In 2004, for the health club industry there is a high threat to new entrants due to the fast, growing trend to get in shape and fight obesity, the lack of a dominant player in the industry, and low barriers of entry. Because of the health concerns and the movement to live a healthier lifestyle, the demand for fitness alternatives is high and the most favored alternative is to join a fitness center. The nature of the industry is fragmented, which is why no player has a market share larger than 5%. The largest reason why there is a high threat for new entry is the low barriers of entry. The level of competition is high and the industry is favorable for continued growth. There is low regulatory oversight and industry assistance by the government. While economies of scale can help for profitability, it is not a requirement as there are many small successful health clubs. The consumer push for more “pay as you go” programs is starting to make an effect, which is causing the switching costs to decrease. The startup cost can be high barrier of entry, but leasing operations, low average wages due to unskilled staff members, and buying used equipment help reduce this initial capital investment. The only other high barrier is the time and cost it takes to grow brand reputation, as existing players have strong ties to their members through contracts and brand loyalty. Overall, the combination of these factors result into a high entry threat, and decrease industry returns.
The suppliers’ bargaining power is relatively low, which helps growth for the health club industry. The primary supply is equipment, which can be purchased or leased. In the suppliers’ industry there is a low concentration of suppliers with high competition. As a result there is limited bargaining power and reduced prices. Another key reason why the bargaining power is low is because the inputs for the health