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FEDERAL STATE EDUCATIONAL INSTITUTION

OF HIGHER EDUCATION

NATIONAL RESEARCH UNIVERSITY

HIGHER SCHOOL OF ECONOMICS

Saint Petersburg School of Economics and Management

Department of Management

Bachelor's thesis

Development of approach to justify economic effectiveness of fitness club investment project in Saint Petersburg

Kiyazova Saltanat

In the field 38.03.02 `Management'

Educational programme `Management'

Saint Petersburg

2018

Abstract

The number of adherents of a healthy and active way of life in Russia grows every year. This leads to demand for sports and recreation services. Despite the demand, for bankruptcy in the first year of life in the field fitness services happen quite often. And this is due to the fact that founders of fitness club pay a little attention to the development of justification economic effectiveness of fitness club. Thus, the aim of the thesis is to develop an approach to justify economic effectiveness of fitness club investment project. To achieve the goal it was necessary to learn the theoretical foundations of evaluating the effectiveness of investment project; to analyze existed approaches of justification investment projects; identify technical and economic parameters of the project; assess risks and to create financial and economic justification of the project. The results showed that the fitness business can be promising and profitable, but high-risk. One of the main conditions for its successful operation is the availability of investment, great location, engaging skilled staff, availability of quality equipment, opportunities to develop.

Keywords: effectiveness, investment project, fitness industry.

Table of contents

• Introduction
• 1. Theoretical foundation
• 1.1 Theoretical basis for evaluating the effectiveness of investment projects
• 1.1.1 Investment project definition
• 1.2 Existed approaches to justify assessment of investment projects
• 1.3 UNIDO technique as a method of investment project assessment
• 1.4 Fitness industry market
• 1.5 Competitor analysis
• 1.6 Laws governing sport industry
• 2. Justification the concept of development object
• 2.1 Evaluation of the market situation
• 2.1.1 Assessment of the market of fitness services
• 2.1.2 Assessment of the market of SPA services
• 2.1.3 Personal training market assessment
• 2.1.4 Assessment of the leasing market
• 3. Technical and economic parameters of the object
• 3.1 Services of the designed object
• 3.1.1 Memberships
• 3.1.2 SPA services
• 3.1.3 Personal trainings
• 3.1.4 Leasing service
• 3.2 Management of the designed complex
• 3.3 Staffing of the designed complex
• 4. Assessment of project risks and ways to minimize them
• 4.1 Assessment of standard development and individual project risks
• 4.1.1 Standard project development risks
• 5. Financial and economic justification of the project
• 5.1 Budgeting of memberships
• 5.2 Budgeting of SPA
• 5.3 Budgeting of Personal trainings
• 5.4 Budgeting of Leasing
• 5.5 Results
• Conclusion
• Reference list
• Appendices
• Appendix 1
• Appendix 2
• Appendix 3
• Appendix 4

Introduction

Fitness is a popular type of exercise recently. It is a combination of different physical exercises and other ways to strengthen the body. This is not a sport, as sport involves professional activities, aimed at winning the best results, and health-improving methods allows to change the shape of the body and its weight and consolidate the already achieved result. It includes physical training combined with developing a proper nutrition system (Kim, Bae, Kim, Lee, & Kim, 2016).

Today, many devote their lives to fitness, improved in it themselves and train others. Many professional athletes, after finishing their career, continue to play sports and fitness in particular, in order to maintain body shape. They train for fun, without high loads, which are inherent in great sports. Fitness classes "for themselves" bring not less good and moral satisfaction, than sports competition.

Currently, the number of adherents of a healthy and active image life in Russia continues to grow. This leads to demand for sports and recreation services. In particular, the need is growing on quality of services that can provide only high quality equipped fitness clubs and fitness centers. People want not only to play sports, but also to have a good time. Classes sports are one of the components of leisure time.

In Russia, sports clubs appeared in the early 90-ies by the initiative of enthusiasts, as an alternative to the decadent sports complex. People's desire for physical health gave rise to a massive passion for training on homemade simulators, the conversion of vacant basements into gyms. This was the beginning fitness movement in Russia (Borovikov, 2016).

New requirements and standards are currently being put forward and first of all, these are the standards of appearance. The cult of a healthy and fit body became as relevant as ever. Beautiful and toned body becomes a business card of successful people. Therefore, sports clubs, fitness centers are becoming more popular than ever before. Competition in the fitness market services is now very large.

