Town Sports International (TSI) operates fitness centers in New York, Boston, and Philadelphia. TSI’s struggle to retain members and expand its club base resulted in deteriorating financial results in recent years. Turning to off-balance sheet financing to fund a special cash dividend to pay out to investors, TSI focused its attention on maximizing shareholder wealth. As economic conditions improved following the economic downturn, a predicted tumaround in the fitness club industry should lead to positive growth rates in operating results for TSI. Fitness will continue to grow as a priority for the American population, across all demographics. This will mean increased business opportunities as well as competition for established firms and newcomers alike. TSI is operating in an industry that will continue to evolve and challenge the status quo of what constitutes a positive fitness experience. As a powerful regional player in the fitness game, the company’s success is directly tied to the health of the economy as well as customer loyalty and satisfaction. Projected increases in consumer discretionary spending signal a bright future for the company over the short term. Going forward, TSI must decide whether or not to maintain its traditional means of retaining customers and generating revenue streams or explore new means of operating. When considering longer-term growth, the company must examine its approach to adapting in a constantly changing environment, its current financial challenges, and its attempts to remain attractive current and potential members. If the company fails on any of these accounts, what options will it have to recover? Given that many gyms have had to liquidate their facilities and assets in recent years, what steps can TSI take to avoid a similar fate? While some challenges, such as membership retention and attrition, are as old as the industry itself, newer challenges, such as increasing pressure from boutique shops and rapidly changing fitness trends, are pushing the company in ways it has never before experienced. Time will tell if TSI has the flexibility and vision to define its own fate in an environment that is anything but predictable. FY Sales: $470 million FY Net Income: $12.3 million II. CASE SUBJECTS AND ISSUES Corporate Governance Strategy Formulation Strategy Implementation Core Competencies Membership Turnover Fitness Industry Competitive Advantage Competitive Strategy Diversification Growth and Acquisitions III. STEPS COVERED IN STRATEGIC DECISION-MAKING PROCESS Strategy Formulation vention Imperio Owatrol Performance Strategic Postura X Corporate Governo Xeral Factors xarm Factors O Strategic Factors 10 Review MBO & Mood Strategic Alternatives LA SA 7 18 0 X X Covered in IV. CASE OBJECTIVES 1. To discuss Town Sports International’s core competencies. 2. To discuss TSI’s “business level strategy 3. To discuss the competitive landscape of the fitness industry. 4. To discuss the challenges surrounding fitness club management 5. To discuss possible changes to TSI’s mission and objectives. V. DISCUSSION QUESTIONS 1. How was the fitness industry adjusting to new low priced entrants? 2. What was TSi’s business level strategy? 3. How best to expand to other cities? 4. What were TSI’s core competencies? 5. How to better retain fitness mernbers? 6. How can TSI sell more ancillary fee-based services to current members?
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