Michael Block, Ben Furqueron, Katia Hage, Asim Jalis, Calvin Kavalski, Jaylen Smith, Shannon Wells, Mark West

September 2002

Health Club

Table of Contents

Executive Summary 2

Product Idea 3

Marketing Plan 6

Sales Strategy 7

Demographics and Market Analysis 13

Competitive Analysis 22

Operations Plan 25

Management and Key Personnel 31

Financial Overview 36

1

Executive Summary

Over the last fifteen years the Central District of Seattle has experienced explosive

growth. This traditionally lower income neighborhood has undergone the highest real

estate appreciation in the King County over the last ten years. The primary reason for

this is its proximity to downtown Seattle which forms the economic and cultural hub of

the city.

The Jackson Street Gym Company proposes building a gym in the Central District, on the

intersection of Jackson Street and 23rd Avenue. Based on its current demographics it is

highly underserved in health club facilities.

We will target the middle to upper income market segment which is expected to continue

increasing into the foreseeable future. Besides our proximity to the residents we will

create a sustainable advantage by reflecting the rich culture and history of the Central

District area into the ambience of our club.

According to our financial projections we anticipate profitability in 12 months. Our

capital requirements are $2 million.

2

Product Idea

We propose building a 10,000 square foot health club in Seattle’s Central District in

Building #2 (center building) of Welch Plaza.

The health club will be located at the busy intersection of 23rd and Jackson – the heart of

the Central District and will complement the ongoing revitalization of the neighborhood.

Exhibit 1: Welch Plaza

Our goal is to build state-of-the-art club with the following amenities:

Free Weight Area

Cardio-vascular Equipment Area

Plate Loaded Equipment

Aerobics/Group Exercise Area

Selectorized Equipment

Sauna, Steam Room

Vending Machines

Personal Training

Massage Therapy

Food & Beverage Sales

Physical Therapy

Martial Arts

3

The layout will provide wonderful views of the hustle and bustle at 23rd and Jackson.

There is a general rule of thumb that a health club needs to be 12 minutes or less from

where customers live or work in order for the customers to use the club more than 12

weeks.1 Our goal is to serve the workers and residents of the Central District. A key

advantage is that no quality health club currently exists within the neighborhood. In

addition, 23rd and Jackson is a major intersection. Over 25,000 vehicles flow through the

intersection on a typical day.2 (See map below.) This means a convenient location that

has high visibility.

Exhibit 2: Central District Traffic Patterns

Our main goal is to serve the needs of our customers. Most individuals including our

potential customers are aware of the need to exercise regularly. Besides location, our

1 Diabetic-lifestyle.com “Exercise: Selecting a Health Club”, January 19992 Seattle Department of Transportation Traffic Flow and Data Map – 2001 Data

4

club will provide additional needs. Our equipment and professional staff will ensure that

the club provides a pleasant experience and will eliminate the drudgery from routine.

The key goal is for customers to have an effective workout while having fun. This will

not be your typical health club. This club will be known as a place where things are

happening. Often businesses that build in urban areas provide poor customer service and

higher prices – due to a lack of competition. On the other hand, we will offer a pleasant

environment, affordable rates, and well-maintained equipment.

In addition, the club will reflect the neighborhood. It will include a tribute to the jazz

legends that once played regularly on Jackson Street such as Quincy Jones and Ray

Charles. Instead of the typical techno-pop background music found in the larger clubs,

our club will specialize in playing the favorites of our clientele such as Miles Davis,

Marvin Gaye, and The Temptations. The thirtysomething crowd will be able to workout

to the music of Earth Wind and Fire, while older club residents will be able to do low

impact aerobics to Brook Benton and Dinah Washington. Besides being a pleasant place,

our customers will get the results they are looking for in terms of weight reduction and/or

fitness.

What sets our club apart is that it will cater to the needs of the neighborhood. We

envision a club with energy. The type of energy that one feels while walking down the

streets of Manhattan. You cannot describe it but you just feel it. Individuals will be able

to exercise, look out the windows, feel at home, feel proud about getting healthier and the

ongoing revitalization of their neighborhood. They will want to come back for more.

The goal is to become the dominant leader in this niche market; a niche market in which

the larger clubs currently have little or no interest. Even if a larger club decided to build

within the neighborhood, we will remain profitable because we know the customers and

their needs much better than the competition.

5

Marketing Plan

Basic Need and Company Solution

According to a survey conducted by the National Center for Health Statistics (NCHS),

nearly 31% of American adults exercise regularly, 31% occasionally, and 38% perform

very few physical activities in their leisure time.3 As nearly two thirds of the population

recognizes the need for physical fitness, health club memberships are on the rise. In

2001, club memberships grew by 3% to 33.8 million, with non-member gym use up

12.9% from the previous year.3 The demand for memberships spawned a 5% increase in

the number of commercially owned fitness centers and health clubs.3

As fitness facilities gain in popularity, a major consideration in which gyms are

patronized is location. Proximity not only determines how many members will join the

club, but also the frequency with which members will utilize the facilities.

