Episode #541: Insights on Boutique Studios and Big Box Clubs with Deborah Strougo

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1:03 This is Pete Moore on location, Al Nashervani's Kitchen, New York City to Seattle. I have the pleasure of bringing on industry expert veteran and trendsetter in the future and in the present. Deborah, welcome back to you Halo Talks. Pete, it's the first time I've ever been on Halo Talks. And, honestly I said that because we've had some scheduling issues, but I wanted to kinda bury the lead on that, which I did. The all Which has only aspire to call me out on it. I only aspire to be in your book and to wear your hat. Like, the fact that I have one of these is So for those of you that are on audio, we are wearing EBITDA hats, which is earnings before interest, taxes, depreciation, amortization, which is basically the cash flow that you earn for the operations of your club, your studio, your consulting business, your advisory firm. And if you got EBITDA, that's positive, and you should sleep a couple extra hours a night. If you don't, you should stay up a little bit later and try and get to EBITDA. So welcome to your first show. Now we have to And you should definitely learn you should definitely learn what EBITDA is at Halo Academy. Right? I mean, obviously You can go to the Halo Academy. Thanks for that little, plug, unpaid plug, about Halo Academy. There is another one in January that you can take for the January right before the Super Bowl, so there's no excuses on why you can't attend. And we'll teach you five companies and five EBITDAs. So thank you, Deborah, as a a

2:34 halo alum. So let's talk about you for a second, given that this is my podcast and you're my guest. Let's first talk about you as a consumer, and you're one of the most astute consumers in the halo sector. So what do you do? What have you been gravitating towards? And what is the average fitness consumer in 2025 going to experience that you're already on the front end of? Okay, Pete. That's a lot of content. That could be lot, but, I mean, I could unravel it more, but I'd be pretty smart. So go. Okay. Let's break it down. So what am I doing? Well okay. Twenty years in this industry, started as a step instructor. Well, wannabe step instructor. Couldn't figure out the counting.

3:19 And Yeah. It's so, you know, been doing modalities galore. Right? Fitness modalities galore. Back in the day, it was Equinox Crunch and all of those places. And this week, I went to Bay Club, and I had a great time. If you guys aren't familiar with Bay Club, awesome. Where were you? What's the location? El Segundo. I had people meet me. I sent them to Redondo by accident, but it was El Segundo. Yeah. The so those clubs are are for historians in the industry. Those were Spectrum clubs. It's a deal that we worked on that were sold from the private equity fund that owned Spectrum to Bay Clubs. And El Segundo is one of the highest producing clubs, I would say, on the West Coast, and, in that corridor between the 405 and Sepulveda. In El Segundo, Manhattan Beach is probably the most grossing dollars in fitness in the entire world on that one street. Really? Well, I would how many people do you think walk through a day? Say 1,200 to 1,500 a day. Yeah. It is amazing what certainly, what the product and service offering is, you know, how it spans. They start at six weeks in child care. Okay?

4:38 But Yeah. Just, you know, four big studios going at a time. I took a step class. That's why I mentioned the whole step thing. With the Zumba instructor, I took a Zumba step. That was an experience, which I loved. Okay. It was amazing. And, you know, all of the other studios going and all the recovery spaces going and the Pilates room going and the yoga room going and then the full gym floors and small group training areas, pools, pickleball. You know? Full full service offering with child care. Loved it. So when you take a look at a club like that, obviously, they're running somewhat of, like, a city, if you will. Right? So are they able to effectively cater to their micropopulations, and do you feel like they've kinda nailed that business model of, hey. I'm gonna you're gonna be in the high end of, you know, a trophy asset as we like to call it. You're gonna belong to a trophy asset, but I'm going to give you all the benefits of basically the cult personality of group exercise inside of my trophy asset. No. So exactly.

