Lifetime Fitness 2008 Annual Report Download - page 16

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certain efficiencies in marketing and branding activities; however, we select each site based on whether that site can
support an individual center on a stand-alone basis.
After we identify a potential site, we develop a business plan for a center on that site. This requires approvals from
all areas of operations and the finance committee of our board of directors. We believe that our structured process
provides discipline and reduces the potential for developing a site that the market cannot support.
Design and Construction. We have a wholly owned subsidiary, FCA Construction, which provides us with
experienced in-house architecture and construction teams and is comprised of approximately100 employees. This
subsidiary is dedicated solely to overseeing the design and construction of each new center and the remodeling of
existing centers.
Our centers are designed by our architecture division, which has developed a prototypical set of design and
construction plans and specifications that can be easily adapted to each new site. Our architecture division also
assists our construction division in obtaining bids and permits in connection with constructing each new center.
Our construction division includes the onsite project management of each new site and remodel, as well as all other
back office responsibilities, such as estimation, project accounting and sub-contractor selection. Dedicated internal
personnel work on expediting the permitting processes and project scheduling. Our bid phase specialists obtain
referrals for local subcontractors, monitor project costs, coordinate compliance with safety requirements, and
prepare site documentation. Our project management group oversees the construction of each new center and works
with our architects to review bids and monitor quality. Our construction procurement group bids each component of
our projects to ensure cost-effective pricing. By using the same materials at each center, we not only maintain a
consistent ‘look and feel,’ but also are generally able to purchase materials in sufficient quantities to receive
favorable pricing. Each center has an on-site construction manager responsible for coordinating the entire project.
By utilizing FCA Construction, we are able to maximize our flexibility in the design process, retain control over the
cost and timing of the construction process and realize potential cost savings on each project. Nearly all of the costs
of the FCA Construction subsidiary are capitalized as a part of the overall initial investment in the center or the
remodel. Any remaining unallocated costs are recognized as an expense in the period incurred. Because FCA
Construction performs services solely for us, we do not recognize any revenue or profit related to FCA
Construction's operations.
In October 2008, we announced the decision to reduce the number of planned new club openings in 2009 and 2010.
This business decision was made as a result of current economic factors and, most notably, the challenging capital
markets upon which we rely to fund the construction of new centers. In connection with this decision, we realigned
our staffing levels and cost structure with the revised growth plan. This resulted in the elimination of approximately
100 corporate positions, the majority of which were in our construction division but also included other corporate
departments. As a result of these actions, we believe we are in a position to fund our planned new club development
for the foreseeable future via existing financing and cash flow, and that we have a cost structure that aligns with our
revised growth plans. We will continue to evaluate our staffing levels and cost structure in the future.
Marketing and Sales
Overview of Marketing. Our centralized marketing agency is responsible for generating membership leads for our
sales force, supporting our corporate businesses and promoting our brand. Our marketing agency consists of four
fully integrated divisions which are new member acquisition, planning and analysis, creative development and
production, and Web development. By centralizing our marketing effort, we bring our marketing experience and
strategy to each new market we enter in a coordinated manner. We also market to corporations and, in some
situations, we offer discounted enrollment fees for persons associated with these corporations. Membership
enrollment activity is tracked to gauge the effectiveness of each marketing medium, which can be adjusted as
necessary from a center’s pre-opening phase to maturity and beyond.
Overview of Sales. We have a trained and certified, commissioned sales staff in each center that is responsible for
converting the leads generated by our centralized marketing agency into new memberships. During the pre-opening
and grand opening phases described below, we have up to 12 member advisors on staff at a center. As the center
matures, we reduce the number of member advisors on staff to between six and eight. Our sales staff also uses our
customer relationship management system to understand members’ interests and to manage existing member
relationships.