desire. Along those same lines are the strategic partnerships with the churches of the area. Although the Central District is located in the heart of Seattle, it remains grounded in its


roots. Part of those roots is large scale involvement in religious activities. The churches in the Central District are known for their community involvement and for helping out those in need. By leveraging that relationship and getting them to understand that a fit and healthy population, starting from the ground up, will have longer and happier lives, we can gain their assistance in not only spreading the word about the health club and we can offer our large multi-purpose rooms for community events such as evening dances or off-site meetings. These meetings could range from the local Girl Scout troop to an offsite location for groups such as Alcoholics Anonymous. This ability to give back to the community during off peak hours will strengthen our overall bond with the Central District and assist with the word of mouth advertising we will need.

Demographics and Market Analysis
The Central District is changing. Over the last 15 years the area has been swept up in a wave of prosperity. Residents are spending more money to fix up their homes. They feel more comfortable in their community. The area is increasingly more prosperous. Older houses are either being remodeled or replaced with newer ones. The crack dealers are an anachronism. Increasing property values have increased the investment in the area which in turn has fueled higher property valuations. With the increase in property values the lower income residents of the area are being priced out of the market. They are being replaced by more affluent newcomers attracted by the area’s proximity to downtown Seattle and its interesting character and history. Property Appreciation From 1984 to 1999 homes in the Central District have appreciated nearly 10 percent annually as shown in Exhibit 4. This is higher than any other neighborhood in King County5.

Seattle Times, 1999 “Home prices may be way up, but all neighborhoods do not appreciate equally”


10 fastest appreciating neighborhoods

Average annual appreciation (15 years)* 1 Central Area 9.8% 2 Wallingford 9.7% 3 Capitol Hill 9.7% 4 Queen Anne/Eastlake 9.4% 5 Green Lake 9.1% 6 Mercer Island 9.0% 7 Ballard East 8.7% 8 Phinney Ridge/Fremont 8.7% 9 Ballard West 8.6% 10 Bellevue/Medina 8.6%

What a $75,000 house bought in 1984 might be worth today (by neighborhood)... $305,159 $301,605 $301,459 $286,807 $276,830 $271,628 $263,279 $260,374 $260,072 $258,822

Exhibit 4: From 1984 – 1999 homes in the Central District appreciated most rapidly (Seattle Times 1999) The primary reason for this appreciation has been the proximity of the Central District to the downtown area. Exhibit 5 shows how the areas closest to downtown have appreciated much more than the areas further away. The prosperity of the Central District is therefore guaranteed to be a long-term trend, tied intimately to the prosperity of the Seattle area itself.

Central District

Exhibit 5: Not all areas appreciated equally (Seattle Times 1999)

The area has a diverse ethnic population with an increasing amount of disposable income for health club memberships. Our target market will be the middle and higher income


residents in the over 18 age group, both from the existing residents as well as from the newcomers. The proposed location for the club is on the intersection of Jackson Street and 23rd Avenue. Our target market are the people who live and work no more than 12 minutes from this location. This includes these census tracts, 78, 87, 88, 89, 90, 94, and 95.


Exhibit 6: 2000 Census Tracts (US Census Bureau)

Cultural Uniqueness of the Central District Central District like Seattle does not fit the national stereotypes of ethnicity and urban demographics. Exhibit 7 shows the inflow and outflow of residents from the Central District in 1995 broken down by the dominant ethnic groups in the area. The white and black populations of the area are about equal with white residents having a small majority. The number of black and white residents who did not move out of the


area from 1990 – 1995 is about the same (24% for blacks, and 25% for whites). The people that are moving into the Central District include both blacks and whites. This demonstrates that the area remains attractive to different ethnic groups. Its unique multicultural character can be used as a differentiation strategy. Instead of creating a sterile carbon copy of a suburban gym, we can infuse the gym with the ambience that reflects the cultural and historical legacy of the area around it. This will be attractive both to the existing residents of the Central District as well as the new residents. Another interesting trend to observe is that almost 50% of the Central District’s residents lived somewhere else five years ago. This demonstrates that the population in the area is in transition. As new people move into the area they are likely to not have affiliations with area gyms and will be looking to join something like the Jackson Street Gym. This makes the Central District a much more attractive location for our business than an area where the population is largely settled and does not exhibit the same levels of relocation.
RESIDENCE IN 2000 FOR THE POPULATION 5 YEARS AND OVER Population Percentage of Population White Black Asian Total White Black Asian Total Total 12339 8188 5048 25575 48% 32% 20% 100% Same house in 1995 5149 4856 2770 12775 20% 19% 11% 50% Different house in 1995 7190 3332 2278 12800 28% 13% 9% 50%

