Virgin Active is losing members in South Africa, but it's actually making more money. On Wednesday, investment group Brait reported that the gym chain's South African membership had fallen about 4% over the past year, to 605,000, yet revenue grew 5%. Virgin Active matters a great deal to Brait: it makes up 51% of the group's total assets, with Brait's investment valued at about R9.2 billion. South Africa, in turn, brings in a third of Virgin Active's group revenue, and 128 of its 223 clubs were here at the end of March. So while losing customers is generally bad news for a business, these results tell us quite a lot about the direction Virgin Active is taking.
From gyms to wellness clubs
Over the past year, Virgin Active has been investing heavily in turning its clubs from traditional gyms into what it calls social wellness destinations. Essentially, it wants to offer a more premium experience. Its top-tier Collection membership comes with extras like saunas, steam rooms and ice baths, and multiple clubs have already been upgraded, with more developments planned across South Africa this year. Two new local clubs are also in the pipeline, in Paarl and Riverlands in the Western Cape. And there's a business case for doing that. Rather than competing purely on the number of members it can attract, Virgin Active wants to earn more from each member by offering something they're prepared to pay more for.
And say what you want, those higher prices are already making a difference. In February, members took to social media to complain about another round of increases, with monthly fees ranging from R540 for off-peak access to R1,670 for Premier. According to Brait, those increases are largely driving revenue growth. It also acknowledges that the decision to invest in wellness clubs and push prices up has come at the expense of membership growth. Cancellations stayed high, partly because clubs closed for refurbishment and partly because some members simply can't afford it anymore. But despite losing members, South African earnings before interest, tax, depreciation and amortisation still grew 2%.
Are members getting the value?
Of course, charging more also means members expect more. Virgin Active has argued that the value it's adding far exceeds its previous average price increase of 10%, and has pointed to rising costs like rent and utilities. Plenty of members disagree. When the latest increase was announced, social media filled with complaints about broken treadmills, outdated equipment and overstretched staff, leaving many to question whether premium prices still deliver premium value. Then, in October, Virgin Active changed its rewards programme, removing the guaranteed weekly reward along with its bronze, silver and gold tiers. On figures reported in News24's consumer column, an established member who never missed a week would now get about 18 rewards a year, well short of 52. Virgin Active's chief customer officer, Kia Abbott, told News24 that the reservations of the small number of members who pushed back have largely been addressed. So while Virgin Active is spending money on improving its clubs, not everyone is convinced they're getting better value for what they're paying.
And there's another reason these results matter. Brait is preparing to eventually sell Virgin Active or list it on a stock exchange, and its chairman, Richard Nelson, has said the business should be well positioned for an exit within the next two years, although no date has been set. In October, Brait put R2.4 billion into Virgin Active's £175 million capital raise, which is set to cut its debt by £243 million and give it room to fund growth. Nelson has said it's preferable for the business to repay some of that debt before a listing. Higher revenue and earnings certainly help the case. But if Virgin Active wants to keep charging premium prices, it'll need to convince enough South Africans that this wellness experience is worth paying for.
