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Herman Rutgers: How to adapt and thrive.
This is a lesson in how to be adaptable to new market conditions in fitness after the pandemic. With a who's who of the fitness industry on his job experience list, including positions at FIBO, IHRSA, Life Fitness and SATS (part of Health and Fitness Nordic), there's nobody better suited to preparing us for life after the coronavirus...
On this episode of the Escape Your Limits podcast we meet Herman Rutgers, co-founder and ambassador of EuropeActive.
The Escape Your Limits podcast is brought to you by Escape Fitness – a global community of gym design and gym equipment specialists that are looking beyond exercise alone to escape mental, physical and professional limits.
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Herman Rutgers on the Escape Your Limits podcast.
Who is Herman Rutgers?
Herman Rutgers is the co-founder and currently Ambassador of EuropeActive. He's also an international ambassador for Reed Exhibitions, consulting to support the global growth of FIBO, and has held influential or top level positions in an exhaustive list of fitness industry companies, both on the supplier and operator side. For two decades his own company, Global Growth Partners, has consulted and provided support, from corporate strategy to marketing and sales.
With a rich global network and expansive reach, GGP delivers boutique investment banking advisory and consulting services on a bespoke, individual level. For more visit globalgrowthpartners.com.
Herman Rutgers episode highlights.
- How coronavirus has affected businesses and sectors differently in countries around the world, and what we can learn from different approaches and results.
- Why in many cases the lockdowns in place were started in order to protect the hospitals, due to high demand from people that got ill.
- Why it's more sensible in the case of the pandemic to be cautious and open a week too late instead of risking opening a week too early.
- How a membership system will protect the fitness industry compared with other sectors such as restaurants or retail, but there will still be casualties in business.
- What areas of the fitness industry is going to be hardest hit by the financial effects of the coronavirus, and how many are likely to close after the lockdowns are lifted from statistics in countries around the world.
- How the coronavirus could reinforce fitness as a healthcare system to raise the sector's position with governments for the future.
- Why changing behaviour, in any sense, is always about three things: the mind, the mouth and the muscle.
- Why we still need to find a way to appeal to the majority of populations that don't like to exercise, and why even fitness success stories such as Peloton are preaching to the converted.
- How partnerships will be key to moving forward for anyone in fitness to engage more people that are currently not self motivated or exercising.
- What Google, Facebook, Apple and other tech companies are planning for the future of fitness and wellness offerings.
- What the past 10 years can tell us about predicting trends for the future and which companies – both supplier and operator – will be still be around.
- How digital solutions can make or break a company depending on size of the company, development capability, quality of white labelled off-the-shelf solutions, or pricing plan.
- Will members and customers stop going to gyms now that they've experienced home fitness through digital offerings?
- What does the future hold for trade shows now that so many events and exhibitions have been cancelled and we're facing months without attendance, and how social distancing will be implemented for visitor safety.
- How camaraderie has grown since we've been locked down around the world, and why this will only go to strengthen the industry when we're facing business as normal again post-pandemic.
For more insights from fitness industry thought leaders and entrepreneurs, check out the blog homepage.
Discover more about Escape Fitness.
Full episode transcript.
Herman Rutgers 00:00
Darwin said it's not the strongest, nor the most intelligent of species that survives, but it's the one that's most adaptable to change.
Matthew Januszek 00:11
Welcome to this week's Escape Your Limits podcast and today's guest is Mr. Herman Rutgers who is the co founder and current ambassador of EuropeActive. He's also an international ambassador for read exhibitions consulting to support the global growth of FIBO. And he has held influential top level positions in a who's who of the fitness industry. for two decades his own company global growth partners has consulted and provided support from corporate strategy to marketing and sales. If you're in the fitness industry, this is an episode you do not want to miss. Please enjoy this interview with Mr. Herman Rutgers for the Escape Your limits podcast.
Matthew Januszek 00:52
Well, Herman Rutgers, thank you so much for taking the time to to join me on this week's podcast. Where are you? Today
Herman Rutgers 01:01
well I'm at home close to the Hague in the Netherlands. As I said, the Netherlands is a very small country. It's close to Amsterdam. It's close to anywhere. But I'm locked here now for the last six weeks. I was on vacation in France, when you see my home on TV announced that France go into lockdown. And the next day, the ski lifts were shut down, the restaurants were shut down, everything was closed. So we drove home to about a 10 hour drive to get home from my place in France. And since then, I have not been traveling. I've been once once to an office in Amsterdam, but for the rest of the time, I've been here. Luckily, our Prime Minister calls it a unintelligent lockdown, which means we can go out of the house, we could go jogging, we could go bike riding. But other than that supermarkets are open. Some other stores are open, but it's really a very weird life that we lead right now. But it's not as severe as the people in Madrid or anything. In Paris where you really have to stay home, unless you have an urgent thing to do, but it's okay. I mean, and the weather has been fantastic. We have just a Holland is not famous for having sun and blue skies, but it's been the first five weeks of COVID. lockdown has been pretty much amazing in terms of having having great weather and I have a garden so I can go out in the garden as well to enjoy working in the garden and doing a little bit of work there as well. A little bit of exercise.
Matthew Januszek 02:30
Yeah, fantastic. Yeah, I've heard that as well. In England, they've had this they're saying they've got these perfectly blues, blue skies. I'm not sure whether that's because the pollution is clearing and the weather is the sun shining for a change. I'm not sure.