Exhibit 7: Inflow of Residents into Central District (US Census Bureau)


Market Segmentation by Age By combining the data on health club memberships provided by the IHRSA (International Health, Racquetball and Sportsclub Association) in Exhibit 8 with data provided by the US Census Bureau for the entire country and for the Central District we estimated the size of the market based on age demographics. Our underlying assumption was that the Central District residents would follow national trends in health club membership based on age.

Exhibit 8: (IHRSA / American Sports Data Health Club Trend Report, 2002)


Central District Health Club Membership Projection US US CD CD Age Population HCM Population HCM From To (Millions) (Millions) 0 19 78.5 4.0 6856 351 20 34 55.9 11.5 7139 1469 35 54 82.5 12.4 9805 1474 55 + 59.1 5.6 6282 595 Total 276.1 33.5 30082 3889 US CD HCM United States Central District Health Club Members in Age Demographic

Exhibit 9: Health Club Market Based on Age (US Census, IHRSA 2002) Based on this we determined that a total of about 4000 people would be likely to belong to health clubs in the Central District (Exhibit 9, calculated by combining the data from the US Census Bureau and the IHRSA report). As we discussed earlier the population of the Central District is in transition. Over half of the population will be made up of people who moved here less than five years ago. As this migration continues we anticipate that we will be able to gain a large share of the available market. Note these numbers are conservative. We expect to attract additional members from other tracts. However, this is offset by the fact that some residents will choose to attend health clubs near their work or have existing memberships elsewhere. The data shows that the age distribution of our targeted demographic can sustain a health club.


Market Segmentation by Income Household income is a more important determinant of health club membership than age. This determines both whether a family joins a gym or not, and also the price level that they will find acceptable.

Exhibit 10 (IHRSA / American Sports Data Health Club Trend Report, 2002)

As might be expected, the largest segment of health club members comes from the $75,000 income bracket (Exhibit 10). In order to estimate the size of the market for health club memberships the assumption was made that people in a particular income level in the Central District will behave similarly to people in that bracket nation-wide.


Income Analysis (1999) US US CD CD HH Income HH Members HH Members From ($) To ($) (Millions) (Millions) 0 24999 26.1 3.4 4384 563 25000 49999 26.2 8.4 3222 1031 50000 74999 17.4 7.7 2145 953 75000 + 20.6 14.1 3792 2598 Total 90.2 33.5 13543 5031 US CD HH Members United States Central District Household Number of Health Club Members

Exhibit 11: Market Size Based on Household Income (US Census Bureau, IHRSA) The Central District has a substantial income base. Based on this analysis we determined a market size of 5031 people in the area (Exhibit 11, calculated by combining the data from the US Census Bureau and the IHRSA report). It is interesting to note that using household income yields a larger market size than using age demographics. Between the two we anticipate that income levels are more likely to influence gym membership than age.


Long Term Trends

Exhibit 12: Health Club Membership Trends (IHRSA / American Sports Data Health Club Trend Report, 2002) According to IHRSA the trends in gym membership are on a long-term upswing nationwide. Membership rates have risen 4.9% annually for the last 14 years. In the last 6 years they have risen by 5.8%. Revenues have grown by 10% annually (Exhibit 12). This demonstrates that people are increasingly choosing higher priced clubs with greater conveniences. The economic wealth in the Central District justifies the health club. The long-term trends both for the Central District as well as the health club industry are highly positive. Therefore the risk of our investment losing value is negligible. Increasing revenues and long-term financial stability is anticipated for the Jackson Street Gym.