Despite the demand for bankruptcy in the first year of life in the field fitness services happen quite often. And this is due to the fact that founders of fitness club pay a little attention to the development of justification economic effectiveness of fitness club.

The relevance of the study is due to the need to compile a business plan in order to properly assess the prospects of the investment project.

The aim of the thesis is to develop an approach to justify economic effectiveness of Fitness Club investment project.

To achieve the goal it was necessary to solve the following tasks:

a) Learn the theoretical foundations of evaluating the effectiveness of investment project;

b) To analyze existed approaches of justification investment projects;

c) To justify the concept of development investment project;

d) Identify technical and economical parameters of the project;

e) Assess risks;

f) To create financial and economic justification of the project.

The paper uses the following methods:

a) Theoretical, economic, statistical analysis and synthesis;

b) Comparisons and generalizations;

c) Systematic approach to the consideration of the object of study.

These tasks led to the structure of the thesis, which includes three chapters, introduction, conclusion.

The introduction substantiates the relevance of the chosen topic, it is characterized by its scientific and practical value.

The first Chapter analyzes theoretical foundations of evaluating of effectiveness investment projects, the financial and economic activities of fitness clubs.

The second Chapter discusses the market situation of each services that will be offered by the future fitness club. The discussion includes demand analysis, the cost structure and supply analysis.

The third Chapter presents technical and economic parameters of the future fitness club.

The forth chapter shows assessment of risks and ways of minimization them.

The last Chapter contains the main part of the paper, the financial and economic justification which shows how effective the investment project is.

In conclusion, the main results of the work performed are summarized, the most important conclusions and proposals for their practical application are formulated application.

The practical significance of the work lies in the development of justification of economic effectiveness of the fitness club investment project.

1. Theoretical foundation

1.1 Theoretical basis for evaluating the effectiveness of investment projects

1.1.1 Investment project definition

Investments are investments of tangible, intangible, monetary resources in economic objects in order to generate future income. The process of investing funds is called investment activity. Investment activity begins with the development of the investment project (Jordan, Miller, & Dolvin, 2015).

The Federal law "On investment activities in the Russian Federation, carried out in the form of capital investments" defines the investment project: "Investment project - justification of economic feasibility, volume and timing of capital investments, including the necessary design and estimate documentation developed in accordance with the legislation of the Russian Federation and established standards, as well as a description of practical actions for the implementation of investments" ( About investment activity of Rissian Federartion, 2001).

Thus, an investment project is a comprehensive plan of measures, including design, construction, acquisition of technologies and equipment, training, etc., aimed at creating a new or modernization of the existing production of goods (products, works, services) in order to obtain economic benefits. (Strong, 2007)

There are different classifications of investment projects. Depending on the characteristics underlying the classification, the following types of investment projects can be distinguished (Stroeva, Shinkareva, Lyapina, & Petruchina, 2015).

a) According to the degree of dependence on other projects allocate investment projects:

1. independent, allowing simultaneous and separate implementation with other projects; while the characteristics of the implementation of projects do not affect each other;

2. alternative projects that do not allow simultaneous implementation with other projects; at the same time, only one of the set of alternative projects can be implemented;

3. complementary, which can only be implemented in conjunction with other projects.

b) According to the terms of implementation, investment projects are: short-term (up to 3 years); medium-term (3 - 5 years); long-term (over 5 years).

c) According to the scale and volume of investments, investment projects are allocated:

1. small, which is limited to one small company implementing the project (basically they are plans to expand production and increase the range of products, and they are characterized by a relatively short implementation time);

2. medium-sized projects, most often these are projects of reconstruction and technical re-equipment of existing production (they are implemented in stages, for individual productions, in strict accordance with the pre-developed schedules of receipt of all types of resources);

3. large-scale projects implemented by large enterprises, they are based on a new idea of production necessary to meet the demand in the domestic and foreign markets;

4. mega-projects, targeted investment programs containing a variety of interrelated final projects (such programs can be international, state, regional).

d) Investment projects are singled out for implementation purposes:

1. commercial, the main purpose of which is to make a profit;

2. social projects aimed, for example, at solving the problems of unemployment in the region, reducing the crime rate, etc.;

3. environmental, the basis of which is the improvement of the environment;

4. production;

5. scientifically technical.

e) Depending on the magnitude of the risk, investment projects are distinguished:

1. reliable, high probability of obtaining guaranteed results (e.g. projects carried out under the state order);

2. risky projects characterized by a high degree of uncertainty of both costs and results (for example, projects related to the creation of new industries and technologies).

f) By the nature of cash flows, investment projects are distinguished: with ordinary (repeated) cash flows; with extraordinary cash flows.

g) According to the chosen financing scheme, investment projects are allocated: financed from own sources; financed from borrowed sources; with mixed sources of financial security.