Seattle’s Central District does not currently have a health club suitable for its residents.

An easily accessible, reasonably priced gym would fulfill the need for health and fitness

in this neighborhood. A medium sized facility of approximately 10,000 square feet will

be large enough to allow members to exercise in comfort without having to wait in long

lines for equipment, yet maintain a close community feel.

Branding Plan

In an homage to the history surrounding the Central District, the Jackson Street Gym will

sport a jazz motif. Photographs with jazz related themes will be placed around the gym,

and jazz music will be played periodically for people to listen to while working out. The

intention in selecting a jazz theme for the club is to establish the facility as part of the

community.

Residents of the Central District should feel comfortable and relaxed in the club. It will

be marketed as a place where friends can gather to shed the stresses of the day and work 3 International Health Racquet & Sportsclub Association Vol. 9

6

out in comfort. Members will look forward to time at the gym to not only keep their

bodies fit and healthy, but also to forge new friendships and catch up with old

acquaintances. Families will be encouraged to join and work out together.

The community feel will be enhanced by the placement of windows around the outside

perimeter of the club. Members will be able to look out the windows and view the

community while working out. The windows serve a dual purpose. Not only can gym

members see out, but members of the community can also see in. Passersby can look into

the windows and see how much fun their friends and family members are having in the

gym.

Sales Strategy

Advertising

The first step in advertising the club will be to place fliers on the doors of neighborhood

homes, and on the windshields of cars in the Central District. Coupons will also be

mailed out utilizing zip code specific Val-Pak. New entrants to the neighborhood will

receive fliers and coupons for the Jackson Street Gym in the welcome wagon packets

provided to new homeowners.

A non-invasive marketing technique will be to buy advertising space on local taxi cabs.

There are currently only two cab companies located near the Central District: Orange

Cab, and North End Taxi. Orange Cab carries an exclusive advertising contract with a

local business, so will not be an option. According to Baze Kashef of North End Taxi,

the cost of a two-paneled illuminated sign on the top of a cab is $150 per month per cab.

Throughout the month, the sign on top of the cab may be changed at any time per the

gym’s discretion. This is a relatively inexpensive advertising option. As North End Taxi

is based out of the Central District, its cabs drive through the neighborhood whenever

7

they go out to pick up a fare, which would make the sign a frequent sight in the

neighborhood.

The most effective advertisement for the gym will be the club itself. Its location on a

high traffic corner of Jackson Street and 23rd Avenue will ensure that thousands of cars

pass the gym every day. As members of the community drive by the facility on a daily

basis and see their friends and neighbors working out through the windows, they will be

inspired to join the club. The neat, clean, new building with its colorful sign hanging

above the door will be an inviting oasis for all those interested in keeping physically fit

and maintaining the optimal level of health.

Promotion

Prior to opening the club we plan to promote the facility by offering three hundred

complimentary charter memberships. Community members that are willing to sign an

annual contract prior to the grand opening of the club will not be charged an initiation

fee. By giving away three hundred memberships, the club can get people in the door.

The hope is that charter members will not only renew their memberships in the coming

years, but will also refer friends and family members to the club.

Upon opening the doors to the club, a community wide event will be held. An open

house will allow neighborhood residents to inspect the facility and get a feel for the

community atmosphere. Not only will people be able to see the types of equipment

available, they will also get the opportunity to converse with the friendly and

knowledgeable personal trainers and instructors working at the club. Prospective clients

can talk to them to learn about the club as well as to hear about the programs designed to

help them realize their fitness goals.

Another promotion to get customers into the facility will be free health seminars provided

by club employees. Tae-bo nights will attract health conscious residents of the

community, and should be a fun group activity for the whole family. Celebrity

endorsements and events sponsored by local heroes should also bring in patrons.

8

Partnerships with schools are planned in order to talk to children about the value of

keeping in shape and healthy. According to a representative from Garfield High School,

community businesses are encouraged to participate in the learning process. The school

could stage an assembly where instructors from the gym can demonstrate work out

techniques, and display some of the portable equipment available at the club. The hope is

that the children will act as marketing tools when they discuss what they learned in

school with their parents.

In an effort to give back to the neighborhood, the club will affiliate itself with the annual

United Negro College Fund health walk. The affiliation will alert residents to the

existence of the club, help out a worthy cause, and increase awareness of the need for

exercise in a healthy lifestyle. A further benefit of the community wide event will be to

bring residents out of their homes to mingle together with their friends and neighbors. A

close knit neighborhood will enhance the quality of life for denizens of the Central

District.

Ideal Customer and Value Proposition

The ideal customer for the health club is any resident of the Central District with an

annual household income of between $25,000 and $75,000 dollars per year. According

to industry analysts, this income bracket generates 48% of health club customers4.

Additionally, the targeted age bracket is between 18 and 55+ years old. Currently the 18-

35 age bracket holds the largest portion of health club memberships, but the more

seasoned members of society are the largest population growth area and have increased

their memberships in health clubs over 380% since 19874. By focusing on this income

and age bracket we will fall within the general demographics of the Central District as

outlined by recent US Census Bureau data. Once a primarily black neighborhood, the

Central District is seeing a change in demographics, as lower income families are moving

out, middle and upper income families are moving in. This is supported by the 1999 and

2000 census data for the neighborhood.