Competitive Analysis
The gym faces competition from three different sectors: gyms located in the Central District, gyms located in the downtown area of Seattle, and potential new entrants. Local Gyms Currently, the Central District area is underserved and the local gyms are not a major competitive threat to the company. The area competition consists of a YMCA, a small local club, and a gym adjoining the Garfield Community Center. These cater primarily to a low income clientele. Jackson Street Gym will target a higher income demographic and therefore will be largely insulated from competition by existing gyms. There is a risk that if these gyms are renovated and start targeting a higher income demographic they will pose some competition to the Jackson Street Gym. However, this strategy will backfire as it will alienate their existing customers. So it is unlikely that they will embark upon such a program. Downtown Seattle The primary competition to the Jackson Street Gym will be from the gyms in the Seattle downtown area that also target the higher income demographic (Exhibit 13). Name 24 Hour Fitness Allstar Fitness The Vault Seattle Athletic Club Washington Athletic Club X Gym Headquarters Health and Fitness ZUM Location 1827 Yale Street 509 Olive Way 808 Second Avenue 2020 Western Avenue 1325 Sixth Avenue 2505 Second Avenue 1519 Third Avenue 2235 5th Avenue Parkin g Y Y Y Y N N N N Price/Mo. under $50 $50 – $100 $50 – $100 $50 – $100 over $100 over $100 over $100 over $100

Exhibit 13: Downtown Seattle Gyms (Seattle Times, 2002)


Our main competition will be from the clubs in the $50 – $100 price range as well as some competition from the over $100 price range. Here are some of the competitive advantages that we will have over the other clubs accessible from the Central District: 1. Our main advantage will be our location. Residents of the Central District will want to avoid the drive through the busy downtown streets to get to a competing gym. 2. The lower traffic density in the Central District will mean easier parking. The downtown gyms frequently do not provide free parking. We will be able to provide this due to our location and the lower demand for parking in the area. 3. Due to our lower real estate expenses we will be able to offer a higher quality of service and experience than the downtown clubs. 4. We will have ties to the rich cultural history of the Central District and of Seattle. The gyms in the downtown area are not tied in the same way to the city. We will emphasize the central role of our neighborhood in the history of jazz. We will tastefully allude to the fact that numerous celebrities including the actor Bruce Lee, the musician Jimi Hendrix, and the architect of the World Trade Center Minoru Yamasaki, amongst many others grew up in the Central District and went to the neighborhood’s Garfield High. The success of Starbucks shows that people are willing to pay extra for ambience. Going to the gym does not have to be a culturally sterile experience. Our unique value proposition will differentiate us from the generic and culturally sterile gym experience offered by our competitors. Due to these differentiating factors we will be able to steal some of the clients of the downtown clubs. Currently, we are not looking at the downtown refugees as our primary market. However, they will provide us with an incremental revenue stream.


Our primary target market remains the residents of the Central District. Our strongest competitive advantage will be our proximity to the neighborhood. A complementary advantage will be our ambience which will reflect the rich history of the neighborhood. This will be in stark contrast to the suburban sterility of the other gyms. We will offer a hip, clever, distinctively local gym. Potential New Market Entrants Another competitive threat exists from new market entrants. This can either be a branch of a large franchise operation such as 24-Hour Fitness, or it could be an imitative me-too gym that copies our model. We will have a first mover advantage over both of these competitors. Our initiation fee will prevent people from leaving to try out other clubs. A new entrant in the area will need to offer a better value proposition to steal our customers. If this happens we can easily compete by matching services. As first mover the status quo will be in our favor. The first mover advantage will be leveraged through the use of network effects. By the time a competitor moves into the area we will already have a critical mass of members through word of mouth advertising. A competitor will be unable to challenge this kind of viral marketing once it has taken root. An additional advantage we will have over a faceless characterless national franchise is that it will not be possible for the franchise to offer the same kind of roots in the history of the area.


Operations Plan
Facilities The club will be located in the new Welch Plaza on the corner of Jackson Street and 23rd avenue which will be completed in late fall of 2004. The area of the space leased is 10,000 sq. ft.

Exhibit 14: Welch Plaza (CADA, 2002) The plaza offers on-site and garage parking, 3 spaces per 1,000 sq. ft leased, which totals to 30 parking spaces for the club. It also offers access to public transportation.6 The floor plan is illustrated in Exhibit 15.