The implementation of any investment project has a specific purpose. For different projects, these goals may be different, but in general they can be combined into the following groups: cost reduction; efficiency improvement; expansion of production; opening of new production; implementation of innovations.

The effectiveness of an investment project is a category that reflects the compliance of the project results with the goals and interests of its participants.

During the development of the investment project it is necessary to solve the following tasks (Jordan et. al., 2015):

a) financial (from what sources, to what extent, on what terms and in what proportion it is possible to finance the project);

b) investment (how to optimally allocate own and attracted resources among the possible areas of economic activity, certain types of assets, what is their structure, the period of turnover, the level of risk, etc.).);

c) operational (what is the value and optimal structure of the organization's expenses, how does the rhythm of raw materials supply and sales affect the progress of the project, whether the professional and qualification level of the personnel involved in the project is sufficient, etc.).

When choosing an investment project, you should also take into account factors that can not be quantified: geopolitical, social. The influence of qualitative factors can be so significant that the project will be rejected. An important stage in the evaluation of an investment project is to assess its sensitivity.

Preparation and implementation of the investment project is carried out over a long period of time - from the idea to its material implementation. The period of time between the start of the project and the end of its implementation is called the project life cycle. The beginning of the investment project is the initial investment of funds in its implementation. (Strong, 2007)

The end of the project can be: the commissioning of facilities, the beginning of their operation and use of the results of the project; achievement of the project results; termination of the financial project; the beginning of work on making major changes to the project, not provided for by the original plan, i.e. modernization; the withdrawal of the project objects from operation.

The investment project cycle can be divided into three phases: pre-investment, investment and operational (production). Consider the content of the phases of the project life cycle Harrison & Lock, 2017).

The first phase, pre-investment, prior to the main volume of investment, cannot be determined accurately enough. In this phase, the project is developed, its capabilities are studied, preliminary feasibility studies are conducted, negotiations with potential investors and other project participants are conducted, suppliers of raw materials and equipment are selected. If the investment project provides for the attraction of a loan, then in this phase an agreement for its receipt is concluded, the legal registration of the investment project is carried out: preparation of documents, execution of contracts and registration of the enterprise.

Costs associated with the implementation of the first stage, in the case of a positive result and the transition to the implementation of the project are capitalized and included in the pre-production costs, and then through the depreciation mechanism are attributed to the cost of production.

The second phase, investment, in which the investment or implementation of the project. In this phase, specific actions have been taken, requiring much bigger expenses and irreversible, namely: developed project documentation; ordered equipment; prepare production site; the equipment supplied and carried out installation and commissioning; training of personnel; maintained promotional event.

At this stage, the company's permanent assets are formed. Some costs, such as staff training, advertising, start-up and adjustment of equipment, can be partially attributed to the cost of production (as a cost of future periods), and partially capitalized (as pre-production costs).

The third phase, operational (production), begins with the commissioning of the main equipment (in the case of industrial investments) or the acquisition of real estate or other types of assets. In this phase, the start-up of the enterprise is carried out, the production of products or the provision of services begins, the Bank loan is returned if it is used. This phase is characterized by related revenues and current costs.

The duration of the operational phase has a significant impact on the overall performance of the project. The farther in time its upper limit is related, the greater the total amount of income.

It is very important to determine the point at which cash receipts can no longer be directly related to the initial investment (the so-called investment limit). When installing, for example, new equipment, this limit will be the period of complete moral and physical deterioration.

A common criterion for the life expectancy of a project or the period of use of an investment is the materiality or significance, from the investor's point of view, of the monetary income derived from that investment (Stroeva et. al., 2015).

After the completion of the project, the results are summed up based on the criteria used for the selection of this project - the benefits obtained from the implementation, risk reduction, etc.

The effectiveness of an investment project is a category that reflects the compliance of the project results with the goals and interests of its participants, which are understood as the subjects of investment activity (Jordan et. al., 2015).