4 The International Health, Racquet & Sportsclub Association (IHRSA) (www.ihrsa.org)

9

The primary differentiator for this club over competitors in downtown Seattle will be its

accessibility to the residents of the Central District. By locating on a prominent corner in

the district, accessibility will be greatly improved over its competitors. This advantage

will be leveraged by providing the services that these residents most desire at an

affordable rate, while evoking a sense of community awareness and involvement. The

health club will not be just another service business within the Central District, but also a

prominent force in the revitalization of this transitioning neighborhood.

As a health club in an urban neighborhood, the variety of services will differ from a

traditional athletic club and focus more on the overall health of the community. We will

offer the traditional methods of exercise such as Nautilus machines, treadmills, exercise

bikes, stair machines and free weights. In addition, we will offer community-based

workouts and group activities in our common rooms. These will include aerobics,

jazzercise, and kickboxing. We will also make our large multi-purpose rooms available

to outside organizations like karate schools or community groups for their meetings.

These different services will complement each other and bring people from the

neighborhood into the club, thus reinforcing our desire to see this community succeed.

One of the features that will make this health club stand out from potential competitors

will be the availability of a special family account for parents with children ages 12-18.

We will invite them to join their parents in establishing fitness habits that will last a

lifetime. By creating goodwill in the neighborhood we anticipate that we will be able to

work with community leaders and schools to focus on bringing good health habits to the

children of the community.

We also plan to have a juice/snack bar and a pro shop. This area will be subleased to

another business specializing in this type of arrangement. The availability of these

services will enhance the experience of people working out in the gym and will also

provide a comfortable place for social interactions between the clientele.

10

Below is a listing of the categories of people in which Jackson Street Gym would like to

attract:

Type Age Income Family Location OccupationStudent 18-25 Fixed Distant UW Campus StudentHomemaker 35-55 Fixed Full nest Central District White or Blue

CollarYoung Professionals

25-35 Medium to High

Bachelor or Married

Central District White Collar

Young Couples

35-55 Medium to High

Married and No Children

Central District White or Blue Collar

Older Couple

55-70 High or Fixed

Empty Nest

Central District White Collar or None

Elderly 70+ Fixed Empty Nest or Assisted Living

Central District None

Exhibit 3: Target Customers

Distribution Channels

Our distribution channels will include local restaurants that serve healthier foods, such as

Teriyaki restaurants, both retail and grocery stores, churches, and HMO style clinics of

the neighborhood. Within these establishments we will place brochures for our club.

These will be in the style of a contest form where once per week we will have a drawing

for a membership with waived activation fees. All of these locations will be within a ten

block radius of the Jackson Street Gym. In this way the visitors of these businesses will

have a better chance of being familiar with the club. In return for allowing our club to

post these contest forms, the owners/managers of each business will be granted a charter

membership into the health club.

Additionally, as part of our community involvement, we will attend as guest lecturers to

local schools, elementary and higher. At these lectures we will present facts about

staying fit and help to create awareness around remaining physically fit and developing

11

good fitness habits. In this manner the children of the Central District will begin to

associate fitness and well being with the Jackson Street Gym and may refer their parents

or eventually become members themselves.

Stores, churches and local businesses should attract the curious health club visitor. As

these establishments are frequented by the general public, they will provide the most

diversified clientele. HMO style clinics would offer a referral as opposed to just the

curious visitor. We will offer charter memberships to local nutritional counselors and

physicians. In this way they will see the enjoyment and community involvement

associated with the Jackson Street Gym. In this manner they will be more likely to refer

their patients to the gym as a convenient and easy way to become physically fit. In

addition we will equip them with one month free trial coupons to give to their patients

giving the patient the ability to judge for themselves whether this is an alternative that

will work for their particular needs.

Strategic Partners

The primary strategic partners for the Jackson Street Gym will be community based

organizations and churches. As this neighborhood is just beginning a transition from

traditional lower income families to medium to high income families, it is important for

the initial phase of operations to establish ourselves as community leaders and be

involved in the revitalization of the Central District area.

The best way to accomplish this is to form strategic partnerships with local community

groups such as the Central Area Development Association. This non-profit group is

dedicated to assisting business in revitalizing the Central District. By going to them early

and showing our desire to give back to the community, we will not only establish

ourselves as willing to help the community, we can count on their assistance in

contacting individuals, such as angel investors, that have the same desire.

Along those same lines are the strategic partnerships with the churches of the area.

Although the Central District is located in the heart of Seattle, it remains grounded in its

12

roots. Part of those roots is large scale involvement in religious activities. The churches

in the Central District are known for their community involvement and for helping out

those in need. By leveraging that relationship and getting them to understand that a fit

and healthy population, starting from the ground up, will have longer and happier lives,

we can gain their assistance in not only spreading the word about the health club and we

can offer our large multi-purpose rooms for community events such as evening dances or

off-site meetings. These meetings could range from the local Girl Scout troop to an off-

site location for groups such as Alcoholics Anonymous. This ability to give back to the

community during off peak hours will strengthen our overall bond with the Central

District and assist with the word of mouth advertising we will need.