Chiles & Company. “Welch Plaza”


Exhibit 15: Floor Plan

Club’s Operations The club’s hours of operation are listed below in Exhibit 16. Day Monday – Friday Saturday/Sunday Opening Hours 6:00AM – 9:00PM 8:00AM – 5:00PM

Exhibit 16: Hours of Operations The group activities are coordinated by the activities manager. The part-time instructors come to the club to teach the individual classes. Personal trainers give training sessions by appointment. Cleaning is done throughout the day in order to keep the club clean especially in the locker room/shower areas. Cleaning is also done at the club’s closing.


Fitness Classes 35 classes will be taught each week. Many classes will have different levels. All classes will meet in the multi-purpose rooms. Total Body Conditioning: 60 minute class, using steps, weights and tubing. All major muscle groups are worked during this hour while the heart rate is kept elevated. Good for any fitness level. (Some impact) Functional Strength: 60 minute class, focused on toning all major muscle groups. Weighted body bars four feet in length ranging from 9-15 pounds are used along with the step and dumbbells. Less cardio in this class. For strengthening and toning the muscles. (No Impact) Precision Cycling: 40 minute, simulates an outdoor bicycle experience in which participants vary the intensity of the pedaling as if they were bicycling up and down hills. Cycling sessions are guided by an instructor who incorporates music and visualization techniques into the class. Excellent non-impact cardio fitness class for strengthening your heart and lungs. (No Impact) Walking Club: (Seasonal) 40-60 minute walk outside. Only requirements are a good pair of shoes. If the weather is bad a conditioning class will be substituted. (No Impact) Cardio Boot Camp: 60 minute class, start out with 45 minutes of cardio hi/lo workout. Finish up with 15 minutes of ab workout. (Medium Impact) Step Mix: 45 minute class, high-energy cardio that includes a wide variety of stepping patterns with combination power moves. Every step mix class will provide you with new and different stepping styles and patterns. (Medium Impact)


Dance Class: 60 minute class, classes will range from a variety of jazz and swing to modern. Instruction will be given for beginners and intermediate dancers. Ab Lab: 30 minute class, which will seriously work your abs. We throw in lower back and pushups just for fun. (Low Impact) Yoga Class: 45 minute class, yoga promotes strength, flexibility, and relaxation in the form of bogy positioning. Involves basic yoga poses combined with calming music for a relaxing, yet stimulation workout. (No Impact) Okinawan Karate: 60 minute class, this traditional form of karate involves an emphasis on breathing and tension, low kicks, and the development of mind, body, and spirit.

Website Plan Although the health club is intended to serve the local community of the Central District, it is essential to have a web presence as a marketing and advertising tool because as the neighborhood is in transition, more and more people are going to move into the area in the future. In addition, the web is rapidly becoming a popular tool for information and research. The various benefits that a website presents are: • Advertisement: People find out about the health club by searching on the web. This may result in new memberships. This is especially useful for those who are new in town or who plan to move into the neighborhood and who use the web to find out what their neighborhood offers. • Sales channel for new memberships: By reading about the club’s services and membership information that is available on the website, people may consider joining the club or visiting it to explore it further. For this reason, the web site needs to sell the club to the end user. • Conferring the image of an up-to-date company that follows the technology trends: If the club does not have a website, most people will get the impression


that the club is a cheap business that is not be able to afford having a web presence, or a club that is not interested in following the technology trends and hence it could be inferred that the club does not likely follow trends in the fitness industry and may be out-of-date. Therefore, it is important to have a web presence to give the opposite impression. The strategy is to design a website whose function is to: • • • • Advertise the club to attract new members Provide information for current members Create a sense of community for current members Provide information for investors

Therefore, the following are the components that the website should have: • • • • • • • • Online tour of the club with a voice that explains the club’s features and benefits as the streaming video plays. Contact information for new memberships. A simple design and easy navigation Information about the benefits the club brings Information about current group activities. Contact information: business hours, parking, directions, address, email addresses, phone numbers. General information about the club: mission statement, history. Online boards where current members can connect with their friends or instructors at the club.


Management and Key Personnel
Management Team Our management team is composed of seasoned industry veterans with many years of experience in business development, management and marketing behind them. Position CEO CFO VP Marketing Name Jaylen Smith Mark West Shannon Wells Background BS (EE), MBA. 15 years of management experience. BS (Finance), M Mgt., CPM, MBA. 15 years of management and finance experience. BS (Forensics, Anthropology), MBA. 5 years of marketing and management experience.