5:44 So I'm sitting in there, and I'm saying to myself, why would I ever go to a boutique studio again when I have all this stuff? And then I settle into it, and I realize it's because there are 50 people in this class, and nobody knows anybody. A few people know a few people, but it's the super users that know the super users or the super users that know instructors. They don't necessarily know the quiet person in the back corner that needs the accountability and the and the, you know, consistent friendliness or customer service. Not no. Not and and I'm not saying a bad thing about Bay Club. I'm just saying just juxtapose it, right, to the fact that this morning, I was at OTF over here, owned by Mark Thomas, this whole group over here. He's an amazing operator. I think I introduced you to him, by the way, at some point, Pete. Anyway, I went into OTF and, you know, sat there and I'm like, I love this experience too. Right? So I personally can live very happily in each of those. At OTF, you know you know they have amazing things that have been woven in through the years from accountability to figuring out who the first timer is, to all of the things that keep your minds focused, to, like, the, you know, the hero wad type things that they've put in and the I can't even think of the name of it. You know? The the week of hell torture stuff that comes week. Yeah. That's what it's called. Yeah. All of that. And it's so interesting how the different users, you know, how the different

7:16 things solve to different users. Yeah. I mean, when you think about the unit economics of a bay club and the fact that there is probably a 50,000 square feet, and they're actually running, you know, four to eight independent studios inside of those four walls, and then you look at a studio that says, hey. How am I gonna compete with their marketing, their incremental services that you could do inside there? Right? So I could take my class, and then I could go take a shower and go to the pool. I could go to cafe. I can get a shake. I could drop off and pick up my kid. You know, I would argue that a Bay Club has way more of a competitive advantage if they can pull off the experience inside of the studio. They really should win, you know, eight times out of 10 or four times out of five to use simple math. I, yeah, I would agree with that. I guess the only place where they don't win, if you're getting really granular on it, is is kind of like, I'm an Orangetheory user, let's say, or, you know, any pure bar. And I wanna travel the country city by city and stop in and have that exact experience everywhere I go. Bay Club is pretty regional.

8:40 This is Pete Moore. I wanna let you in on a little secret. There's this company called Promotion Vault, and what they do is they give out rewards from retailers that allow you to incentivize your members without having to do zero down and one month free or giving away shakes or giving away T shirts. What you wanna do is build a rewards program that lasts, that people value, and that doesn't discount your own products and services. So here's the deal. There's something called rewards vault. The rewards vault is going to allow a member to set up their own profile. They are going to answer questions. You are gonna get those answers. You're gonna be able to target those members, and you're gonna reward them inside your club, inside your spa, and outside of the club and outside of the spa to get them to become loyal, to get them to pay their monthly dues, and to be rewarded properly for the actions. A lot of companies are cutting back on rewards.

9:36 You shouldn't be. Promotion vault's your answer. Trust me. This is real. So let me ask you a question. As you kinda fast forward over the next several years, let's say Orangetheory decides, not saying that they would, that, hey. We're gonna do we're gonna allow big box clubs to become franchisees, and we're gonna put Orangetheory's inside of, you know, big clubs and inside of, you know, lifetime fitness and and, you know, Chelsea Piers. Did does that is that an evolution that could happen, or do you think, like, people that go to Art Theory want that boutique experience and are not going to allow it on average to be in underneath somebody else's banner. I'm asking you this because I think I think operators gonna need to think about, like, what can I do to bring in 800 members? Do I go and try and get an Orangetheory inside of my location? Do I buy an Orangetheory locally that maybe is for sale?

10:34 Is it is that even a viable thing to do since you're the consumer with your hat on, your EBITDA hat on? I'd love to get your your opinion on that. Would you go to an Orangetheory if it was inside the El Segundo big clubs? I've never seen it work. I don't know. Have you ever seen it work? And I haven't. That's why I'm asking you. It's so interesting that you answered that that way because I have not seen it work. And I wonder if it could work in this new, you know, new realm of reality. People approached me years, you know, in a variety of different years in a variety of different industry phases, mostly when I was in the row house place. But even once I was kind of, like, in the p vole space, you know, just, like, in different models, how can we make this work? And my feeling has always been there is a massive friction that happens at the desk level and at the email marketing level. And those are basically not things that can be solved for. Yeah. True. At the desk level, it's like, am I speaking with my marriage theory hat on, or am I speaking with my big club hat? At the email marketing level, it's like, am I speaking with marriage theory hat on, or am I speaking with you know? And the pricing also doesn't really work. It always clashes, which is kind of the desk, which is the same thing as email. It's like, who are you communicating as of? So the only way I think it works, Pete, which could work, but the only way I think it works is if you're Chelsea Piers, great example. And just like how Chelsea Piers has the bowling pier, you have the OTF area. You have the OTF entrance, which, by the way, is how Bay Club has a separate door.