1.2 Existed approaches to justify assessment of investment projects

economic fitness club investment

Before any decision making process, especially a managerial one, it is necessary to evaluate its subsequent effectiveness. Despite the fact that there are a large number of performance indicators which are currently exist, the evaluation of the effectiveness of the investment project faces with wide range of challenges and issues. For a comprehensive solution of these problems, or at least some of them, various methods, models, recommendations and approaches to evaluation the effectiveness of an investment project are being developed (Kirillov & Dosuzheva, 2013).

The most well-known foreign methods in the theory and practice of investment management are: Goldman's firm method - Sachs&Co; Ernst & Young's firm method; European bank of reconstruction and development method; world bank approach; cost-benefit analysis; United Nations Industrial Development Organization (UNIDO); Little-Mirliss method (Anismova, 2015).

The first three methods (Goldman, Sachs & Co, Ernst & Young and EBRD) are mainly appropriet to develop a business plan - the main document of investment design . Sachs & Co method based on gathering information via official statistics in order to do calculations with less deliberative distortion, such as information about average prices for energy, building materials, etc. The Ernst & Young company implies adjusted present value (APV) for assessment the effectiveness of investments. European bank of reconstruction and development method is less complicated than two methods above but requires possessing a huge experience of business planning and evaluating the effectiveness of investment projects. Consequently, those methods are not suitable for the project of this paper because those methods are concentrated on developing the business plan, while this paper observe the economic effectiveness of the investment project not a business plan (Anismova, 2015).

The fifth method is cost-benefit analysis. This method is based on calculation of the net present value from the implementation of an investment project. Disadvantages and limitations of this method are accounting of long-term benefits with relatively low accuracy, lack of non-commercial benefit consideration and influence of redistribution of funds on efficiency. In addition, presence of a certain percentage of subjectivity in its application. Consequently, this method does not suite for evaluating the project of this paper too because it has significant disadvantages and the next methods are more developed. The last three methods are more comprehensive and complicated - World Bank method, UNIDO methodology and method of Little-Mirrlis. These methods allow making a deeper analysis and reflecting more aspects in assessing economic effectiveness of investment project. Thereby, in order to consider what method from those three ones is mostly appropriate the project of this paper, the list with short definition, methodology and disadvantages is created.

World Bank approach

Definition:

One of the largest lenders to which various borrowers apply in order to obtain the financial resources necessary for the implementation of the planned development projects (Ward, Deren, & D'Silva, 1991).

World Bank methodology of project evaluation:

a) Reflected a temporary value for money with inflation and without (results - R?T and costs - С?T);

b) Calculation of indicators such as NPV (net present value). If NPV ? 0, the project would be accepted;

c) Calculation of the limitation as IRR indicator;

d) Calculation of B/C (benefit - cost ratio). If B/C > 1, the project would be considered as effective;

e) Calculation of payback period tok (period of payback). If tok < ( - standard value of payback), the project would be considered as effective;

f) Calculation of break-even analysis when NPV( ) = 0 ( - marginal value of sales);

g) Calculation of the Bruno criterion. Bruno criterion is the ratio calculated in the shadow prices of net savings or profits in foreign currency to spend on the project release products within the country;

h) Risk analysis (sensitivity analysis; statistical test method; statistical test method).

For the current moment World Bank imply different kinds of project evaluation. Moreover, it was developed computer versions of feasibility study of the project that used by the World Bank. Mainly, they are COMFAR and COMPRAN models (Behrens, W., 1984)

Disadvantages:

Application of the criterion of Bruno in domestic circumstances was problematic due to the nature of doing business in Russia. The insufficient application of project analysis is its lack of profitability index PI, which shows the relative efficiency of the investment project (Kirillov & Dosuzheva, 2013).

The World Bank approach assesses effectiveness from the project analysis point. When evaluating a project according to the World Bank methodology, key performance indicators are used, such as NPV and payback period, as well as the Bruno criterion, which allows to evaluate the effectiveness of projects in the shadow prices of net savings use. The Project Analysis is rather methodology of assessing public effectiveness of the project than commercial effectiveness. The project could be invested if it reliable, financially realizable and matches goals of United Nations (Watkiss, Hunt, Blyth, & Dyszynski, 2015).