Exhibit 17: Jackson Street Gym’s Management Team Organization Employees should be selected on the basis not only of their skills and experience, and how well they fit in the team and work with their peers. The Club Manager should be carefully selected as he or she will have the ultimate impact in the success or the failure of the health club. In addition, a mid-size health club cannot have the luxury of hiring experts for each specialty; otherwise the health club will have too many employees on the payroll that will limit the club profits and increase the club’s membership fees. For this reason, employees are hired to do a variety of tasks and in this way the club can reduce the number of workers needed. For example, the club’s manager not only has to take care of the club’s overall management, but also needs to work on the financing, marketing, and human resources. Likewise, the activities manager or the receptionist may be required to give club tours to the prospective members. Keeping this observation in mind we have determined Exhibit 18 as a reasonable starting point for an organization chart.


Club Manager

Receptionist Part-Time

Receptionist Part-Time

Receptionist Part-Time

Activities Manager

Receptionist Part-Time

Accounting Firm Part-Time

Janitor Part-Time

Fitness/ Equipment Specialist Part-Time

Fitness/ Equipment Specialist Part-Time

Fitness/ Equipment Specialist Part-Time

Fitness/ Equipment Specialist Part-Time

Instructor Part-Time

Instructor Part-Time

Instructor Part-Time

Instructor Part-Time

Personal Trainer Contract

Personal Trainer Contract

Massage Therapist Contract

Massage Therapist Contract

Exhibit 18: Organization Chart for Jackson Street Gym Company Staffing Plan and Headcount Projections Below is a description of the club’s staff positions. Club Manager (1): Ben Furqueron Prior experience with overseeing club operations, making sure that the club’s financial goals are met, doing public relations, planning for advertising and marketing strategy,


human resource management, hiring new personnel, and finding new funding sources. Qualifications include 5 years experience in the recreation industry. MBA degree. Excellent communication, leadership, and presentation skills. Type: Full-Time. Activities Manager (1): The activities manager is responsible for supervising personal trainers and part-time instructors, devising the club’s group activities program, updating the program on a regular basis, coordinating the program. Qualifications include 2+ years management experience in a health club. Must have strong communication and leadership skills. Type: Full-Time. Fitness/Equipment Specialist (4): The Fitness Specialist is responsible for assisting members in equipment use and up-keep of all the equipment. Expected to monitor gym safety and assist in general operation and duties of the gym. Qualifications include knowledge of the fitness industry, experience working with a variety of equipment and general knowledge of cardio machines, and strength work out machines. Type: Part-Time. Receptionist/Counter (4): The receptionist is responsible for greeting members, accommodating request, answering phones, renewing memberships, scheduling appointments for members and personal trainers, and/or selling deli and pro shop items. Qualifications: Must be able to multitask. Experience with using simple computer applications and knowledge experience in general office work preferred. Type: Part-Time. Personal Trainer (2): The personal trainer is responsible for providing personal training sessions for members, and performing personal health assessment for current members. Qualifications:


Certified personal trainer (ACSM, ACE, or national certification) and degree in physical education desired. Type: Contract. Massage Therapist (2): Must be a licensed massage therapist with at least 500 hours of education. Knowledge of various massage types desired. Type: Contract. Part-Time Instructor (4): The instructor is a part-time employee and is to teach the group activities such as the beginner aerobics class, the advanced aerobics class, the yoga class, and the kickboxing class. Qualifications: Certified instructors in area of specialty. Type: Part-Time. Incentive Compensation Program Exhibit 19 summarizes the wages broken down by job title. Personal trainers are contract employees. The gym receives 35% of their income per visit. Job Title Club Manager Activities Manager Fitness Specialist Receptionist Part-Time Instructor Wage $65K/yr $50K/yr $13/hour $10/hour $25/class

Exhibit 19: Wages by Job Title The benefits for full-time employees include medical and dental insurance, and an incremental vacation plan which is outlined in Exhibit 20. Part-time and contract employees receive no benefits.