12:07 Bay Club has a separate door for the kids' club, that entrance. So you have the entrance over there, and then you somehow or another tack on $20 all access into Bay Club to use the general space or, you know So that's one of our big takeaways today thus far, and we've had several in in the last ten minutes. What are you doing a shot of? What's that? Nutella? Espresso. Oh, I thought it was Nutella. No. I didn't. I do espresso. So one of the big takeaways is, hey. If you wanna be in the middle market or the high end market, you also wanna be in the boutique space, and you have not been able to, quote, unquote, manufacture your own cult, which is not easy to do.

12:48 A simple door and a separate entrance may be your path to success. So we'll put that as exhibit a. If you are exhibit b of takeaways would be if you are a successful group exercise program inside of a big box club, make sure you convince everyone that the amenities that you are getting for the price that you're paying is is the place to stay because a boutique cannot replicate that set of incremental services for you because they don't have the square footage to do it. So if you have a great group x program, don't dismantle it. Maybe put some things around it. Maybe put a recovery program around it where people are moving from the boutique class that you took at the Bay Clubs, and maybe there was a NormaTec, you know, horseshoe of people that could hang out and talk to each other afterwards. I feel like the the workout recovery and the the workout and the workout recovery should be tied together as a group program, almost like a a psych a soul survivor class, if I may dive into my own cult that I'm part of, obviously. I was gonna ask you to of my clothing. Really?

14:02 65% of my clothing is soul cycle at age 52. I mean, who woulda guessed that? I just wanna give a hundred dollars to whoever gets you off Soul Cycle. It's, like, personal. Just anybody who can get him off Soul Cycle. It's not gonna be easy because they they have a matching fund. They'll pay me 200 now. Yeah. Go. It could be long. I know. So They'll raise the stakes on that. Okay. So one thing is as a as a consumer, you're seeing a lot of a lot of really good program offerings, I would say, you know, where where where you choose to travel. Is that accurate? Oh, yeah. Listen. And then you have the studios that are just one off studios that know their community through and through and through, and they're doing great EBITDA too. Right? So it's interesting. I mean, I tend to feel kinda like I walked out of the Bay Club, and I reached out to girlfriends. And I'm like, you've been doing the studio thing or the at home thing.

14:56 You should go back to, like, a big full service gym. And so, you know, I think that there's different offerings for different people, and it's all shaking out, and people are circling back on the things that are gonna keep them in the game, which brings us to, like, you know, it's it's you're asking what's twenty twenty five. It's about the holistic human being. Right? It's really about and we kinda saw a lot of the rise of the women's stuff last year. Starting to see the youth stuff kind of pick up and get interwoven back into things, certainly starting to see the nutrition stuff and the sleep and the, you know, trackability, all of that. That's all leaning just towards the rise of the holistic human being. So who can look at each individual person and say, how can we better surround you, surround sound you, with what you need to be the happiest, healthiest, productive human being that there is? By the way, Bay Club even has a workspace. I mean, that's nice. I was like, I'll drive here an hour every day just to, like How do we work? Yeah. Like, there you go.

15:55 Holistic human beings. So I think, you know, that's kind of the trends, Pete. I mean, it kind of sounds cliche, but at the same time, I don't know how cliche it really is. Even if you're a boutique and you can't offer a workspace or this or that, that's what people are looking towards. Like, how do you have the smart partnership with the thing that makes your life that much more robust? Yeah. Ten years ago, we worked it on doing a deal with New York sports clubs, and I told them we should just take certain clubs and turn them into half WeWorks and half health clubs, you know, whether on our own or not. But you got the space, and you got the the locker rooms, and you've got the recovery. And, you know, maybe you just need to put up a wall for noise so people can actually work from there. But there's no reason why they couldn't have attacked that opportunity and charged $300 a month.

