Life Time Fitness sweats the details

During the worst of the recession, when Life Time Fitness was losing more than four out of every 10 members, one of them made a point of stopping CEO Bahram Akradi to explain her family's decision.

It had nothing to do with the economy, she said, but everything to do with the temperature of the pool, which had become too cold for her children to enjoy.

Akradi soon discovered that Life Time had been slowly lowering pool temperatures a degree at a time. That neat bit of economizing was going to save the company $200,000.

Akradi ordered that water temperatures be raised at every club pool.

This attention to the smallest details helps account for Akradi's reputation as a demanding boss. He calls it running a company "from a member's point of view" and says that philosophy partly explains how, during the deepest recession in more than 60 years, Life Time has managed to post gains in revenue, profit and per-store sales, all while slowing member turnover.

By being more responsive to its members, Akradi believes Life Time is building a deeper relationship, one that is less transactional. In his view, the cost of keeping healthy is not a discretionary expense.

To that end, Life Time has even begun referring to itself as a "healthy way of life company." It doesn't exactly trip off the tongue, but it reflects Akradi's intent to insinuate the company more broadly into people's lives through their membership in the clubs, through events, such as the national triathlon series it sponsors (it owns some of the races outright), and through a new corporate wellness business that it will soon roll out under the name of myHealthCheck.

Wall Street may not entirely get "the healthy way of life" approach. Last week, Life Time shares plunged about 10 percent on concerns, in part, that the company was investing too much money in programming at its clubs.

Akradi shrugged off the decline. He's experienced tougher days the past couple of years, including Life Time's first layoffs and personal margin calls that forced him to sell some of his Life Time holdings.

'Times of milk and honey'

Before the recession hit, Life Time was intent on opening as many 100,000-square-foot suburban pleasure palaces as possible. So 47 rolled off the assembly line between 2004 and the end of 2008, and the company was planning to spend $500 million on more than a dozen in 2009.

"It was times of milk and honey," Akradi said.

As the recession deepened, Akradi conferred with Michael Robinson, Life Time's chief financial officer. They quickly agreed to slow the opening of new centers in 2009 to 3. "We knew that we needed to prove that we could be a cash-flow positive company, and to do it fast," Robinson said.

Akradi and his team ultimately rejected the idea of a "small-box" prototype that would be easier to finance and develop to compete more directly with the likes of Snap Fitness and Anytime Fitness, franchisers that were opening dozens of smaller, neighborhood-based gyms and clubs in Life Time markets.

"The problem is, anyone else can build those, too," Akradi said.

Instead, Akradi and Life Time recommitted themselves to ensuring the "crispness" of every interaction with its members. Life Time upgraded the clubs' food offerings while lowering some prices. It looked at the price of services above and beyond monthly dues and lowered prices to match competitors. The Ultimate Hoops basketball league now costs $60 instead of $100. A summer camp for kids, with before- and after-camp care, now costs $150 instead of $206.

Members have responded by spending more on those services. And the membership attrition rate, which had surged to 42 percent in the spring of 2009, slipped under 40 percent in the most recent quarter. Life Time shares, which closed at $37.71 Tuesday, are up 191 percent since Jan. 1, 2009, far higher than the Standard & Poor's 500 (up 31 percent) and the S&P 400 index of consumer discretionary companies (up 84 percent).

ericw@startribune.com • 612-673-1736