Herman Rutgers 02:45
I think it has something to do with it. Also, there's no airplanes, you know, I think we're starting the runway of Schiphol Airport. KLM has got 95% of the planes are sitting on the tarmac. So there's very few planes coming over as well. So if you look at these maps of these wonderful maps of China and all parts of the world where they show let's say January photographs from satellites and then they shoot pictures from from that right now, definitely pollution has gone down tremendously and let's say the sky is a much clearer place as a result of this all these factories haven't been shut down and, and less car traffic and less traffic in general and less pollution as a result in co2 emissions.
Matthew Januszek 03:28
Hmm, fantastic. Well, not Hammond, for those of you that haven't met or heard of you before, get give us a little bit of a background on yourself and you know what role you've been playing in the industry in the last few years.
Herman Rutgers 03:43
Okay, after a number of years in, in other industries, ranging from foods to writing instruments, and then I got into I turned and then finally I turned my hobby into my work, which was great. French tennis racquets I became the European director for Prince did that for nine years ended up as VP of international footprints. And then Augie Nieto hired me into Life Fitness as the European director to begin with. And that was in 1994. So that's what was that about 25 years ago, I ended up in the fitness industry. And I really enjoy that. You know, there were a lot of similarities with the tennis industry. I joined the tennis industry at a peak. And I left it in time when the tennis industry went a little bit down. I will not leave the industry of fitness because it's not going down. It may be down a little bit right now. But we're not not at all in a downward trend as then, the record industry was. So I started with Life Fitness in Europe, then I ended up having the responsibility also for Asia Pacific and Latin America and then move to Chicago that happened in 1998 to be part of the management team in Chicago, with a bunch of wonderful people there. And in 2001 my wife said one day to me Well, I'm and you know, I think it's about time to go back to Europe father's got ill. And we went back to Europe. I then resigned from Life Fitness, and started my own company called global growth partners. And through that company, I've been doing some consulting in and outside of the fitness industry, since since that time, so and after having left Life Fitness, I was approached by john McCarty, I was the European director for us on a part time basis. I joined the board of SATs in Scandinavia, wonderful fitness chain leading chain in the Nordics and I became a co investor in Stockholm in a concept called Activate, which is a senior fitness concept that is doing very well today, but I'm no longer involved with that. And then in that, say 2007 on jaguars approached me and said, Hey, you know, we need to have European Association for fitness. Why don't you join me and help me set that up. And the rest is history. We set up an office in Brussels, hired some people there I was the part time executive director. And we've really built a European representative body, at the political level, organize some events in Europe. I left as an executive director about seven years ago. Somebody took over that position. I ended up as a board member and just two weeks ago, I stepped down as board member after having served two terms. And now I'm the official ambassador for Euro package. I'm not gone at all from your effective and at the same time, I'm a board member in Vegas. Fit since the stock market listing and that which is now four years ago. So I enjoying myself with that, and doing some other things with the Lloyds doing the annual Market Report for the fitness industry and a few other things on the side. So I'm I'm not bored at all, but most of what I do is indeed associated with the with the fitness industry. Do some writing together with your middle come for the book we do every year for the European health and fitness forum with FIBO Oh, and I forgot to say that of course. I'm also the FIBA international ambassador, helping FIBO to grow on a global basis, you know, started five years ago with people China set that up in Shanghai. And two years ago, we started in the US with FIBO. us first in Orlando and last year in Miami and that will take place again this year in November in Miami. So yeah, a lot of lots of fun stuff in this great industry. I really enjoy it. So you're keeping yourself very busy.
Herman Rutgers 08:01
I wouldn't want to have it another way Really? I'm a busy bee. You know, my wife is my wife doesn't mind. You know, she likes me to be busy. So yeah.
Herman Rutgers 08:13
Well, I'm in the house too much right now, but hopefully sooner rather than later that will change.
Matthew Januszek 08:19
Yeah, absolutely. So what in terms of the European fitness industry and as it relates to, you know, what your your role in Europe axes, you know, how would you describe the current feeling and stay of the of the market? You know, just as we I guess, we're sort of in the, in the middle of this COVID situation, you know, how how would you sort of summarize what, what the general feeling is within the industry at the moment?
Herman Rutgers 08:48
Well, let me first comment then on 2019 because we just presented this two weeks ago, which we would have done at the European health or fitness forum the day before. FIBO opens where we have Congress we're always passing Hologic presents the headlines of the report that your effective does with the light. And that was a very positive report. 2019 was a very good year. It was good growth in the industry, both in terms of number of members in terms of revenues, strong development across the board. And also, and I know these numbers, also the January numbers were very good. The February numbers were very good. And then of course, in March, the middle of March, most European clubs were shut down, most almost everywhere at government request because of the kovat crisis. And what is the situation right now? I think it is very difficult for everybody. Luckily, in Europe, other than many other parts of the world, governments have stepped in with trillions and trillions of euros to support industry. So in most countries, the fitness operators are getting subsidy on Their labor costs in some countries, even up to 100% of the salaries of the staff, some countries 50% of the staff. It varies from country to country. But let's say the government's have stepped in and have sort of guaranteed from March, April and May, salaries of the staff. So most of the operators on the continent were have not followed people, people are working from home. And people are taking further education while they're sitting at home. So it's really not a bad situation depends, of course, how long this will go on and whether governments will continue if this belongs for longer than three months, and when the government's will, will continue to make these kind of subsidies for for labor costs. Of course, all club owners are talking to landlords to get rebates on the rent while the clubs are closed. Getting getting some delays in payment from other suppliers. So there's a lot of things Let's say crisis management going on at the moment. So the situation is very uncertain. There are some, there is some light at the end of the tunnel, I would say. Yesterday it was announced that in Czech Republic, the clubs are allowed to, to reopen the finally enough that the country that has been the exception in Europe is Sweden, where the clubs have not been closed due to government requests. And they're the clubs are open vhx with restrictions in terms of number of people that are allowed to go in the club and capacity. So it's really, but the rest of Europe is really really shut down and no clubs are open. And everybody's preparing for reopening everybody's writing protocols. Governments have asked to the various sectors in the industry to submit proposals for under what conditions do they think they can reopen in a safe way safeguarding the One and a half meter physical people talk about social distancing. I hate that word. It's about physical distancing. And they talk about for washing your hands. And some countries they're proposing, like to China to take temperature checks at the door. But again, there are there is nothing locked in concrete yet. I know that UK active is putting together a sort of a template protocol together for the industry upon which when that's finished, there was in that to, to the UK government's the Dutch Federation has done something like that. But it's all work in progress and other than Czech Republic. There is no country yet in the EU that has said yes, fitness clubs can be opened again, under these nice conditions. One thing I'm sure of is that when the clubs can be really open again, it will be with with constraints, particularly in phase one, and it will not be easy and I think the industry and I've read about the discussion in the US already Kleenex and Harvey's feedback, the CEO of Equinox has said on the weekend that he's not going to open in Georgia, even though in Georgia, the governor said that the clothes can be opened. But he wants to take a laid back position in the sense that he says, I want to wait and see how things are going before I'm going to reopen my clubs.