16:42 And these entrepreneurs that are going into buildings, going to clubs. So and why didn't it happen? Why do you think it didn't happen? People get get get stuck in their tracks of what they think that they are and what they can execute on and not realizing that I can service what a a a member wants versus what they wanna service to have a member want and and and limit it. I think that's that was the issue. But, yeah, I think I think if you're gonna cater to a member, find out what that member's day is and how you can help them solve frustrations, how you could reduce their costs of having a WeWork office and also a Bay Club membership, or a lifetime membership, or or convince someone that, you know, when they sign up, which I'm sure they do now, is, you know, hey. You have that expense, we can get rid of that expense for you and work out and and and work from here, which I think is is is a great potential model for the future. I want I wanna move on to a couple of things because you you work with a lot of studios. Obviously, you start Row House. You see a lot of these the growth in the Pilates category. Do you view that as sustainable? It seems like there's a lot of different studios that are coming out that are all based on reformers, which I think is a great workout. It could take a hundred dollars for me and and put me into the, outside of my soul cycle. Could be a Pilates concept. It it's possible. My gosh. It's possible. I don't wanna air it too loudly because I might have

18:13 to walk it back due to contractual obligations I have as a soul cycle master to work out. This is a big moment. Do you see Pilates as be you know, maybe jumping the shark, or is this thing, like, here to stay and it could be one on every corner? I have always believed in education first for people, and so I'm gonna use that as a preface to the answer to this question. So Pilates has the it is a conduit towards exercise that really, really helps people that are, you know, amongst their life stages, especially women, men as well, athletes. But, you know, it takes it takes a lot a lot of shapes. It's mobility. It's strengthening. It's you know, you can get cardio off of Pilates machine and all of that. And it's been a huge rise because people are gravitating towards it. And it's not new, just like rowing wasn't new when we launched it. It's just seeing its its face right now because we're educating the consumer in the right way about what they need to know it'll do for them.

19:16 And so, you know, we we've all talked about this. I'm sure you've done many episodes on this about just, you know, the strength day and the cardio hit day and the, you know, Pilates day. And, really, it's just about the fact that more and more people are hopefully getting fit. We're finding more and more people to get exercise to get healthy, and it should be a collaborative environment where we're tapping into what's gonna help them move them along their way. And so in the Pilates space, you're seeing a lot of women that are interested in getting more fit, but in a low impact sort of way. They're not into the whole hit thing. Some of them have had fertility related issues, and so they are looking in other directions. That's the founding story of your reformer.

19:58 And, you know, they're looking in other directions, and so that's a big rise of the knowledge and the education behind why this modality is really working right now. It doesn't mean that there aren't other modalities that need more education, by the way, and that'll continue to catch, you know, wins and grow. But Pilates is here to stay just as it's been here for a long time. It's just gonna keep growing, and hopefully, all the other modalities will as well. This is Pete Moore. Here's the last tip for you of the podcast. We are partnered up with a company called Higher Dose, higher dose dot com. They are the leader in workout recovery products, infrared technology, LED light masks, neck enhancers, and other products such as PMF mats and sauna blankets.

20:48 If you have not gotten on the workout recovery train yet, your time and your stop is now. You gotta get these products in there before these workout recovery and spas end up saturating your market. Having your members walk out of the club and going into one of their locations for $200 per month where they're paying 39 to you. Let's become an expert in workout recovery if we are already the authority in workouts. Higher dose, check it out. There's a wholesale code, and we look forward to helping you augment your products and services to meet the demands of your members. And, hey, let's get people happy, healthy, and sweaty, and the recovery should be just as good as the workout.

21:36 You know, when you were, now now that you're advising studio operators and you saw kind of going through COVID and coming out the other side that you really needed to be at I usually use, you know, $2,000 a day or, you know, $60,000 a month to be in position where you're making money and and you enjoy this this business. What have you seen as kind of either some of the benefits and the traction that a number of groups are getting or that, hey. There's gonna be a certain amount of studios here that inevitably are gonna fall off because they can't compete with the multibranded franchisors, such as extraordinary brands that bought Row House or Xponential or Solid Core that's institutionally backed or metabolic that seems to be, you know, generating traction.