Demographics and Market Analysis

The Central District is changing. Over the last 15 years the area has been swept up in a

wave of prosperity. Residents are spending more money to fix up their homes. They feel

more comfortable in their community. The area is increasingly more prosperous. Older

houses are either being remodeled or replaced with newer ones. The crack dealers are an

anachronism. Increasing property values have increased the investment in the area which

in turn has fueled higher property valuations.

With the increase in property values the lower income residents of the area are being

priced out of the market. They are being replaced by more affluent newcomers attracted

by the area’s proximity to downtown Seattle and its interesting character and history.

Property Appreciation

From 1984 to 1999 homes in the Central District have appreciated nearly 10 percent

annually as shown in Exhibit 4. This is higher than any other neighborhood in King

County5.

5 Seattle Times, 1999 “Home prices may be way up, but all neighborhoods do not appreciate equally”

13

10 fastest appreciating neighborhoods

Average annual appreciation (15 years)*

What a $75,000 house bought in 1984 might be worth today (by neighborhood)...

1 Central Area 9.8% $305,159

2 Wallingford 9.7% $301,605

3 Capitol Hill 9.7% $301,459

4 Queen Anne/Eastlake 9.4% $286,807

5 Green Lake 9.1% $276,830

6 Mercer Island 9.0% $271,628

7 Ballard East 8.7% $263,279

8 Phinney Ridge/Fremont 8.7% $260,374

9 Ballard West 8.6% $260,072

10 Bellevue/Medina 8.6% $258,822

Exhibit 4: From 1984 – 1999 homes in the Central District appreciated most rapidly (Seattle Times 1999)

The primary reason for this appreciation has been the proximity of the Central District to

the downtown area. Exhibit 5 shows how the areas closest to downtown have

appreciated much more than the areas further away. The prosperity of the Central

District is therefore guaranteed to be a long-term trend, tied intimately to the prosperity

of the Seattle area itself.

Exhibit 5: Not all areas appreciated equally (Seattle Times 1999)

The area has a diverse ethnic population with an increasing amount of disposable income

for health club memberships. Our target market will be the middle and higher income

14

Central District

residents in the over 18 age group, both from the existing residents as well as from the

newcomers.

The proposed location for the club is on the intersection of Jackson Street and 23rd

Avenue. Our target market are the people who live and work no more than 12 minutes

from this location. This includes these census tracts, 78, 87, 88, 89, 90, 94, and 95.

Exhibit 6: 2000 Census Tracts (US Census Bureau)

Cultural Uniqueness of the Central District

Central District like Seattle does not fit the national stereotypes of ethnicity and urban

demographics. Exhibit 7 shows the inflow and outflow of residents from the Central

District in 1995 broken down by the dominant ethnic groups in the area.

The white and black populations of the area are about equal with white residents having a

small majority. The number of black and white residents who did not move out of the

15

Club

area from 1990 – 1995 is about the same (24% for blacks, and 25% for whites). The

people that are moving into the Central District include both blacks and whites.

This demonstrates that the area remains attractive to different ethnic groups. Its unique

multicultural character can be used as a differentiation strategy. Instead of creating a

sterile carbon copy of a suburban gym, we can infuse the gym with the ambience that

reflects the cultural and historical legacy of the area around it. This will be attractive

both to the existing residents of the Central District as well as the new residents.

Another interesting trend to observe is that almost 50% of the Central District’s residents

lived somewhere else five years ago. This demonstrates that the population in the area is

in transition. As new people move into the area they are likely to not have affiliations

with area gyms and will be looking to join something like the Jackson Street Gym. This

makes the Central District a much more attractive location for our business than an area

where the population is largely settled and does not exhibit the same levels of relocation.

RESIDENCE IN 2000 FOR THE POPULATION 5 YEARS AND OVER  Population Percentage of Population  White Black Asian Total White Black Asian TotalTotal 12339 8188 5048 25575 48% 32% 20% 100%Same house in 1995 5149 4856 2770 12775 20% 19% 11% 50%Different house in 1995 7190 3332 2278 12800 28% 13% 9% 50%

Exhibit 7: Inflow of Residents into Central District (US Census Bureau)

16

Market Segmentation by Age

By combining the data on health club memberships provided by the IHRSA

(International Health, Racquetball and Sportsclub Association) in Exhibit 8 with data

provided by the US Census Bureau for the entire country and for the Central District we

estimated the size of the market based on age demographics. Our underlying assumption

was that the Central District residents would follow national trends in health club

membership based on age.