United Nations Industrial Development Organization (UNIDO)

Definition:

“Guidelines for the preparation of industrial feasibility studies” is the full name of the technique called UNIDO methodology. It was first published in 1978 as a reaction to the absence of comprehensive standards for the assessment of projects in developing countries. Since then, the approach to the preparation of feasibility studies proposed by UNIDO has been adopted by government ministries, banks, financial institutions, higher educational institutions and consulting firms (Shmatko, 2015).

UNIDO method of project evaluation:

a) Initial data and conditions. Core idea of a project and key activity of organization and other identical aspects;

b) Market and power of enterprise. Identification of production volumes, perspectives of supply and demand growth, ,marketing research, external analysis, sales forecast by market segments and marketing cost.

c) Material factors of production. Calculation of annual costs for material inputs, including imported;

d) Location of enterprise. The selection of the area and the specific site for object placement, calculation of the cost for the land lot;

e) Project design documentation. Calculation of the cost of purchased licenses and equipment, construction and installation works, capital investment project options;

f) Enterprise Organization and overhead. Formulation of approximate organizational structure. Estimate of overheads.

g) Labor resources. Calculation of the annual cost of labor resources.

h) Planning for the implementation of the project. Cost estimates for the implementation of the project in accordance with the schedule;

i) Financial and economic evaluation of the project. The final section of the feasibility study that serves as a prerequisite for taking a final decision on project implementation or rejection of him. Basic indicators of economic effectiveness of investments are NVP (net present value), PI (profitability index), and IRR (internal rate of return).

The UNIDO method includes both commercial effectiveness and public effectiveness of the project realization. Its approach based on underlying the necessity to create products, services and energy for consumption as the final reason for investment. Accordingly, project's costs and benefits will be measured relative to consumption. The method determines shadow prices based on the characteristics of domestic demand or estimates the amount of consumers' willingness to pay for a given product or service and uses aggregate consumption as a unit of measure. The UNIDO methodology is closely related with country development planning. It is based on the fact that the successful development of the state depends on the improvement of resources distribution within the country and relies on optimal solutions in planning (Bril, Kalinina, & Ilin, 2017).

Disadvantages:

a) Lack of risk assessment;

b) Lack of adaptation to Russian taxes system;

c) Lack of recommendation for price settlement.

Little - Mirrlis method

Definition:

The little - Mirrlis method is an alternative to the UNIDO methodology. This method of analyzing and evaluating the effectiveness of investment projects is widely spread in the world. It is used to calculate the value of all goods and services at international prices. The cost of products on the global market is expressed in world prices. If the goods are sold only in the domestic market, then a complex procedure for converting domestic prices into international ones is applied. Domestic prices and price ratios play a secondary role when using this method (Simiж, Vratonjiж, & Beriж, 2011).

Disadvantages:

However, the method of Little - Mirrlis has the following limitations and disadvantages:

a) World prices for products are highly susceptible to speculation, which ultimately can lead to erroneous results of evaluating the effectiveness of investment projects using this method;

b) During calculation of conversion price factors, errors are possible due to the lack of information or insufficient analytical competence;

This method requires a large amount of additional calculations during the implementation of the investment project due to possible changes in world prices for goods and services and, accordingly, the need to obtain new coefficients for price conversion.

Overall, the World Bank method is targeted to public effectiveness than to commercial that is why this method can be reject. The Little-Mirrlis method is targeted to international projects and covers global prices, which lead to complicated analysis and huge calculations, that is why this method can be rejected too. The UNIDO methodology is the most suitable method for the project of this paper. It reflects aspects as location analysis, marketing research and economically reasonable financial model accept risk assessment price settlement. In this bachelor thesis, the UNIDO methodology is applied and developed covering lacks of this method.

1.3 UNIDO technique as a method of investment project assessment

UNIDO is a United Nations Industrial Development Organization that implied to evaluate effectiveness of the investment project. In order to understand invest to the project or not investors evaluate the project by UNIDO technique.

UNIDO is calculated basing on discounting. There is a list of key indicators, which used for selection the best investment project (Loconto & Busch, 2010):

a) PI - profitability index (the ratio of costs and income from the investment project). PI shows effectiveness of the project's investment.

b) NPV - Net present value (how much the value of the company changes after the implementation of the investment project).

c) IRR - internal rate of return on investments. This indicator shows the profitability level of the project, in which the cost of cash flow in the future cannot exceed the amount invested today funds.

d) Payback period. It is a period of time, which shows when invested funds will be compensated.

