Small Business Profile: More Muscle Powerhouse owner Derek Scharlin designs expansion plan to attract wider group of members By SHELLY GARCIA Senior Reporter Most of the youngish crowd at Powerhouse Gym seems to know the club’s 36-year-old owner, Derek Scharlin, by name. He stops to talk with several of the members as he makes his way across the workout floor to the office in the back. It’s an atmosphere not unlike the one Scharlin remembers as a kid. He first joined a gym at the age of 12 and, as much as the exercise, he liked the way everyone in the small gym seemed to know everyone else and how it felt so familial. Those memories became the impetus that convinced Scharlin to open his own club and, 10 years later, he believes he’s accomplished what he set out to do. “Over the last five years, 90 percent of the business has come off referrals,” he said. “It’s more of a familial relationship.” Indeed, Chatsworth-based Powerhouse boasts a utilization factor of 30 to 35 percent of its active members. That means more than three in 10 members show up to work out every day, compared to an industry-wide average of 10 to 15 percent. With 5,000 members, Powerhouse last year had annual revenues of $1.7 million, despite the fact that Bally Total Fitness, a chain with huge advertising power, operates just down the street and many more health clubs are located close by. And the club has grown large enough so that Scharlin is now planning a $600,000 expansion. In July, Powerhouse will move to a new, 63,000-square-foot facility across the street at Nordhoff Street and DeSoto Avenue. With the move, the company will add basketball and racquetball courts, a dedicated spinning room and women’s exercise area, a quiet room for yoga and Pilates, martial arts and gymnastics programs and an expanded restaurant and juice bar. There will also be a full-time chiropractor with x-ray facilities. “What we’re trying to do is take the same philosophy and feel and atmosphere and add to it services and amenities that people in today’s environment are seeking,” Scharlin said. Since he opened the gym in 1992 with about $750,000 from his parents, Scharlin has built Powerhouse to its maximum capacity, given the current facility’s parking limits as well as the options the club offers. Adding locations, Scharlin believes, would dilute the club’s intimate feel, so the next step was to expand the membership base by attracting new members with different activities. “If you’re going to leap into the realm of a 40,000-foot facility, you have to be able to expose yourself to amenities that take out reasons for people to say ‘I don’t want to join,’ Scharlin said. Scharlin said he is tapping into niches that have already proven successful at other gyms. Clubs like Total Woman Health and Day Spa have shown there is a market for facilities with equipment and an atmosphere that caters to women. Basketball is the No. 1 group sport activity among men, and it is becoming increasingly difficult to find locations to play. Yoga and Pilates have become very popular particularly among older people who are making up an increasing portion of health club membership. (According to the International Health, Racquet and Sportclub Association, one in every four club members is now over age 55.) “If you look at what’s going in there, he’s trying to go after the full-family trade,” said Donald DeMars, chairman and CEO of Donald DeMars International, design and development consultants for the fitness industry. “There are clubs very much like Powerhouse that serve the same customer, so there’s adequate competition. But he knows his market, he knows his niche, and he’s priced well and he runs a good operation, so I think he’ll compete quite well.” While the move will be expensive, Scharlin has designed the expansion to minimize his risks. It can take years before membership grows large enough to recoup the costs of opening a brand new facility. But with the expansion, Powerhouse will only add about 1,000 feet to its already well-equipped workout area, and the company need not add new equipment until it adds new members. At the same time, about 20,000 square feet in the new facility will be leased to other companies that will run the gymnastics and martial arts programs, the food service and the chiropractic services, programs that are expected to draw members who may not have considered joining a gym before. Scharlin hopes that these programs, along with an expanded schedule of classes during peak hours, will not only attract new members in the immediate area, but will also expand the geographic radius from which the club now draws. He likens the dynamics to the popularity of The Cheesecake Factory, which he believes has established the kind of customer loyalty that transcends geography. “Before the Cheesecake Factory opened in Sherman Oaks, I would drive to Woodland Hills or to Marina Del Rey,” he said. “So if they’re driving five miles now, maybe they’ll go to 10 miles.” Scharlin said the build-out should increase membership and revenues by about 50 percent within 24 to 36 months. More important, the expansion will not come at the expense of what he feels most contributes to his success. “I think one of the reasons I’m successful here is I’m here. No matter how much you pay somebody, they’re not going to love the business like you do.” SPOTLIGHT: Powerhouse Gym Core Business: Fitness and aerobics center Revenues in 1998: $1.4 million Revenues in 2001: $1.7 million Employees in 1998: 45 Employees in 2001: 45 Goal: To grow 50 percent, if not more, in revenues in three years. Driving Force: The growing population of the Valley. The more people there are, the more people work out.