Exhibit 8: (IHRSA / American Sports Data Health Club Trend Report, 2002)

Central District Health Club Membership Projection  US US CD CD

Age Population HCM Population HCMFrom To (Millions) (Millions)    

0 19 78.5 4.0 6856 35120 34 55.9 11.5 7139 146935 54 82.5 12.4 9805 147455 + 59.1 5.6 6282 595

Total   276.1 33.5 30082 3889

US United StatesCD Central DistrictHCM Health Club Members in Age Demographic

17

Exhibit 9: Health Club Market Based on Age (US Census, IHRSA 2002)

Based on this we determined that a total of about 4000 people would be likely to belong

to health clubs in the Central District (Exhibit 9, calculated by combining the data from

the US Census Bureau and the IHRSA report).

As we discussed earlier the population of the Central District is in transition. Over half

of the population will be made up of people who moved here less than five years ago. As

this migration continues we anticipate that we will be able to gain a large share of the

available market.

Note these numbers are conservative. We expect to attract additional members from

other tracts. However, this is offset by the fact that some residents will choose to attend

health clubs near their work or have existing memberships elsewhere. The data shows

that the age distribution of our targeted demographic can sustain a health club.

18

Market Segmentation by Income

Household income is a more important determinant of health club membership than age.

This determines both whether a family joins a gym or not, and also the price level that

they will find acceptable.

Exhibit 10 (IHRSA / American Sports Data Health Club Trend Report, 2002)

As might be expected, the largest segment of health club members comes from the

$75,000 income bracket (Exhibit 10). In order to estimate the size of the market for

health club memberships the assumption was made that people in a particular income

level in the Central District will behave similarly to people in that bracket nation-wide.

19

Income Analysis (1999)    US US CD CD

HH Income HH Members HH MembersFrom ($) To ($) (Millions) (Millions)    

0 24999 26.1 3.4 4384 56325000 49999 26.2 8.4 3222 103150000 74999 17.4 7.7 2145 95375000 + 20.6 14.1 3792 2598

Total   90.2 33.5 13543 5031

US United StatesCD Central DistrictHH HouseholdMembers Number of Health Club Members

Exhibit 11: Market Size Based on Household Income (US Census Bureau, IHRSA)

The Central District has a substantial income base. Based on this analysis we determined

a market size of 5031 people in the area (Exhibit 11, calculated by combining the data

from the US Census Bureau and the IHRSA report).

It is interesting to note that using household income yields a larger market size than using

age demographics. Between the two we anticipate that income levels are more likely to

influence gym membership than age.

20

Long Term Trends

Exhibit 12: Health Club Membership Trends (IHRSA / American Sports Data

Health Club Trend Report, 2002)

According to IHRSA the trends in gym membership are on a long-term upswing nation-

wide. Membership rates have risen 4.9% annually for the last 14 years. In the last 6

years they have risen by 5.8%. Revenues have grown by 10% annually (Exhibit 12).

This demonstrates that people are increasingly choosing higher priced clubs with greater

conveniences.

The economic wealth in the Central District justifies the health club. The long-term

trends both for the Central District as well as the health club industry are highly positive.

Therefore the risk of our investment losing value is negligible. Increasing revenues and

long-term financial stability is anticipated for the Jackson Street Gym.

21

Competitive Analysis

The gym faces competition from three different sectors: gyms located in the Central

District, gyms located in the downtown area of Seattle, and potential new entrants.

Local Gyms

Currently, the Central District area is underserved and the local gyms are not a major

competitive threat to the company. The area competition consists of a YMCA, a small

local club, and a gym adjoining the Garfield Community Center. These cater primarily to

a low income clientele. Jackson Street Gym will target a higher income demographic and

therefore will be largely insulated from competition by existing gyms. There is a risk that

if these gyms are renovated and start targeting a higher income demographic they will

pose some competition to the Jackson Street Gym. However, this strategy will backfire

as it will alienate their existing customers. So it is unlikely that they will embark upon

such a program.

Downtown Seattle

The primary competition to the Jackson Street Gym will be from the gyms in the Seattle

downtown area that also target the higher income demographic (Exhibit 13).

Name Location Parking Price/Mo.24 Hour Fitness 1827 Yale Street Y under $50Allstar Fitness 509 Olive Way Y $50 – $100The Vault 808 Second Avenue Y $50 – $100Seattle Athletic Club 2020 Western Avenue Y $50 – $100Washington Athletic Club 1325 Sixth Avenue N over $100X Gym 2505 Second Avenue N over $100Headquarters Health and Fitness 1519 Third Avenue N over $100ZUM 2235 5th Avenue N over $100

Exhibit 13: Downtown Seattle Gyms (Seattle Times, 2002)

22

Our main competition will be from the clubs in the $50 – $100 price range as well as

some competition from the over $100 price range. Here are some of the competitive

advantages that we will have over the other clubs accessible from the Central District:

1. Our main advantage will be our location. Residents of the Central District will

want to avoid the drive through the busy downtown streets to get to a competing

gym.

2. The lower traffic density in the Central District will mean easier parking. The

downtown gyms frequently do not provide free parking. We will be able to

provide this due to our location and the lower demand for parking in the area.

3. Due to our lower real estate expenses we will be able to offer a higher quality of

service and experience than the downtown clubs.