22:30 Do you see kind of, like, a parting of, like, the sea, if you will, between groups that get it, that have a good business model, and groups that are still trying to figure it out and may not get to you on the side? Okay. So I will answer this question this way. So I think that there is no more is the day of if you build it, they will come. Right? No more is that day. And so the literally, the single studio and Lisey Kiecker from Studio Go, who I love dearly and moves the needle for studios all the time, works a lot with these types of guys, the littler guys Yeah. Who literally will get scared because, you know, big brands, franchises coming into market. It's like, okay. What are your keys of differentiability?

23:11 Why are you different? And how are you gonna monitor your production and your performance every single day to get to what you just said, Pete, which is, you know, your $2,000 or whatever a day? I have gone into a ton of brands where I have basically said, like, let's break it down. We're not even talking about $2,000 a day. We're talking about how many check ins a day. We're talking about how many leads a day. And, you know, you go to, like, line of sight, what matters to the front desk person. And if you're solely focused on what matters to the front desk person and what matters to the instructor, that and you figure out your business model around that about what drives it in to bring you to the, you know, to the levers that create your profitability and your EBITDA within your brands because you know your differentiators versus the others. You can run a smart business no matter what, and that's the lovely yoga studio that I go to here. It's a one and done. She wants to expand. I'm like, don't expand. You're running a wonderful business because you're literally focused on how can I make sure that this business is profitable and solvent, and it doesn't matter what everybody else is doing because you have a special team, you have a special location, you have a special modality? You're not chasing everybody else's shiny object. So to a degree, I believe that no matter what level or layer you're at within, you know, a one store, five store, 10 store, you know, a hundred store type situation. Gotcha. Gotcha.

24:36 And then for me What's that? Do you agree? Yeah. Yeah. I I I do. I'm I'm just nervous about some of the locations that, you know, maybe the business model is not, hasn't been optimized. Maybe they bought a franchise that isn't like a playbook that that is an operating playbook and that they, you know, have a bad franchise or franchisee relationship and, you know, everyone's pointing the finger at each other, but it was it should never been franchise to begin with. Well, franchising is a different story. So I agree with you. Franchising is a different story. If you come in as a single operator in a franchise system, you've looked to the franchisor to run different plays and figure out different successes so that you can then put your operating team in and your marketing dollars and all of that towards it. Right? And your your coaching squad or instructor team towards it. So, yes, if it's broken, and I've sat in a lot of franchising systems outside of, fitness where they say that, you know, 50% needs to be organic of the entire franchise system and various things like that for you know, you need to be over ten years and x amount needs to be profitable to be considered and deemed a, productive franchise. And so franchising, I definitely think is different. Like, we're kind of nascent in this industry from really successful performing franchises.

26:03 Don't you think? Yeah. I'm just saying from a standpoint of, you know, whose responsibility is it to to either put more programs on the calendar or to, you know, work on the pricing model? Or is there an annual maintenance fee that you could somehow push into the studio space that doesn't currently exist? Or their programs to get in, seniors and, you know, HFA, FSA usage. I'm trying to I'm trying to figure out how the franchisee was to take control. I think the answer is to the franchisees. The answer is it's both. You know, whose responsibility is it? It's both. It's the franchisor's responsibility to put things into play. It's the franchisees responsibility to have their ear to the ground, to test things, to give feedback. And it's the franchisor's responsibility to have the right balance between franchisee feedback and expectations and all of those types of things so that they continue to play the model because they have to ultimately play the model. So that's why it's nascent. It's like we seal there's successful fitness franchises out there for sure. Right? But they're still growing and they're still figuring certain things out to bring the lowest ones up.

27:15 So there's still, I think, probably a bigger discrepancy than there should be in the typical franchise systems where, you know, the higher ones should probably continue to grow, but I don't have those stats, for our industry versus others. What, like, the delta is in the franchise units. I do feel it's like a tale of two cities, though, where you've got some locations that are, you know, absolutely crushing it and and, like, a solid core where they're doing, you know, 10 to 14 programs a day or classes a day, you know, and very low labor. And they locked the door during classes. There's one person that works there. There's no showers. You know, pretty pretty good rents because they got a lot of them during COVID, which is super smart. And then there's groups that are out there struggling to make, you know, 500 to a thousand dollars a day that, you know, maybe are are been outflanked, you know, from a from a strategic term. But moving on to a couple other things, you spend a lot of time working in and around the industry from a networking standpoint.