Matthew Januszek 13:20
And now I did about that. Yeah. What are your thoughts about that? I suppose, you know, it makes sense is it's a difficult one to gauge because there's certainly and we spoke about it off camera there's there's a real split view in terms of what this situation means, you know, people are in two real opposing camps. And I guess if you you know, one side, it's like, well, let's get things back up back and running because financially we need to do that. But then on the other side, if the members actually look at it, as almost frown upon it is like, you know, why are you doing that? And you know, it could end up backfiring. So how do you? How do you sort of get that balance right between The pressure the financial or economic pressures and then the, you know, the you know, being aware and cognizant of the failing of the members that you serve.
Herman Rutgers 14:14
That is a that is a very that's between a rock and a hard place kind of question. I think the the industry needs to be careful. And I can understand that Harvey's feedback saying that you know, saying Of course it depends how how financially strong are you how much cash do you have in the bank to keep on paying your wages and he also said, You continue to pay my staff You know, there's nobody's been laid off or, or is being damaged by by the situation. And as an industry, we need to be careful to open too soon. But we should also to open too late. And right now in some countries, retail is opening again, IKEA opened again today in the Netherlands. So we should look very Carefully as the other retail sectors that are opening how they do it, and with what kind of constraints are they doing it. Secondly, of course, we we are in a controlled environment. So we can say, we open the club at, people can only come in the club when they book a time, like you book a class and before we had COVID, now, you book a time to go just to the gym to do your exercise, not in the class, but in your, on the machines on your own time. So that those kind of requirements, there is, of course, people wearing masks. It's one of the one of the things that is being talked about, there will be sanitizing gels there will be I'm personally not convinced that taking temperatures at the door is the right thing to do as they've done in China. I think Europe we probably are a little bit more, let's leave the responsibility with the customer. When they have fever and when they have certain symptoms that they know they're sick, they shouldn't come to the gym to begin with. And that's a response to ability for the for the individual not so much for the club owner, that your question is a very difficult one, you know, we've been into this for six weeks now, nobody is expecting that the clubs will open soon, meaning in the next couple of weeks. Personally, I think maybe and depending on the country, of course, Italy is much further in the cycle of COVID-19, as let's say, holidays or the UK is UK was the last country really to have a lockdown. And Italy was the first. And the Deutsche Bank report that I talked about earlier, really gives a nice visual of the number of days that there's the there's no people, no more people being taken into intensive care because I think the whole reason why this lockdown happened was to protect the healthcare system. You know, in Spain, people were living outside of the hospitals because there was not enough intensive care beds. You don't want that to happen. And I think the good uses that now we see the plateauing of the number of cases that are happening most European countries. I think, also, in the US even in New York, you now see that the peak has been reached and there is a decline happening. We need to watch very carefully. But I think the industry needs to listen to the experts. We cannot do anything until the government and the authorities who are controlling the situation are telling us that we're, it's okay to open and under what conditions, the worst that can happen is that we open too soon. And we have some things happening that we don't want to have happen. So I think that this the safety of our staff and the safety of our members should be number one, the number one criterion for when when to open again, so I don't know whether that's a long winded answer to your question. I don't have really an answer. Mike, my my wisdom would tell me to be cautious, and rather to open a week too late than a week too early. That would be my my my bottom line.
Matthew Januszek 18:00
Yeah, it's a very difficult one. And I don't know, any of the numbers in terms of the health of a lot of these businesses, but my guess is in most cases, unless you're one of the big players, and a particularly well funded that the majority of businesses is, unless they're getting support, which are here, not all of them are, it's, you know, it's gonna it's pretty difficult to ride this out, you know, what, what, what are you hearing or seeing anything in terms of the potential casualties within the fitness industry that are likely to come from companies that just just don't have the funds to, you know, to kind of stay close for this amount of time?