4. We will have ties to the rich cultural history of the Central District and of Seattle.

The gyms in the downtown area are not tied in the same way to the city. We will

emphasize the central role of our neighborhood in the history of jazz. We will

tastefully allude to the fact that numerous celebrities including the actor Bruce

Lee, the musician Jimi Hendrix, and the architect of the World Trade Center

Minoru Yamasaki, amongst many others grew up in the Central District and went

to the neighborhood’s Garfield High.

The success of Starbucks shows that people are willing to pay extra for ambience.

Going to the gym does not have to be a culturally sterile experience. Our unique

value proposition will differentiate us from the generic and culturally sterile gym

experience offered by our competitors.

Due to these differentiating factors we will be able to steal some of the clients of the

downtown clubs. Currently, we are not looking at the downtown refugees as our primary

market. However, they will provide us with an incremental revenue stream.

23

Our primary target market remains the residents of the Central District. Our strongest

competitive advantage will be our proximity to the neighborhood. A complementary

advantage will be our ambience which will reflect the rich history of the neighborhood.

This will be in stark contrast to the suburban sterility of the other gyms. We will offer a

hip, clever, distinctively local gym.

Potential New Market Entrants

Another competitive threat exists from new market entrants. This can either be a branch

of a large franchise operation such as 24-Hour Fitness, or it could be an imitative me-too

gym that copies our model.

We will have a first mover advantage over both of these competitors. Our initiation fee

will prevent people from leaving to try out other clubs. A new entrant in the area will

need to offer a better value proposition to steal our customers. If this happens we can

easily compete by matching services. As first mover the status quo will be in our favor.

The first mover advantage will be leveraged through the use of network effects. By the

time a competitor moves into the area we will already have a critical mass of members

through word of mouth advertising. A competitor will be unable to challenge this kind of

viral marketing once it has taken root.

An additional advantage we will have over a faceless characterless national franchise is

that it will not be possible for the franchise to offer the same kind of roots in the history

of the area.

24

Operations Plan

Facilities

The club will be located in the new Welch Plaza on the corner of Jackson Street and 23rd

avenue which will be completed in late fall of 2004. The area of the space leased is

10,000 sq. ft.

Exhibit 14: Welch Plaza (CADA, 2002)

The plaza offers on-site and garage parking, 3 spaces per 1,000 sq. ft leased, which totals

to 30 parking spaces for the club. It also offers access to public transportation.6

The floor plan is illustrated in Exhibit 15.

6 Chiles & Company. “Welch Plaza” http://pchiles@chilesandco.com/pages/featured_properties.htm#Welch

25

Exhibit 15: Floor Plan

Club’s Operations

The club’s hours of operation are listed below in Exhibit 16.

Day Opening Hours

Monday – Friday 6:00AM – 9:00PM

Saturday/Sunday 8:00AM – 5:00PM

Exhibit 16: Hours of Operations

The group activities are coordinated by the activities manager. The part-time instructors

come to the club to teach the individual classes. Personal trainers give training sessions

by appointment.

Cleaning is done throughout the day in order to keep the club clean especially in the

locker room/shower areas. Cleaning is also done at the club’s closing.

26

Fitness Classes

35 classes will be taught each week. Many classes will have different levels. All classes

will meet in the multi-purpose rooms.

Total Body Conditioning: 60 minute class, using steps, weights and tubing. All major

muscle groups are worked during this hour while the heart rate is kept elevated. Good for

any fitness level. (Some impact)

Functional Strength: 60 minute class, focused on toning all major muscle groups.

Weighted body bars four feet in length ranging from 9-15 pounds are used along with the

step and dumbbells. Less cardio in this class. For strengthening and toning the muscles.

(No Impact)

Precision Cycling: 40 minute, simulates an outdoor bicycle experience in which

participants vary the intensity of the pedaling as if they were bicycling up and down hills.

Cycling sessions are guided by an instructor who incorporates music and visualization

techniques into the class. Excellent non-impact cardio fitness class for strengthening your

heart and lungs. (No Impact)

Walking Club: (Seasonal) 40-60 minute walk outside. Only requirements are a good

pair of shoes. If the weather is bad a conditioning class will be substituted. (No Impact)

Cardio Boot Camp: 60 minute class, start out with 45 minutes of cardio hi/lo workout.

Finish up with 15 minutes of ab workout. (Medium Impact)

Step Mix: 45 minute class, high-energy cardio that includes a wide variety of stepping

patterns with combination power moves. Every step mix class will provide you with new

and different stepping styles and patterns. (Medium Impact)

27

Dance Class: 60 minute class, classes will range from a variety of jazz and swing to

modern. Instruction will be given for beginners and intermediate dancers.

Ab Lab: 30 minute class, which will seriously work your abs. We throw in lower back

and pushups just for fun. (Low Impact)

Yoga Class: 45 minute class, yoga promotes strength, flexibility, and relaxation in the

form of bogy positioning. Involves basic yoga poses combined with calming music for a

relaxing, yet stimulation workout. (No Impact)

Okinawan Karate: 60 minute class, this traditional form of karate involves an emphasis

on breathing and tension, low kicks, and the development of mind, body, and spirit.

