Lifetime Fitness 2008 Annual Report Download - page 11

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5
to 90% of targeted membership capacity by the end of the third year of operations, which is consistent with our
historical performance.
We believe we have a disciplined and sophisticated site selection and development process.
We believe we have developed a disciplined and sophisticated process to evaluate metropolitan markets in which to
build or lease new centers, as well as specific sites for potential future centers within those markets. This multi-step
process is based upon applying our proven successful experience and analysis to predetermined physical,
demographic, psychographic and competitive criteria generated from profiles of each of our existing centers. We
continue to modify these criteria based upon the performance of our centers. A formal business plan is developed for
each proposed new center and the plan must pass multiple stages of approval by our management and board of
directors. By utilizing a wholly owned construction subsidiary, FCA Construction Company, LLC (FCA
Construction), that is dedicated solely to building and remodeling our centers, we maintain maximum flexibility
over the design process of our centers and control over the cost and timing of the construction process subject to
financing and capital availability.
Our Growth Strategy
Our growth strategy is driven by three primary elements:
Open new centers.
We intend to expand our base of centers. In 2008, we opened eleven centers, of which we designed and constructed
ten current model centers and renovated one commercial space into a large format center. We expect to open up to
six centers in 2009. Two of these centers opened in February 2009 and the remaining four are currently under
construction.
Increase membership and optimize membership dues.
Of our 81 open centers at December 31, 2008, 36 had not yet reached maturity, which we define as the 37th month of
operations. These 36 centers averaged 63% of targeted membership capacity as of December 31, 2008. We expect
the continuing increase in memberships at these centers to contribute significantly to our future growth as these
centers move toward our goal of 90% of targeted membership capacity by the end of their third year of operations.
We also plan to continue to drive membership growth at mature centers that are not yet at targeted capacity.
In addition to increasing membership levels, we focus on optimizing our membership dues by offering four different
types of centers and membership options: Bronze, Gold, Platinum and Onyx, which are based on center amenities,
services, location, capacity and cost of operation. Each membership type offers a distinctive pricing level, center
access and membership privileges, along with affinity partner benefits outside of our centers. In order to achieve and
maintain these membership goals, we focus on demographics, center usage and membership trends, and employ
marketing programs to effectively communicate our value proposition to existing and prospective members.
Increase in-center products and services revenue.
From 2004 to 2008, revenue from the sale of in-center products and services grew at a compound annual growth rate
of 25% from $71.6 million to $218.2 million and we increased in-center revenue per membership from $267 to
$414. We believe revenue from the sale of our in-center products and services will continue to grow. Our centers
offer a variety of in-center programs, products and services, including individual and group sessions with certified
professional personal trainers and registered dieticians, LifeSpa services, member activities programs, wellness
programs, Pilates and yoga, tennis programs and the food from our LifeCafe restaurant. We expect to continue
driving in-center revenue both by increasing sales of our current in-center products and services and introducing
new products and services to our members.
Our Industry
We participate in the large and growing U.S. health and wellness industry, which we define to include health clubs,
fitness equipment, athletics, physical therapy, wellness education, nutritional products, athletic apparel, spa services
and other wellness-related activities. According to International Health, Racquet & Sportclub Association
(“IHRSA”), the estimated market size of the U.S. health club industry, which is a relatively small part of the health
and wellness industry, was approximately $18.5 billion in revenues for 2007 and 41.5 million memberships with
approximately 30,000 clubs as of January 2008. Based on IHRSA membership data, the percentage of the total U.S.