Herman Rutgers 18:40
I think there will be casualties. You know, the I think our industry is in a way different from restaurants. I mean, I think the biggest casualties will be in retail and in restaurants. Why? Because the restaurant doesn't have a membership system. We have in most at least most European countries and most operators have annual contract. You know, those contracts have put on freeze right now, for the for the largest part. And at least these operators know that the minute they can open the door, they can start activating their direct debits, again with with their customers because the contracts are still running and valid and they have been pushed out for one or two months or whatever the time is that we, we will be closed. So that's a very different business scenario, then when you have a restaurant and you you have no income, and you have to wait until you can open your doors again. And then you probably have a capacity constraint that people have to sit two meters apart from each other. We have the same constraints maybe in our industry, but at least we have a cash flow running system because of our membership systems. Now if you have a boutique and you have a pay in play kind of system, then that's that's a different ballgame. In terms of the there has been there was a recent study from paper either maybe look at Piper center Piper Sandler in the US in April, took a study among consumers and asking them, those who have health club membership. When clubs can open again and they can open safely. Would you go back to your club? Would you continue your membership? 86% of the people said, Yes, I will go back and I will go train and I'll go back to my clap. So that's a very encouraging number, based on thousands of interviews in various states in the US. And I don't know of any research like that that has been done in Europe. But I'm certainly certainly it will be done. And my personal feeling is that after having been locked down, for six weeks, eight weeks, whatever the time is, and you can go back to your club, to go back to see your friends, even though you have to stay one and a half meters apart. At least you can go back to your club, train on the machines you like, rather than being locked at home and having to use your iPad or your TV or your phone for your exercise. For those who of course, have used the digital solutions that have been provided by our industry at large. So, coming back to your question on the, on the opening and and the financial viability of let's say the big companies and this has been public information all have gotten more cash. Yeah. Either they issued more shares, or they got bank loans to cover this period. And I would say most of the larger operators have enough cash to sustain this for five, six months or even longer maybe I mean, depending on the company. If you if you if I if it's Herman's fitness club, and I have been operation for 30 years, it may not be so bad. I think the casualties will be with the startups, people who took on a franchise a year ago, two years ago who just maybe getting to break even in their operation. Those who will be the people who sadly will be hurt the most, not the people who've been into business for a long time. And maybe have and probably have, as a result more meat on the bone than those who've just started the business. And we're just scratched, scrambling to to make ends meet. So in, in China, the number I heard was 3000 clubs have closed, did not reopen after the lockdown. Now, I think China has 40,000 plus, so that's less than 10%. But in terms of the casualties, yes, there will be. I mean, we all know that in the US and it's been in the papers, some large companies in the US are talking about bankruptcy proceedings. You know, I'm not telling any secrets here that has been in the paper. And these are big companies now. In terms of will will this this have a bigger impact, of course, but at the other end, it sharpens the mind of everybody. it sharpens the creativity of everybody that needs to come out of this crisis Tomer and I'm amazed to see how in general just Not in fitness but in also other industries, how people and entrepreneurs have been very creative in finding ways and means to at least continue going and to do things in the lockdown that will make them stronger when they come out of this, this crisis.
Matthew Januszek 23:15
Yeah, I guess when you you look at it and without sort of going into the details of different businesses, but I suppose in some cases, you know, it's kind of accelerated some of these models and and services and that that may have been kind of hanging on and, and May May, you know, just about made sense previously, but I suppose when this comes along, it's you know, it's enough to tip those vulnerable over the edge is my personal view, I suppose, in the same way as if you you know, if you if you actually catch COVID, and yet, you're in the sort of at risk category, that's also the the area that's you know, is being affected first. So, you know, do you do see that is it this is a bit of a kind of an accelerator in terms of have, you know business models that are not quite there or maybe not quite servicing their customers in the same way and it'll you know, clear some of the the sort of weaker ones out from from the bottom do you think?
Herman Rutgers 24:12
Absolutely. I think the companies that are talking about maybe bank bankruptcy proceedings in the US are companies that were in doing so well already before the COVID crisis occurred. And of course the the the situation has been accelerated by this crisis. You know, if from one day this is an unprecedented event in the world bar none I mean, this is the biggest economic crisis, the world World Bank just issue that their predictions for 2020 and 2021. While we're looking in Europe, but it's seven and a half percent decline in gross national product, seven and a half percent. countries will have unemployment in digital 15 60%. This this this is worse than that. Then probably the financial at least the financial crisis, we knew where the problem was right it was the financial world was the banks who overextended themselves with bad loans and bad mortgages. Here, we have a medical crisis, we have an economic crisis and as a result of financial crisis, and we have a human tragedy, you know, all happening at the same time, it is really unbelievable. And we will come out of this, you know, I'm an optimist by nature. I believe in the creativity of people like, I believe in the creativity of, of entrepreneurs. And we'll get out of this, but it will be a different landscape, totally different landscape. It will be different landscape once we get out of this hopefully, in a number of months, and but for sure, the next 12 to 18 months will be difficult will continue to be difficult. Everybody talks about possibly a second wave of the COVID in October. We don't want to speculate on that. But I think for sure all the operators now know that you need to Have some fat on the bone you need to have some cash reserves for a rainy day. And we've been any one of your things you wrote to me before this podcast. And the industry has been doing very well for a number of years. But the industry also has been heavily indebted in terms of making this growth possible. With with financing means that maybe we're a little bit too stretched. And and some of the operators are paying for that now. And if you think that the skybell bill three is for growing through the sky and the sky's the limit, that's not the case. You know, there there is always going to be a downtime. Now the good news is, and we have these statistics, particularly on the US market, we've had downtime so we have statistics for for the last 30 years of the industry. Yes, you may have a plateau Yes, you may have a year that's going down a little bit but the fundamentals of our industry people need to exercise we are part of the healthcare system, and that that that is not being taken away by this price. If anything, it reinforces it, people understand if you fitter, you have a better immune system and you're less likely to catch COVID no matter what your age is. So I think this will, if the industry does a good job in making this even better aware with governments and with the medical community, our our sector will, will get a better place with governments in terms of getting help also and getting out of this crisis as you're experiencing right now.