In addition, the standards of business planning were established also by UNIDO. According to this standards, business plan must include following items:

a) Title page;

b) Summary (general information about project, reasons for investments);

c) Description of the company and industry;

d) Description of products (services);

e) Marketing and sales of products (services);

f) Production plan;

g) Organizational plan;

h) Financial Plan;

i) The focus and effectiveness of the project;

j) Risks and guarantees;

k) Applications.

1.4 Fitness industry market

Fitness is a part of the market of sports and health services that is a part of paid services market. Paid services are an important part of the structure of public spending. However, according to the share of paid services in the structure of gross expenditure per capita, Russia lags far behind developed countries. First of all, this is due to the relatively low level of income and a large share of food costs. As incomes increase, the share of food expenditure will decline and the share of paid services will increase. (Miroshnichenko, 2017).

Experts note a steady decline in real disposable income since 2014; only in the first quarter of 2016, they fell by 3.7%. This decline caused a 4.3% reduction in household spending, which in turn had a negative impact on GDP dynamics - it led to a 1.2% drop in gross domestic product in annual terms (Golyashev, A, Pavlyushina, V, & Brilliantova, V., 2018).

At the same time, according to analysts (Rosstat and the Analytical center under the Government of the Russian Federation), the consumption of paid services is stable enough despite the fact that demand for goods is falling down (primarily durable) - in 2015, the demand for services fell by only 2%, while the retail trade shrank by 10%. The volume of the market of paid services in 2015 amounted to 7.9 trillion rubles, which corresponds to 17.3% of the added value of the entire service market of the country. (Golyashev, A et. al., 2018)

The largest volume of paid services consumption includes three areas: housing and utilities (27.5%), transport services (19%), communication services (16.1%). About 11% is accounted for household services (maintenance and repair of vehicles, repair and construction of housing and others). The share of medical services (including health resorts) was about 8%, educational services - 6.8%. The share of three key types of paid services decreased from 65.3% in 2013 to 62.6% in 2015, while the share of medical (from 6.9% to 8%) and educational (from 6.2% to 6.8%) services increased in the same period (Solovyov, Shapiro, & Kolkov, 2018).

The sports services market as a whole is experiencing some difficulties, leading to a decline in its volumes. The fall, which began in 2014, continues to this day. This is due to the General deterioration of the economic situation in the country. The annual growth until 2014 was more than 25%, and the potential market capacity was estimated at $ 2 billion, despite the fact that the market is very far from saturation (Kruszyсska & Poczta, 2019).

The financial crisis and the fall in real incomes in 2016 had an impact on fitness services. Nevertheless, despite this negative impact, the market continued to grow. At the same time, its growth rate, according to some estimates, is very significant for the Russian economy. According to RBC market Research, in 2015 the market of fitness services grew by 14.1% in monetary terms and by 3.6% in real (in-kind). The total volume of the market, including related areas (crossfit, individual training) amounted to about 101.5 billion rubles at the end of the year (Kekeeva, Burlykov, & Proshkin, 2016).

Figure 1 Structure of paid services to the population, quarterly, %, 2013 - 2016 Based on the source: Golyashev, A, Pavlyushina, V, & Brilliantova, V. (2018, April). Particularities of paid services consumption. Retrieved May 24, 2019, from http://ac.gov.ru/en/publications

By 2024, the proportion of Russians involved in sports should be at least 55% - this task was set by the President of the Russian Federation. Now the number of residents of Russia who are engaged in fitness, does not exceed 5%. The absolute market leader is North America, where 15-18% of the population is engaged in fitness (and this market is developed in the United States, Canada, and Mexico). In Europe, about 12% of the population does fitness. Amendments were made to the Tax Code, which will allow to receive tax deductions for sports (as RBC wrote earlier). In addition, in the State Duma in October last year, amendments were adopted to 329-FZ “On physical culture and sport in the Russian Federation”, which should set professional standards for fitness clubs and their employees (if adopted, they will become mandatory in 2020-2021). The current owners of fitness clubs hope that working on the law will accelerate the growth rate of the industry, regulate the quality of services and bring the market to at least the values of developed fitness countries.