28:19 Give give a little insight into, you know, what you've picked up over the last year by by attending all these events, whether it's from, you know, the type of people that are coming into the industry, people that are coming in from from other markets, you know, from from international saying like, hey. I'm coming to The US. It's not like we necessarily need more players here. Right. Or that, like, we're missing something. You know? We need you to build another 500 locations of the x y z force because we don't have them. So I I is there are you nervous about oversaturation? Are you excited about new entrants coming in? Like, what's your, like, if you were to balance the two? That's a wonderful question. So I think about two years ago, Pete, you and I sat on a stage somewhere. We were doing a, kinda kickoff of trends or something. And I made a comment that I've thought about a lot since then about how I feel like new blood coming into the industry. And I'm talking more about adjacent industry blood, and adjacent industry knowledge than an outside player in the space, but that was really beneficial to the industry. So I do think that new people coming into the fitness industry from adjacent industries, hospitality, media, all of that is really helping the industry. But I made the point then, and I still feel very strongly about it now, that those players need to tap into the knowledge, deeply rooted knowledge of the

29:51 industry here, like, need to team up with those types of people. Like, you know, whether it's myself, like you've been there, you've seen all of the modalities, you've seen like the different phases of boutique to gym, to boutique to gym, you've understand the growth of the holistic human being. Like, I feel like there's a lot of opportunity for us as an industry to grow and expand actually with other business practices that come with, from outside of our industry, if that's done right. So I do think that that's a thing. I also think to your point that people who are coming from with product or ideas from elsewhere, from other markets, of course, they wanna be in The US. US is the biggest market that there is, but there there will always be differences, cultural differences, just like there was a lot of people from The US going to help kind of, you know, in The Middle East. There will always be cultural dish differences that by the same token, you need to absolutely pay attention to.

30:46 Like, what brand's awareness do I build need to build, what credibility do I need when I come in so that I can navigate this properly because I'm coming into a place that's gonna be a very different moment in time to when I came in and launched something elsewhere. And that that, you know, of huge momentous importance as well. So I don't know. I I think to your point, like, we don't need a million other things. We have a lot of big players that are here to stay. But there are people that have unique special things that are gonna keep moving the industry on innovation. And of course, the passion that new players bring into the industry is kind of exciting. Even if they're making mistakes along the way, they bring passion, they bring new ad spends. You know, it might kind of, like, be what brings people back to the original players at the end of the day. So we can't, like, you know, get mad at people for wanting to come in, but they should just be doing it smart if they're doing it. It.

31:41 Yes. Alright. Well, we've done thirty minutes here to give a little insight into what you've been doing and and your thoughts and what we see coming down the pike here. I think, you know, some of the key takeaways are, you know, contact people like Deborah if you're coming in to the industry or if you want a little more of a primer on how things have evolved. I do agree with you that without a historical view on what works and what didn't work and, you know, how the different vendors are set up and the softwares are set up and the marketing and who you're going after, you know, you don't wanna build a business in the dark. So Deborah is somebody that would definitely help show you the way to profitability into a great business model and also your insights into the industry and your networking, is, is one and a one of a one of a kind, Deborah. So thank you Thank you. For sharing your knowledge and being present at all times. No. Thank you. I listen. I have to say, I take great pride in that because as a business owner, brand founder myself, like, you can just make a million mistakes along the way. You can Yes. You can. Everyone needs this. Everyone needs that. And it's like, in reality, they don't need that because actually they're going under or they're in the middle of an acquisition, and they're not gonna pay attention. So stop wasting your time. Those types of things are happening all of the time. And, obviously, you've been a huge player and an advocate and supporter, you know, of the industry. So anybody listening to this is already doing the right things. Thank you.

33:06 Alright. Well, I'll see you soon at the next event. Alright. Goodbye. I'll wear my glasses. With pride. All Go three. Go halo. One, two, three. Halo.