In today’s Detroit Free Press, there’s an article about the permanent closure of a health and fitness center at a Henry Ford Hospital (HFH) facility. The story underscores WCC’s need for an exit strategy for the Health and Fitness Center.
Fitness Works, the club in question, began as a 1996 joint venture between HFH and General Motors. After GM moved its employees to the Renaissance Center, HFH opened the facility to the public. In March, Fitness Works closed as required by Governor Whitmer’s executive order. HFH announced that it was reclaiming the space on September 9, the same day the closure order expired.
Midtown Health, a Chicago-based management company, serves as the operator of the club. Ostensibly, HFH is closing the club to use the space for physical therapy services. According to Midtown Health, it operated the club at “a small profit.” However, Midtown Health’s assessment does not include the cost of operating the building. HFH declined to say whether the facility made money after factoring in the building expenses. However, according to a HFH spokesman, the facility was not intended to make money.
The facility had 2,400 subscribers who paid between $49 and $65 per month. (HFH employees received a discount on monthly fees.) With 2,400 subscribers and annual subscription rates of between $588-$780, the operation generated between $1.4M-$1.87M each year. An HFH representative said the facility – which is 24 years old – would require at least $2M in COVID-19-related upgrades.
HFH now wants to focus its capital dollars on its patient-care operations. More importantly, Midtown Health said that facilities it operates elsewhere retained just 30%-50% of subscribers following re-opening.
It’s time to review the HFC exit strategy
There is no doubt that some subscribers will return to the HFC. But there is also no reason to believe that the HFC’s experience with COVID-19 subscription rates will be any different than any other fitness center in the United States.
The HFC cannot break even at a subscription rate that is 50%-70% lower than its pre-pandemic rate. Further, the HFC is indefinitely subject to capacity and operational limits that guarantee that it will lose money every day it opens its doors.
It is time to review the exit strategy in the business plan for the Health and Fitness Center that the Board of Trustees approved in 2005 when they authorized the construction of the building.
The Trustees have a fiduciary responsibility to the taxpayers, and they take that responsibility seriously. I mean, it would have been completely irresponsible to borrow multiple millions of dollars (whose repayment depends on operating revenues) without having an exit strategy in place, right?
Photo Credit: Yamanaka Tamaki , via Flickr