Matthew Januszek 27:35
I think that's an interesting point to talk about, you know, governments in general, I suppose, from what I've heard, you know, spoken to some of the guys recently from UK active and it seems as though the fitness industry is this kind of poor relative that kind of gets a little bit of lip service every now and again and but you know, compared to other industries, And in terms of prominence of the conversation, it just doesn't seem to be where it needs to be. And I, I suppose when you look at what's happened, just just I had a an article today that I shared, you know, I yesterday and today in terms of, you know, the the roundabout sort of 40% of people that are hospitalized, which means, you know, because of COVID which means that to be hospitalized, you have to be pretty bad to be, you know, put into hospital and about 50% of those are obese. So, so it's kind of you know, the stress on the health services is with people that are generally you know, how lifestyle related illnesses or sicknesses which I suppose the fitness industry are really primed to be able to help from, you know, health, fitness, nutrition, or you know, that whole area, and yet, it seems as though there's this big emphasis on finding the cure and putting, you know, millions and billions into, into finding cures and vaccines. And yet, it doesn't seem to get the conversation doesn't seem to be about the power of in terms of prevention and what that can do to to ease all of these issues that we're seeing at the moment, you know, easing pressures on the National Health Service, you know, improving people's quality of life, improving their immune system. So, what do you think, you know, in Europe because I had a similar conversation in the UK, but what what do you think from a European perspective? You know, am I am I wrong in my assumptions, or do you think there's more that can be done particularly as it relates to what's happened recently?
Herman Rutgers 29:41
I think you're hitting the nail on the head. Now, when I was still active as the year of active executive director, I spent a lot of time in Brussels with politicians in the European Parliament as well to preach the gospel of our industry. The problem is that of the We call it a health care budget. But it's really a sick care budget. No matter what country you're talking about Europe or the US, we spend 95% of the healthcare budget on sick people during the second making the sick, hopefully better, and 5% goes to prevention. And that needs to change. And I think in terms of lobbying with the government, UK active is probably the best national association doing that, in that particular country, now be a day also have a longer history as an association. They also have stronger funding. But I think in quite a few countries, this is happening also in a smaller scale, but in general, we need to do a better job at talking about our industry as part of the healthcare system, and that what we provide as a service not as a luxury, but as a necessity in our sector really helps to make people more healthy and prevents them from becoming sick and obesity is a is a very difficult one. But in general, we should put in our marketing efforts, more emphasis on the holistic approach of our sector, be it sleep management, be it stress relief, be it feeling better, you know, in feeling yourself better because of the exercise you do in our sector. And then we have the qualified staff to help people to live a healthier and happier life. And I think that element has been not so much been on the radar and I one of the hopes that I have coming out of this crisis is that that will become a stronger selling point, if you want for our industry than it has been before. If you look at advertising for fitness clubs in general, around the world, it's it's about building muscle. It's an app talking black and white now and traditional pictures. It's about building muscle. It's about looking good and it's not so much about being healthy and preventing disease that we offer as a product. As a service to society, and I know that today, Andreas false in the executive director of Europe active, had a meeting with a who in Copenhagen and to to really talk to them as well about our industry. And I think this takes a long time. I know by experience that convincing politicians will usually have a short time horizon, you know, what's my next election date? and not something that is really for the long term. Our industry is there for the long term. And and I'm convinced that one of the things you wrote to me is well, the industry has had phenomenal growth rates. Well, I don't think the industry has that phenomenal growth rates. Some companies may have, but overall, last year, the industry grew alive. The worldwide numbers that I have, the industry grew by 4% 4% in number of members. That's not a fantastic growth rate for four I believe, looking at the potential we have in the US, 22% of the people remember Have a health club. That means 78% is not. In Europe, the average percentage of health club membership for 50 years and older is about 8% 92% are not engaged in our industry as a member. So we have a vast opportunity to really grow the number of members and I think accelerated growth is possible if we do a number of things right and and these number of things doing right is positioning our industry not just as you know, it's it's for sports, and it's for building muscle or for looking good. Now it is for general health and really, we are part of the healthcare system and we can help people to to lead healthier lives. And I think that message needs to come across much, much more strong edge, a holistic approach and not just muscle building.
Matthew Januszek 33:50
What Why do you think that there's that resistance, you know, as an example today, as I said, I read in the news, the British Prime Minister, the reason that he was you know, several of his colleagues had COVID as well. But the reason he was sick and hospitalized was because he was obese, he was overweight, and he was probably 10 times more at risk than than his colleagues, he kind of got through it. So I guess the head the leader of United Kingdom, was, was really putting himself in a compromised position and everybody that was looking up to him at the moment, because of something like that. And, and, and I guess, you know, why do you think that it's not taken seriously, we all know this, and I'm sure, you know, when we when you look at the way the governments are trying to deal with this, they're getting all the best experts on board in, you know, in in terms of, you know, what's what's happening, and they've got, they've got this war room, and then they're trying to sort of decide what's happening. And so you would think something like, health that there's enough experts out there and research that no, this is it because it's just it doesn't fit into their kind of window of of reelection. And agendas to, you know, to keep people voting for them. Is that the reason or what what what do you think is behind it because it makes so much sense. And yeah, it it's very difficult to ever get any make, you know get anything to happen and maybe we shouldn't rely on them but I think it's because they have seemed to have so much influence in terms of what goes on and where things are spent and what supported. You think that there needs to be a little bit more, you know, support there at least.