Figure 2 The dynamics of the market of fitness services in Russia in 2015 prices, billion rubles, % Source: RBC Research of markets, the CPI - Rosstat

Prices for fitness services in the current year increased by 4.8% compared to last year, which is not so much compared to the increase in prices in the commodity segment and in the paid services sector as a whole. In General, the service market is characterized by rather inertial pricing - in a crisis, prices grow quite smoothly, which, however, is offset by their outstripping growth after the crisis and the stabilization of the economy. Experts also associate a small rate of price growth in the fitness industry with their artificial containment by market players who are afraid of losing a significant part of the audience.

According to various estimates, today in Russia there are 3,5-3,7 thousand fitness clubs, and the volume of the Russian market of the fitness industry is not more than 1% of the global market.

Even in highly competitive Metropolitan markets, research has shown that even at high saturation, they still have opportunities to grow. First of all, this applies to fitness clubs with a membership cost up to 50 000 rubles, that is, representatives of the segments "Comfort", "Economy" and "low-cost".

The level of investment in the opening of a fitness club differs significantly depending on the price segment in which it plans to work. The launch of the project in the premium segment may require more than 200 million rubles, for the business and Comfort segments this amount may be in the range of 80-100 million rubles, and for a small fitness Studio - 5-7 million rubles.

The current events and changes in the market of the fitness industry include numerous closing and opening clubs, as well as a change of locations, which is associated with changes in rental conditions, cost and other factors. Many landlords do not go to meet the anchor customers, which are often fitness clubs. Prices are often fixed in conventional units, which led to an increase in the cost of rent only in 2015 by 25-30%. Of course, not all players can compensate for this growth at the expense of their own profitability or broadcast an increase through an increase in prices for their services, and are forced to leave the market.

The factors contributing to the further growth of the market include the following:

a) A weak degree of penetration of fitness services in the domestic market - according to the latest data, only 3% of the population of Russia are engaged in fitness, while in developed countries this figure reaches 15%;

b) The growing popularity of fitness as a global trend; annual audience growth rates are ahead of global indicators;

c) State policy in the field of sports promotes a healthy lifestyle, which contributes to the penetration of fitness services;

d) Weak development of fitness services in the regions;

e) For a large part of the target audience, a visit to the fitness club and the purchase of an annual subscription is a demonstration of social status and belonging to a certain social group; even in a crisis, this group of people is not ready to give up the services of fitness centers; first of all, it concerns the segments of "Luxury" and "Premium».

At the end of 2016, the market has reached +15%. At the end of 2017, it has increased for 7,5% in compare with 2016. According to experts, the annual growth of the market of fitness services can reach 22-25% (Kurichin, 2019).

1.5 Competitor analysis

Fitness industry market shows sustainable growth becoming more demanded service in big cities and towns. The biggest Russian fitness companies are «Russian Fitness Group» (brands «WorldClass» and «Fizkul») - 80 branches, «Alex Fitness» - 60 branches, «Fitness House» - 49 branches, «X-Fit» - 33 branches, «Zebra» - 30 branches, «Strata Partners» (brands «CityFitness» and «OrangeFitness») - 27 branches, « Русская фитнес-группа» - 60 branches. Overall, there approximately 3300 ordinary fitness clubs in Russia. (Federal State Statistics Service).

Saint Petersburg is the second city in the Russian Federation in the provision of fitness services. Currently, there are about 480 sports facilities in St. Petersburg. Leading fitness clubs in Saint Petersburg: Fitness House, New age fitness, Olympic Sport Life, Planet Fitness. (Official web site of Saint Petersburg administration)

1.6 Laws governing sport industry

A business project is guided by several legislation rules and documents. Legislation part includes federal laws and legal act adopted by the president of Russian Federation.

Firstly, Russian legislation that adopted by the president includes more than 200 legal acts. Probably, for this reason there are not so many sport clubs in Russia in compare with a little country Austria. Secondly, Federal low of “Physical training and sports of Russian Federation” from 04.12.2007 Article 19 Sports Clubs, sport clubs could be supported by Federation and local governing. Government can help with building and reconstruction of sport facilities, giving for free use or long-term lease on preferential terms of premises, providing sports equipment, supporting in other occasions and sport clubs have own finance or from allowed sources of financing.

As for investment part, in accordance with the Federal Law “On Investment activities in the Russian Federation, carried out in the form of capital investments "dated February 25, 1999 No. 39-FZ, investments are cash, obligations, other property, including property rights, other rights having a monetary value, invested in objects business and other activities for profit and (or) to achieve a different beneficial effect.