Duration of Employment 1 year 2 – 5 years > 5 years

Vacation Time 1 week 2 weeks 3 weeks

Exhibit 20: Incremental Vacation Benefit Company Culture Plan The health club is a place where members come to relax from life’s every day stresses. Therefore, employees should always put a smile on their face and attempt to be polite and courteous with the customers. In addition, to ease communication between employees and management, the latter should adopt the open door policy and encourage employees to talk openly and freely about any issues or suggestions. In order to promote a sense of community, it is preferable to hire employees from the local area. Customers feel more in touch with their community and feel they are part of the club. This will in turn help increase customer loyalty and new sales to potential members. Advisory Board The advisory board consists of people from the community and the greater Seattle area who will be a great source to the club for networking and expert advice in their respective fields of expertise (Exhibit 21).


Name Gregg Johnsen David Wise Diana Booth Arshad Haq

Details Legal Consultant. Attorney Marketing Consultant. Customer Sales Manager, Seattle Times Health Club Consultant Commercial Realtor

Exhibit 21: Advisory Board for Jackson Street Gym Company

Financial Overview
The key to factor to the success of any new venture is profitability and cash flow. To correctly understand and evaluate a new business, you first must understand the financial statements of that venture. In order to accomplish this, you must first understand the assumptions and background that went into creating the financials. This section will outline the various assumptions that will be found in the pro-forma financial statements. These assumptions are also footnoted in the pro-forma statements. We determined market rates for real estate by consulting Arshad Haq, a Seattle commercial realtor with specialized knowledge about the Central District real estate market. All figures quoted in the analysis are based on communications with him. Membership Fees Prices are very reasonable for a fitness center of this type, especially when compared to competition of the same caliber. Profitability is good in a two-year projection and the venture turns profitable by the end of year one. The gym’s fees are high enough to allow for a good annual income but affordable enough for every lifestyle. Initial membership is $199.99 and monthly dues are $39.99. Gym Cost Given our target market it was determined that 10,000 square feet would be needed to serve our customers’ needs. Per Arshad Haq cost would be between 13-18 dollars a


square foot per year. The pro-forma statements reflect 15 dollars per square foot per annum. Utilities Per Arshad Haq cost would be 3 dollars a square foot per annum. Accounts Receivable Cash Flow being paramount to any operation, a factor must be used to determine how quickly funds are going to be captured from new customers. It was determined that most customers would use consumer debt type transactions to pay for dues (e.g. credit or debit cards). Even though most consumers would utilize a debt transaction, a conservative approach was used in the financials. The assumption that 20 percent of our consumers would pay late is very conservative. Accounts Payable As debt is incurred it will be paid in a timely fashion. However, with our outstanding credit, we expect to have “net 30” terms with our various vendors. Given that debt will be incurred throughout the calendar month it is logical to assume that anything purchased after the middle of the month would fall into the following month. With this in mind, 40 percent of the total Cost of Goods Sold was used as a factor. Seed Money Given our estimated fixed and variable cost, 1.1 million will be needed to fund and sustain this operation until profitability. This will allow the company to maintain solvency while developing a consumer base large enough to sustain it. Given the goal of the owners, initial funding will be in the form of a long-term note to be repaid in under 10 years at an interest rate of 9% per annum. Income Taxes Tax assumption is a standard 34%.


Miscellaneous Supplies As the gym grows, so will the cost associated with expendable items. A factor of $2,000.00 was used to cover these types of expenses. It is assumed that this expense will grow at or about 10% per month. Equipment Cost Equipment estimates were taken from Hammer Strength Product Information Guide, Cybex Commercial Strength Systems Listing, and phone quotes from Stairmaster, Nebula, and Body Masters. Excerpts taken from Gym inventories aboard CVN 72 (USS Lincoln), LPD 14 (USS Nashville) and plans for future Navy ships. Lease Improvements According to Arshad Haq, $300,000.00 was used as a conservative number for improvements. Research indicates that improvements can be done for less. Employee Cost Given the size of the Jackson Street Gym, 14 people would be needed to cover the hours of operation. This would include 2 full time positions as well as 12 part time positions (see Employee Cost in the Financial Statements Section). Utilizing a conservative approach, 1.5 times anticipated base salary was used as the cost for employees. This factor allows for full time employees to have standard benefits as well as factors in taxes and liabilities associated with employees.


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