Website Plan

Although the health club is intended to serve the local community of the Central District,

it is essential to have a web presence as a marketing and advertising tool because as the

neighborhood is in transition, more and more people are going to move into the area in

the future. In addition, the web is rapidly becoming a popular tool for information and

research. The various benefits that a website presents are:

Advertisement: People find out about the health club by searching on the web.

This may result in new memberships. This is especially useful for those who are

new in town or who plan to move into the neighborhood and who use the web to

find out what their neighborhood offers.

Sales channel for new memberships: By reading about the club’s services and

membership information that is available on the website, people may consider

joining the club or visiting it to explore it further. For this reason, the web site

needs to sell the club to the end user.

Conferring the image of an up-to-date company that follows the technology

trends: If the club does not have a website, most people will get the impression

28

that the club is a cheap business that is not be able to afford having a web

presence, or a club that is not interested in following the technology trends and

hence it could be inferred that the club does not likely follow trends in the fitness

industry and may be out-of-date. Therefore, it is important to have a web presence

to give the opposite impression.

The strategy is to design a website whose function is to:

Advertise the club to attract new members

Provide information for current members

Create a sense of community for current members

Provide information for investors

Therefore, the following are the components that the website should have:

Online tour of the club with a voice that explains the club’s features and benefits

as the streaming video plays.

Contact information for new memberships.

A simple design and easy navigation

Information about the benefits the club brings

Information about current group activities.

Contact information: business hours, parking, directions, address, email

addresses, phone numbers.

General information about the club: mission statement, history.

Online boards where current members can connect with their friends or

instructors at the club.

29

Management and Key Personnel

Management Team

Our management team is composed of seasoned industry veterans with many years of experience in business development, management and marketing behind them.

Position Name BackgroundCEO Jaylen Smith BS (EE), MBA. 15 years of management

experience.CFO Mark West BS (Finance), M Mgt., CPM, MBA. 15 years

of management and finance experience.VP Marketing Shannon Wells BS (Forensics, Anthropology), MBA. 5 years

of marketing and management experience.

Exhibit 17: Jackson Street Gym’s Management Team

Organization

Employees should be selected on the basis not only of their skills and experience, and

how well they fit in the team and work with their peers. The Club Manager should be

carefully selected as he or she will have the ultimate impact in the success or the failure

of the health club.

In addition, a mid-size health club cannot have the luxury of hiring experts for each

specialty; otherwise the health club will have too many employees on the payroll that will

limit the club profits and increase the club’s membership fees. For this reason,

employees are hired to do a variety of tasks and in this way the club can reduce the

number of workers needed. For example, the club’s manager not only has to take care of

the club’s overall management, but also needs to work on the financing, marketing, and

human resources. Likewise, the activities manager or the receptionist may be required to

give club tours to the prospective members.

Keeping this observation in mind we have determined Exhibit 18 as a reasonable starting

point for an organization chart.

30

Exhibit 18: Organization Chart for Jackson Street Gym Company

Staffing Plan and Headcount Projections

Below is a description of the club’s staff positions.

Club Manager (1): Ben Furqueron

Prior experience with overseeing club operations, making sure that the club’s financial

goals are met, doing public relations, planning for advertising and marketing strategy,

31

human resource management, hiring new personnel, and finding new funding sources.

Qualifications include 5 years experience in the recreation industry. MBA degree.

Excellent communication, leadership, and presentation skills.

Type: Full-Time.

Activities Manager (1):

The activities manager is responsible for supervising personal trainers and part-time

instructors, devising the club’s group activities program, updating the program on a

regular basis, coordinating the program. Qualifications include 2+ years management

experience in a health club. Must have strong communication and leadership skills.

Type: Full-Time.

Fitness/Equipment Specialist (4):

The Fitness Specialist is responsible for assisting members in equipment use and up-keep

of all the equipment. Expected to monitor gym safety and assist in general operation and

duties of the gym. Qualifications include knowledge of the fitness industry, experience

working with a variety of equipment and general knowledge of cardio machines, and

strength work out machines.

Type: Part-Time.

Receptionist/Counter (4):

The receptionist is responsible for greeting members, accommodating request, answering

phones, renewing memberships, scheduling appointments for members and personal

trainers, and/or selling deli and pro shop items. Qualifications: Must be able to multi-

task. Experience with using simple computer applications and knowledge experience in

general office work preferred.

Type: Part-Time.

Personal Trainer (2):

The personal trainer is responsible for providing personal training sessions for members,

and performing personal health assessment for current members. Qualifications:

32

Certified personal trainer (ACSM, ACE, or national certification) and degree in physical

education desired.

Type: Contract.

Massage Therapist (2):

Must be a licensed massage therapist with at least 500 hours of education. Knowledge of

various massage types desired.

Type: Contract.

Part-Time Instructor (4):

The instructor is a part-time employee and is to teach the group activities such as the

beginner aerobics class, the advanced aerobics class, the yoga class, and the kickboxing

class. Qualifications: Certified instructors in area of specialty.

Type: Part-Time.

