Clubs, Exclusivity, and “Access”

In the late 1950’s, Playboy leveraged its early subscription traction selling magazines to begin expanding into other business lines, including a new entertainment concept called The Playboy Club. The chain of exclusive nightclubs and resorts officially opened its first location to paying members in 1960. A typical club featured a dining area, living room, bar, and occasionally a casino where members could hang out and be waited on by Playboy Bunnies who had appeared in the magazine for $25 per year ( about $220 per year in today’s dollars) —that is, if the members actually visited; in fact, only about 21% of members had set foot in a club.

For most, membership to Playboy club offered a status symbol more than any kind of tangible benefit; but for Hefner and the business, the lack of membership usage helped boost bottom line profits. As the chain expanded internationally membership peaked at 750,000, only to gradually disappear by the early 1990’s.

Interestingly in 2018, Playboy opened its first new location on Manhattan’s West Side; the first in New York City in 32 years. Fees to this era’s version of the club, start at $5,000 a year and run up to $100,000 - those who opt for the top-tier, get some cool perks that include chauffeur services to and from the club, 10 complimentary nights at a local boutique hotel, 10 VIP sports tickets a year in the Playboy seats for either Giants, Jets, Knicks, or Rangers games or the US Open, and a VIP table with bottle service at Playboy events. As of late 2018, women made up 45 percent of all memberships sold.

The likelihood of success for this next attempt at selling “bunnies” is questionable, given the failure of the initial chain and the brand’s positioning in today’s #MeToo era. But there are several modern-day iterations of this long-standing type of subscription model that are booming, running on the same chassis as Playboy (with different branding and offerings, of course), including private health clubs, yoga studios, golf clubs, supper clubs, and upscale business lounges.

While the core offering is different, each of these businesses operates on a member/subscriber access model that relies on both analyzing subscription revenue from their exclusive enrolments, and predicting “breakage”—a term that refers to revenue gained by a merchant through services that are never claimed (or used). Beyond industries like insurance products, home security, and most loyalty card programs—which make a killing off of a lack of redemption—lifestyle and fitness clubs have made fortunes using the access model, measuring overall business health by how little their members actually use what they’ve paid for.

Take a typical gym chain for instance, which charges on average $50-$75/month for dreams of a slimmer waistline. The big chains and the boutiques alike all rely heavily on passive consumer behavior (i.e., breakage) to generate profit. The statistics are pretty telling. Gym chains are inundated with new sign ups in January, driven by new years resolutions to get in shape. Of the cohort of new entrants, 80% cancel their memberships within 5 months; only 20% use the gym consistently, while about half who sign up never pass through the turnstiles, period. Gym occupancy, or lack thereof, is therefore key to the business model. In fact, to be profitable, fitness chains need about 10 times as many members as they can actually fit through the doors. In other words, the perfect gym customer is the one intends to work out, pays to do so, but never does. Sound familiar?

The mix of subscription revenue and consumer laziness is big business. California-based LA Fitness logs about $2 billion in annual revenue. New York-based Equinox Holdings, which includes brands Equinox, Blink Fitness, Soul Cycle and Pure Yoga, does over $1 billion.

Although traditional private club memberships across the U.S. have declined since 2011, as ageing baby-boomers hang up their putters and five-irons, millennials are driving some impressive growth for a new generation of urban and athletic clubs, sans golf. Soho House, a group of private clubs founded by English entrepreneur Nick Jones, is among the most successful examples: Jones opened the first location in London’s Soho neighbourhood in 1995 and now has almost two dozen clubs around the world, from Los Angeles to Mumbai.

Soho prides itself on crafting a membership list that values creativity over financial success; industries like fashion, media, and the arts are well-represented, for example, while membership committees purge applicants like bankers and lawyers, who don’t fit the image the club wants to portray. This contributes to long waitlists, and could be seen as a ploy to boost interest through the fundamental marketing principle of scarcity. Worldwide, Soho has over seventy thousand members who pay a grand or three in annual dues for access to a “House,” its events and restaurants, the in-house Cowshed spas in certain locals, and more. The group posted $371 million in operating revenue in 2016 (up a fifth from a year earlier), with about half of that coming from food and beverage sales, which of course is not included in membership fees.

Source: “The Subscription Boom” - Why an old business model is shaping the future of commerce , (2020)