By Kevin F. Reilly, J.D., CPA, Partner
As Published in The Boardroom
It is nothing you haven’t heard. Clubs continue to face a very difficult time with the economy slowly recovering from a recession. Consumer confidence is still low and unemployment is unreasonably high. At a session at the recent Club Managers Conference, well over 65 percent of the managers in attendance stated that while they expected 2011 to be a better year, they did not feel that the club industry had turned the corner. By the time this article is published, you should know how 2011 will turn out. Extensive coverage has occurred about the problems that clubs are having in media as diverse as CNN to the Wall Street Journal to local newspapers to internet blogs. It seems that the public as a whole is reveling in the difficulties that the club industry is having. Pundits predict that 100-200 golf courses will need to close each year for the next several until supply and demand are equal. There was a net loss of 90 clubs in 2009 (140 closed) and 61 in 2010 (107 closed). But it started long before 2009. From 1990 -2000 the number of member owned clubs dropped by six percent and since then the number has dropped another ten percent. More than one quarter of the closures in the past decade were private clubs. Even now, it appears that 10-15 percent of public golf courses are at risk. From the excesses of the early parts of the decade to the pull back during the recession, the private club has experienced a wide range of issues but none more important than relevancy.
The amount of funds available for entertainment continues to shrink and the competition for this smaller pot continues to increase. Prospective and even existing members debate as to whether they should spend the funds to join or to remain a member at a club. The demographic mix within the United States continues to change and unless the private club industry changes some of its membership policies, the pool of potential applicants will continue to contract. Baby boomers did not join clubs in the numbers expected and most are passed the age when historically people have joined clubs. Generation X and Y have different interest. For many, the club is a luxury they can no longer afford or even desire.
Exclusivity is not quite as important and may even work against private clubs when going after the younger generation. The private club is opening its doors to the general public to generate additional revenue. Members wonder just how exclusive it really is. Many private clubs still have policies that attract those who are already members but may turn off the potential member. Clubs must addressed the issues of importance to the younger generations including: denim, families, social media, cell phones and significant others. Private clubs still seem to be more appealing to men than women but women control more of the discretionary funds in a household. With corporations changing the way they do business, the increased time people spend commuting, and the desire to spend more time with family, it becomes more difficult for many to justify the cost of membership.
Clubs continue to lose members and are having a very difficult time in finding new ones. The days of a long waiting list and ever increasing initiation fees are long gone. As we have said many times in the past, clubs are in the dues business and if membership drops, so does dues revenue. In this difficult economy, clubs must find ways to increase membership value, while at the same time, control cost. When it comes right down to it, membership in a club is discretionary. Members have a limited amount of discretionary funds and the club needs to convince its members that those funds would be better spent at the club. With so much competition for the entertainment dollar, members, and potential members, must be convinced that the club is a good investment.
Clubs are adapting to the recession in a number of ways. No matter how creative a club gets, the members still foot the bill. The club needs to keep its existing members and get new members in the door. New and creative programs reducing the amount of up-front cost are the norm. Initiation fees are coming down in many locations and special incentives now are prevalent. Clubs are reaching out to more and more people to find members.
Clubs must be very careful in making long term decisions based on a hopefully short – term recession. Of course clubs must make cuts but they must do this while still providing value. Management is spending more time in trying to cut expenses. The problem of course is doing this while keeping the facilities looking good and up-to-date. If your members no longer receive the same service, the “value” of membership is less and it makes it easier for members to leave. You can cut yourself into bankruptcy. In addition, if the club down the street is having a special on joining, with little or no initiation fee, there is less incentive for your members to stay.
For many clubs, long range planning has taken a back seat to short term survival. This is expected but be careful that decisions made now do not prevent long-term success. While the club may be going through a difficult time, it is because many of its members are as well. Clubs must be empathetic to these members but must also be realistic in what it can do. The board must come up with a policy on leave of absences related to economic hardships and apply it consistently. The problem with allowing a leave of absence is that the fixed costs in running a club do not go away. For every member on leave, you are asking the current members to carry a heavier load. On the other hand, you may want to allow the member back at some future time.
One of the more concerning trends with clubs is that members are spending less at the Club. The two charts show that both country and city clubs members are spending less. Even with an increase in dues, income per member is the lowest it has been since 2004 for country clubs and 2003 for city clubs. However, all is not totally bleak. While members spent less, clubs have come to grips with this and adjusted expenses accordingly. However, this is a short term solution.
In the medium and longer term, the club must evaluate its total operations. What is the mission statement of the club? Is it realistic? Can it be all things to all people? What differentiates it from other clubs in the area? Can that be highlighted? Would the club be more profitable if it eliminated certain functions or venues and focused on what it does best? Clubs, and members, are notorious for coming up with new non-revenue, but not non-cost, activities. Is this the time and place to be implementing them? Is everything on the table in the evaluation? It is critical that clubs get all stakeholders involved in any analysis. It has to be more than the board and upper management. Engage the members and all employees in the discussions. It is amazing where good ideas can arise.
While the economy is not good, it has begun to turnaround. While clubs are going through a difficult time, it should not be seen as all doom and gloom. Private clubs have been around for a long time. They provide a need, particularly in an era of mobility. People need a place they can call home. The club that will survive and even flourish is the one that can identify its core values, understand its members and its market and be willing to make the changes that are necessary. The healthiest are still healthy and the economy has removed some of the competition. As long as club realize they must, and are willing to, change, the improvement expected in the economy will only help the industry.