Herman Rutgers 35:29
I think I think it goes back to behavioral change. We've known since 1965. When the Surgeon General in the US wrote a paper about smoking is bad for you. Smoking kills you. How long did it take before the general public accepted that smoking was not good for you? That took about 30 years and it took legal action to ban smoking from buildings, smoking from public areas before people start a maybe I should stop smoking. Smoking was in old movies, smoking was the thing even in airplanes you could smoke, you know, until maybe 15 years ago. Now. So that's one example of behavioral change. Brushing your teeth is also a behavioral thing. In the Western world, everybody knows that you need to brush your teeth at least twice a day best three times a day to prevent your teeth from rotting out of your mouth. In terms of obesity or in terms of not having a healthy lifestyle and not having enough exercise. That is even more difficult. Because you can't take a pill. You have to get out of bed you have to go jogging you have to go to the gym, you have to do a certain number of things and then control your food because losing weight or preventing obesity has to do with the mind it has to do with the body as well. It has to do you know with it with the way you eat, you know the three ends the mind, the mouth and the muscle. The the most difficult part is the mind. If Dr. Pamela peak is an interesting lady in the US who I don't know whether she's still on TV she used to be on TV when I was there. She talks about changing behavior of any any person no matter what it is stopping smoking, not drinking too much or losing weight or being more healthy. It's about the mind. It's about the mouth and it's about the muscle now the muscle the exercise, according to her is 20% 30% is the nutrition component. And 50% is the mind now changing people to understand that I'm not Matthew you You are a fitness buff, you know, you like to train you do it every day, and you would die. The day you could not train at all, but your your maybe a few percent of the population that are like that, what intrinsically motivated many people don't like to sweat they don't like to exercise. And our industry has not corrected not yet in getting those people who don't like to exercise to get some into our camp. To make it fun for them to be engaged with our industry and I think that's where the the Golden Nugget is and the the trillion dollar question how do we get people to get fun and exercising? Because you know, I read all these things about peloton being successful. I bet you many of the peloton, people already a member of a health club, you know, I think this or that at least 60 70% of the people who buy a pill it's already a member of a health club. So these are your you're preaching to the converted, we need to find a way to preach to let's say the 80% of the people who are not engaged in our sector. How can we make them hum how can we make our industry more appealing to them so they come and join?
And it is
Herman Rutgers 38:42
it is difficult just it is difficult if you like to smoke, and you have that habit to kick that habit of smoking, you know, see how many people fail, fail at quitting smoking or if you drink too much you know to quit that. It's about behavioral change and it takes psychology. It takes a lot of things to make a person And change their habits. And so and that is our industry, if you say,
Herman Rutgers 39:05
what what industry are we in?
Herman Rutgers 39:07
I think we should be part in the behavioral change industry, now helping people to live better lives. But that's a very different approach than just putting in a bunch of machines in the room and say, Here, you can come and train. If you do that, you get those people in,
Herman Rutgers 39:21
like 20 years ago,
Herman Rutgers 39:24
you get the 10% of the people who are intrinsically motivated to train like sports and who come and do that out of their own motivation. You don't have to explain to them anything. We're now in a different phase of our sector to broaden. And that's where digitalization comes in. That's where psychology comes in. That's where a lot of the new let's say techniques of helping people to change their behavior are going to be very interesting in the next phase of fitness, 3.0 or 4.0. You know, no matter how you want to phrase it, after this coffee crisis, and one of the things that I think is the benefit of this period of quietness and people sitting at home, you can think you can think about what you're going to do different when you come out of this crisis. And I noticed a lot of things today, somebody said, I think it was nereo, who said, what normally would have taken five months we now do in five weeks? Yeah, because we're all working together, we're all very focused in solving a certain problem. Everybody is on board and everybody is helping to solve that particular problem in a much faster way than if we would not have been locked down in our own home offices. As opposed to being in the in the office all together. So that's an interesting perspective, you know, that there will be winners out of this and there will be loser others, but our industry will, I'm convinced will come out of this stronger and the brightest minds will come up with new ideas in engaging the customer that we already have much stronger and fight this whole one one of the, what I call the six Inconvenient Truth of our story. Hector, one of the big inconvenient truths, of course, is the retention or the lack thereof, in our sector, and we need to find ways and means to do that. And I think technology and digitalization really can help in that area in a big way.
Matthew Januszek 41:15
So just to close off that that sort of government question and as you know, in terms of your position or with with Europe active then do you do you think that that's just something that you have to accept that it's a slow, long process and the ability to really kind of influence government to take things more seriously is is about all probably not worth getting involved in? Would you say or is it you know, do you think there's, there's a kind of gap in, you know, an opening in the door to probably, you know, get behind and open it a little bit more?
