Sports Direct has been a successful part of the British sports retailing landscape since 1982, the same year that David Lloyd opened his first club. Its core business I fully understand: through its 418 UK stores (at April 2014) and direct ownership of brands such as Slazenger, Lonsdale and Everlast, it offers a treasure chest of sports bargains with up to 70 per cent discounts. However, its strategy for the health club sector seems incoherent.

Having entered the health club market in June of this year with the acquisition of its first LA fitness site, I can currently buy a full membership at its Sale club for £35 a month, with no contract, while the most frequently used price is £36 a month across the 18 purchased clubs it now operates. The site in Aintree, Liverpool, is its first purpose-designed hybrid retail store and gym, but the £5 membership fee – which has generated significant press interest – is a limited offer promotional price, subject to a 12-month contract, £10 joining fee and missed payment fees.

There has been speculation Sports Direct will also embed gyms into some of its existing stores. This means it may be pursuing three distinct club formats at different price points, which feels as jumbled as its retail stores. My sense is the company wants to compete in the mid-market, but the Liverpool site sends a mixed message.

Sports Direct has enormous scale and influence and I would like to more clearly understand the big idea driving this new project, and how it intends to create a remarkable consumer experience that will support more people to become more active.

The entry of new competition keeps us all on our toes, and anything that increases accessibility to health and fitness is to be welcomed – after all, it’s what The Gym pioneered.

That said, it’s understandable that the market will wait to see what the product offering is, and whether the price is real, before reacting. Loss leading has a patchy record, especially where lack of investment and strategic focus can be a concern in the long run.

A few other questions on the strategy are also immediately clear. Will high quality staff engage with the product if they perceive their value-add isn’t recognised when it’s sold at a loss? How will customers react to the hard sell of being a retailer’s warm leads? Will consumers be able to square their expectation of customer service in the gym environment with the mass-market, low-cost retail service experience?

But of course, if £5 really is to be the new low-cost price floor, then the mid-market bracket just got redefined. Those already struggling to deliver value in this space could be hurt further, with other operators currently positioned as ‘budget’ being left in no-man’s land.

The Sports Direct move into the low-cost gym sector is a potential game changer, with three key factors in its favour: using existing, known sites means there’s already an opportunity to win back those who left LA fitness on cost grounds; embedding the gyms within retail stores gives the best opportunity to upsell; and, of course, the genius that is Mike Ashley.

But at £5 a month, this is perilously close to – or even over – the financial edge. Also weighing against the venture is the probability that, even though they will likely have to walk through the store to get to the gym, members are unlikely to want to buy something each time they visit. This may be critical to long-term success.

Promising a higher level of service and layout than is often found in low-cost gyms, it will be interesting to see where Sports Direct Fitness is this time next year. If this were being done by anyone other than Mr Ashley, I wouldn’t expect to see it still here this time next year. I wouldn’t like to bet either way just yet.

This low membership fee, with a view to making revenue from auxiliary products, is not a new play. It’s something JJB tried five or so years ago with its Mi-Gym brand, before the recession hit its retail business.

Sales are the only thing that can drive revenue to a business, so what Sports Direct will be working on very closely is the revenue per visit. In the same way that the fitness industry looks at selling supplements, these guys will be working on the retail play.

This will be a massive threat to other operators – particularly the budget operators – because the rent will be low, the location will be convenient and they are saying that the service will be personable. (But we all say our service will be great!)

There’s no doubt it will be busy, and if they’re not going 24/7, then workout hours are going to be crammed into a shorter time period. This could lead to the sites being too busy – from the gym equipment all the way to the car park – which could negatively impact on the user experience. I think that will be one of the key issues to deal with.

The Sports Direct £5 gym membership is unsustainable if it wishes to make a genuine commercial profit. However, it’s an attention grabbing marketing tool and will no doubt help sell its sports goods in-store, which are being overtaken by online sales.

The low-cost gym market has many established operators offering a wide range of facilities, and experience shows the members are looking for high standards in services and products; they’ll walk with their feet if these are not provided. Service and standards, location and products will become the most important elements in customers’ choice, rather than an obviously unsustainable low membership fee that cannot fulfil all these essentials or give a satisfactory return to the operator.

Having had direct insight into Sports Direct’s plans for the fitness sector, and hearing it from Mike himself, I think the industry needs to take this move seriously. You only have to look at Sports Direct’s history to see that, when it ventures into a new area, it does so in a big way. With substantial financial resources at its disposal, as well as international reach, it will hit the market hard and fast. Operators across the industry that are cynical should, in my opinion, think again: I wouldn’t bet against Sports Direct!   

From the énergie Group’s perspective, as the UK’s leading fitness franchise, we see Sports Direct’s entry to the market being a bigger threat to the ‘big box operators’ than it is to us. For énergie, it’s our locally owned clubs – operated by passionate franchisees – that really make the difference. Anything that shakes up the market and keeps operators on their toes is very welcome and we wish them all the best.