Incentive Compensation Program

Exhibit 19 summarizes the wages broken down by job title. Personal trainers are contract

employees. The gym receives 35% of their income per visit.

Job Title WageClub Manager $65K/yrActivities Manager $50K/yrFitness Specialist $13/hourReceptionist $10/hourPart-Time Instructor $25/class

Exhibit 19: Wages by Job Title

The benefits for full-time employees include medical and dental insurance, and an

incremental vacation plan which is outlined in Exhibit 20. Part-time and contract

employees receive no benefits.

33

Duration of Employment Vacation Time1 year 1 week2 – 5 years 2 weeks> 5 years 3 weeks

Exhibit 20: Incremental Vacation Benefit

Company Culture Plan

The health club is a place where members come to relax from life’s every day stresses.

Therefore, employees should always put a smile on their face and attempt to be polite and

courteous with the customers.

In addition, to ease communication between employees and management, the latter

should adopt the open door policy and encourage employees to talk openly and freely

about any issues or suggestions.

In order to promote a sense of community, it is preferable to hire employees from the

local area. Customers feel more in touch with their community and feel they are part of

the club. This will in turn help increase customer loyalty and new sales to potential

members.

Advisory Board

The advisory board consists of people from the community and the greater Seattle area

who will be a great source to the club for networking and expert advice in their respective

fields of expertise (Exhibit 21).

34

Name DetailsGregg Johnsen Legal Consultant. AttorneyDavid Wise Marketing Consultant. Customer Sales Manager, Seattle TimesDiana Booth Health Club ConsultantArshad Haq Commercial Realtor

Exhibit 21: Advisory Board for Jackson Street Gym Company

Financial Overview

The key to factor to the success of any new venture is profitability and cash flow. To

correctly understand and evaluate a new business, you first must understand the financial

statements of that venture. In order to accomplish this, you must first understand the

assumptions and background that went into creating the financials. This section will

outline the various assumptions that will be found in the pro-forma financial statements.

These assumptions are also footnoted in the pro-forma statements.

We determined market rates for real estate by consulting Arshad Haq, a Seattle

commercial realtor with specialized knowledge about the Central District real estate

market. All figures quoted in the analysis are based on communications with him.

Membership Fees

Prices are very reasonable for a fitness center of this type, especially when compared to

competition of the same caliber. Profitability is good in a two-year projection and the

venture turns profitable by the end of year one. The gym’s fees are high enough to allow

for a good annual income but affordable enough for every lifestyle. Initial membership is

$199.99 and monthly dues are $39.99.

Gym Cost

Given our target market it was determined that 10,000 square feet would be needed to

serve our customers’ needs. Per Arshad Haq cost would be between 13-18 dollars a

35

square foot per year. The pro-forma statements reflect 15 dollars per square foot per

annum.

Utilities

Per Arshad Haq cost would be 3 dollars a square foot per annum.

Accounts Receivable

Cash Flow being paramount to any operation, a factor must be used to determine how

quickly funds are going to be captured from new customers. It was determined that most

customers would use consumer debt type transactions to pay for dues (e.g. credit or debit

cards). Even though most consumers would utilize a debt transaction, a conservative

approach was used in the financials. The assumption that 20 percent of our consumers

would pay late is very conservative.

Accounts Payable

As debt is incurred it will be paid in a timely fashion. However, with our outstanding

credit, we expect to have “net 30” terms with our various vendors. Given that debt will

be incurred throughout the calendar month it is logical to assume that anything purchased

after the middle of the month would fall into the following month. With this in mind, 40

percent of the total Cost of Goods Sold was used as a factor.

Seed Money

Given our estimated fixed and variable cost, 1.1 million will be needed to fund and

sustain this operation until profitability. This will allow the company to maintain

solvency while developing a consumer base large enough to sustain it. Given the goal of

the owners, initial funding will be in the form of a long-term note to be repaid in under 10

years at an interest rate of 9% per annum.

Income Taxes

Tax assumption is a standard 34%.

36

Miscellaneous Supplies

As the gym grows, so will the cost associated with expendable items. A factor of

$2,000.00 was used to cover these types of expenses. It is assumed that this expense will

grow at or about 10% per month.

Equipment Cost

Equipment estimates were taken from Hammer Strength Product Information Guide,

Cybex Commercial Strength Systems Listing, and phone quotes from Stairmaster,

Nebula, and Body Masters. Excerpts taken from Gym inventories aboard CVN 72 (USS

Lincoln), LPD 14 (USS Nashville) and plans for future Navy ships.

Lease Improvements

According to Arshad Haq, $300,000.00 was used as a conservative number for

improvements. Research indicates that improvements can be done for less.

Employee Cost

Given the size of the Jackson Street Gym, 14 people would be needed to cover the hours

of operation. This would include 2 full time positions as well as 12 part time positions

(see Employee Cost in the Financial Statements Section). Utilizing a conservative

approach, 1.5 times anticipated base salary was used as the cost for employees. This

factor allows for full time employees to have standard benefits as well as factors in taxes

and liabilities associated with employees.

37