Herman Rutgers 41:49
No, no, I definitely think it we shouldn't we shouldn't forget about it. We shouldn't lean back and say, well, it's taking too long time and they're not listening. No, I think right now is a very good moment. To do that, in terms of presenting our sector in a way, as a very professional organization, by the way, one of the things and that's why we started 10 years ago with erupts and the UK has been very successful reps UK that is to have a certification and a register for exercise professionals that will by having that you show that you're taking your profession serious accountants have registered nurses haven't registered doctors, dentist, you know all professions that are architects, we did not have a register for for our sector. Now we have and we've had enough for a number of years, but not enough people are yet let's say embracing that and understanding that it's very, very important to have that professional recognition for our sector to to be taken seriously by governments and by the medical profession. And not every club will want to be engaged in a medical connotation, but that's okay. You know, our sector has a an ecosystem that is very wide and very broad. And if somebody wants to focus just on bodybuilding, that's great. Just your focus. Your club is a bodybuilding club. That's great, fine. But if you want to have to take Nuffield in the UK is a brilliant example. Nuffield is taking a very clear linkage with the healthcare system. And they're they're doing it they have their physiotherapists in the club, and they're doing all sorts of things to position themselves like that. And I think in other countries, that is not yet happening as it is happening in the UK, but it will and I think, as coming out of this crisis, the whole segmentation of our sector, taking a different positioning, Visa v. The, what kind of customers do you want to get into your club? And how do you want to connect with the healthcare system? Every every company and every club needs to decide for themselves, but there is a huge opportunity, but not for everybody. But those who want to say yeah, that's my point of differentiation. They definitely should do that. And I guarantee you that the more this whole health positioning of our sector takes hold, governments will listen to us and, and doctors will listen to us and they will, instead of prescribing a pill, they'll say, okay, Herman go and exercise a little bit more, adjust your reaching and go to this, this club that I know is good, and they will take good care of you, and they'll help you, they'll help you to change your lifestyle and to get in better shape. Hmm,
Matthew Januszek 44:23
I think that's a really interesting point that you make there really, in terms of the identity you know, if you, I suppose, if you go back and track the industry, and this story has been told many times, but you know, you come from the Jane Fonda and the Arnold Schwarzenegger days and that kind of you know, that that's sort of where a lot of these these fitness concepts have started, and I suppose now, with with a lot of the research that's coming out and you realize the benefits that the benefits psychologically physically, of exercise, moving, breathing, etc is really, I guess, change the industry. And I suppose in some, in some respects there's there's a bit of a, an identity issue where probably the industry hasn't been taken seriously because of some of those, you know, it's about both biceps and bums. And, and that's it. But I guess now when you look at some of the information that's coming out that there's there's some genuine solid research that that that we can build upon. And I guess when I was at the UK active event early this year where they were talking about where the opportunities are for the industry, because as you say, we're all going after there's a lot of people are going off there. They're very similar audience with similar messaging, and I suppose there's this big 80% or whatever it is out there that probably want a slightly different message and need fitness for a very, very different reason with more of the health side, which, which, I suppose is a great opportunity for the industry. So in your views, and you know, how do you think How do you think you, you know, the industry would go about that, you know, adjusting their identity to take some of those opportunities?
Herman Rutgers 46:10
I think they're there we can partner, we can partner with certain companies. And one of the things that I people are asking is what is the Googles and the apples and the Microsoft's of this world and the Facebook's, how are they going to impact our sector? Well, first of all, we knew that Google has purchased not Google alphabet, but that Google is their biggest friend have purchased Fitbit for $1.2 billion earlier this year. Why have they done that? They obviously have an agenda to get into the healthcare sector. And they know that wearables are very important for that, and that connects them to our sector. Secondly, Tim Cook just recently said that the biggest contribution that we as a company can make to the wealth of the world To get engaged in the healthcare sector and to make health personalized thing and to help people to live healthier lives. They started five years ago with the Apple Watch. They had a long term vision not just to bring out a wearable so you can have some fun face you know, watch faces on on that watch know, the connection has been from the beginning to connect with healthcare. And with fitness and you know, that's you know, Apple has made some connections in the US with fitness change. They've made some connections in Europe with some fitness change. They've made connections with equipment suppliers to connect with the Apple Watch. People can now gain points by having you know, their their circles made round for a number of months in a row and they get benefits in the club or outside of the club. debt is where I think we need to look for for they have the big bucks. Apple has a mark $500 million just to get into this fear. Google has just made a 1.2 billion investment in buying Fitbit. They're not going to stop there. They have their faith, I think, what is it? Google has one 120 billion dollars in cash on their balance sheet right now as we speak. So what do you think they're going to do? They're gonna they're going to look at areas where they can get engaged. And that's why I have the five top tech companies. I think Google and Apple are the two that are most interested in a sector and are really going to play a role in our sector. Apple is talking to manufacturers of hardware. Apple is talking to fitness operators. Of course, Apple is very proprietary. But if we work smart with those kind of companies, they can help us to make the pie bigger, and they can help us to get those consumers of the 80% are not yet engaged in the US and the 90% have not engaged in Europe to get maybe a little A bit more self motivated to start exercising more and to use the fitness club and the fitness product that we have, that we are selling and the services they offer to help them in Jane making those behavioral changes.
Matthew Januszek 49:13
Yes, I guess in some ways when you when you listen to those numbers that you've been talking about, it's the the opportunities fast, it seems as though we're very fortunate to be in this industry that we're in because that's, you know, it seems to be where everybody's focusing on I guess it's it's probably more of a case of, you know, when we start thinking about what will the world look like afterwards? I suppose, it's thinking about, you know, how you play in that space or adapt your business to be part of it. And are there any things you know, you work and rub shoulders with? A lot of the sort of very successful people in you know, operates in that space? What are some of the clever things or Smart Moves that you're seeing people make To, I suppose to kind of evolve, what's a traditional bricks and mortar fitness business where you'd rent out equipment to, you know, to sort of, you know, having more of a longer term view? Is there any things that you're seeing out there that are worth, you know, kind of sharing with with the listeners?
Herman Rutgers 50:19
Oh, that's a that's a, that's a very, very broad question. Let me first say you mentioned something about evolution. I'm a big fan of Darwin. And and as almost everybody knows what I'd like to repeat it here that Darwin said, it's not the strongest, nor the most intelligent of species that survives, but it's the one that's most adaptable to change.
Herman Rutgers 50:45
on that note, I think I'll give you a couple of examples of companies that I know in the fitness industry that have exactly done that. And
Herman Rutgers 50:55
Renae Mo's with health city was one of the largest operates in Europe with 250 clubs in Europe, he discovered quickly that maybe long term, the mid market was not the place that he wanted to play. And that may be you know, looking at the future, he should have a different business model. So he take the very courageous move to decide that he was going to change his business model going away from where he was in the higher to mid mid market with health city to be a low cost operator. He bought a small company called basic fit in Holland, they have 30 clubs. He bought that in the beginning, run basic fit and health city next to each other, but then quickly decided that that was not going to be successful. So he totally flip flopped the whole health city scene to basic fit and the rest is history. So that is what I mean with Darwinism. You know, he understood that he had to change in order to survive, and he was smart enough and and had the wisdom to see that in time. Because Timing is everything you need to do those things timely and then be able to be brave and courageous and even mortgage to mortgage your house and your wife's jewelry in order to do that financially. So that's that's one example. I think if you look at some of the hardware companies in the supply on the supply side, and some are boys were mentioning names, but you probably know that who I'm referring to have been very successful in transforming themselves from just a supplier of treadmills or bikes or or cross trainers, to really a company that is offering a holistic approach with a web connection with a very, very good support system for club operators to be more successful, in addition to buying hardware from those, those particular companies. So to have a more of a holistic approach, and not just throwing some treadmills over the fence until Your customer you know, God bless you and and be happy with those products but helping them as a as a partner to be successful. So those are those are some of the of the things that are that are happening and have happened. Similarly if you look at at companies that that have not done that they're no longer there today they have vanished from the earth, you know, they no longer exist. They were too late in in making that change and going away from that what they knew best. And I actually Bally's total fitness You know, when I came to the US in 1998 Valley's total fitness was one of the largest fitness clubs in the United States, 6 million members and I think was 600 clubs. today. They no longer the brand does no longer exist in the company, or they've sold their clubs to other operators who still are there today. But that company did not survive because again, they did not change for the time and they will not willing to change and and and the be adaptable to the new market conditions and the new consumers.
Herman Rutgers 54:08
So it's that there is there is one day I have time I'll write a book about thoughts experiences, because I'll buy. And I don't want too many brand names here because I'm sitting here with my neutral hat on as your active ambassador. But there there is quite a few examples that Yon and I have written a book, by the way, which is called the horizon 2030, which we were going to publish an issue on the E FF, which Matthew, you've been to, I think most of our events, that book is gathering dust right now in your warehouse, but we will on September 13, when the eh FF hopefully will take place, that book will be distributed to all the participants. And there is some thinking in there that is phenomenal. And it's about what is the next 10 years going to look like? You know, so we Have some brilliant minds from the industry contributing to this book, we had 16 people writing in this book about how will the next 10 years be? I've made in that book, some predictions, look back 10 years, you know, funny thing, if you look back 10 years, and today's 2019, top 10 companies of top 20 companies in Europe of the top 20 of 10 years ago, today, a to do no longer exist. That's only 10 years. Now, fast forward 10 years from now and forget about COVID. You know, that is that is of course, an event that nobody has been able to predict. But if you look at 10 years from now and think about it, which companies will still be there, both on the supplier side, as well as on the operator side. That is a very interesting question. And again, I go back to Darwin, those who are adaptable to change will still be there. And I think that's one thing that COVID will force everybody to do is make sure you've got some cash in the bank for a rainy Day. I think that is a lesson that this COVID time is learned for all people in all businesses, no matter fitness or restaurants or any other business, you need to have some pots of money sitting on the side, just in case, you know, you need to do that for you, your private household finances, you know, just in case the washing machine breaks down to have enough money to buy a new washing machine. Well, we need to do that in business also. And and maybe some of the companies that are in trouble right now haven't done that enough. In terms of preserving some cash for the rainy day and we're having more than a rainy day right now we're having a really couple of months. But again, the smart business people will survive this and will kind of this will come out of this stronger. I'm convinced of that.
Matthew Januszek 56:46
Yeah, it's been a it's really been a kind of attitude of highly leveraging everything you can as opposed to conserving it's like, Okay, what if you got something then and sort of use that to borrow more and And certainly some of the stories I hear, you know, you sort of building businesses on potential that's likely to happen way down the road, you know, that borrowing money on some of those future earnings that are so far down the road that very difficult to predict. And I suppose now some of those, some of those decisions are coming coming home to roost, unfortunately.
Herman Rutgers 57:25
Yeah, well, I think on that note, and money was so cheap, you know, the last couple of years, you know, you were you were stupid not to borrow money because banks were almost coming, please, please take my money. You know, you have a growth company. You're in it. We still are a sexy industry. You know, if you there's a recent report from from McKinsey on, what kind of industries will rebound quickly, our industry is mentioned as one that will rebound quickly. Why? Because the fundamentals of our industry of the growth we've had in the last 20 years are no different. You know, I would say On the contrary, the fundamentals for our industry have been strengthened because of this crisis. People understand you need to be healthy. When you're fit, you'll have a better immune system. And this this, pandemics will not go away. Bill Gates is spending billions of dollars right now. And I really applaud the man for doing this. He is a visionary in 2015, he gave his speech and predicting there would be a pandemic, in the near future, where he's been, unfortunately, it's been right. And he says, if we would have spent a couple of billion dollars on really researching a vaccine that will take care of this Corona type of viruses. We would not have had this crisis today. And he's now as he as he invested a lot of money on the Ebola. Ebola was a big problem. And because of research that they found a vaccine and medicine for Ebola, the same thing is happening now. Well, will it take 12 months will it take less work? To take longer to find his vaccine and his medicine COVID-19 we don't know. But for sure, we need to step up the investment in finding a cure for this. So we will not end up again in this pandemic in the near future. Hmm.