Finally, the business project includes building and reconstruction part, which also regulated by the legislation as laws about town planning and land use development plan. The legislation part plays an important role in a business project. If something are not appropriate governmental lows and rules, a project could not be realized, so the legislation part is considered as one the main limitation.

2. Justification the concept of development object

2.1 Evaluation of the market situation

2.1.1 Assessment of the market of fitness services

The analysis of supply

To assess the market of fitness services, a sample was made, which included 10 active fitness clubs in the Vyborg district. The sample includes two categories of memberships: unlimited visit for a month and unlimited visit for a year.

Table 1

Objects forming the offer in the market of fitness services.

Almost all of the above clubs offer SPA services, including or not including them in the membership price. Today, the availability of SPA is a prerequisite for the competitiveness of fitness.

All of the above clubs offer personal trainings service. One of the most profitable direction in fitness industry is personal trainings, yearly this kind of service can make profit more than for 1 million dollars. That is why, every club tries to sell as more as possible memberships for personal trainings.

Leasing services does not exist in three clubs: Alex Fitness, FOK and Prestige. Others offer renting of rent gym zones for events or personal usage.

The cost of unlimited memberships for a month and a year in fitness clubs

Below is a comparative table of the cost of unlimited memberships included in the representative sample.

Table 2

Cost analysis of memberships

Figure 3 Cost analysis of memberships

The most expensive memdersip for a month costs 8000 rubles in FH Prestige. The cheapest memdersip for a month costs 2100 rubles in "FOK". The most expensive memdersip for a year costs 50000 rubles in Sport Life. The cheapest memdersip for a year costs 7565 rubles in Alex Fitness. All presented in Table 1 sports clubs (except “Okeanium”) in their quality and range of services do not meet modern standards and cannot be considered as competitors to the future multifunctional sports complex (Sportit). The price range for annual memberships is from 7565 rubles (FOC) to 50,000 rubles (Sport Life). The average price is at the level of 24000-39000 rubles. The only sport complex in the Vyborgsky district of St. Petersburg that can have a real competitive influence is the Oceanium complex, which was commissioned in November 2010. The cost of an annual membership for adults includes unlimited visits, one individual lesson, SPA services -complex and freezing for 60 days is 47,500 rubles a year, regardless. The analysis seems appropriate calculation of the budget of the future sports complex on the basis of the following predictions:

a) Set the cost of annual and monthly subscription with unlimited time visiting for 45125 rubles per year and 6555 rubles per month (5% lower the level of the nearest competitor prices-"Okeanium"). Annual norm of price rising in Russian fitness centers is 4.8% per year;

b) for the purposes of calculating the budget of memberships, will use the value of the net worth of membership - 45125 rubles, that is, the cost of excluding the cost of paid spa services and personal trainings;

c) The cost of morning membership for adults is 75% of the cost of unlimited memberships. The cost of evening adult memberships is 50% of the cost of unlimited memberships. The cost of memberships. for youth from 16 to 26 years is 75% of the cost of memberships. for adults. The cost of memberships for children is lower than the cost of memberships for adults by only 5%;

d) Membership prices vary by the type of attendance, age group and time period of visits to the Club. Types of visits are full unlimited, morning (from 7:00 to 17:00) and evening (from 21:00 to 23:00). Age group includes adults from 25 years old, young people from 16 to 25 years of age and children aged 3 to 16 years. Also, there is a unit for a period of time of visits, for a year, 6 months and one month.

Thereby, the cost structure of Sportit is shown in the following table:

Table 3

The cost structure of Sportit

The cost structure of Sportit is based on the cost structure of Oceanium as was mentioned above.

Table 4

The cost structure of Oceanium

Analysis of the demand of fitness clubs

Obviously, economic efficiency, i.e., total revenue of fitness club depends on the main indicator as number of clients. Therefore, the task of assessing the number of customers plays a pivotal role in organizing a profitable fitness business. to create the concept of a profitable fitness club, long before the design and, especially, cash flow, it is very important to adequately assess how many people can go there at all. Every fitness club consists of different parts: training zones, locker rooms, input zone and other groups of premises. In order to estimate the structure of attendance or visiting customers in general, it is need to first consider a structure for each zone. So, first of all, to estimate how many customers will pass through every area of the Club as a whole and on a daily basis depending on time. In other words, to estimate the number of customers who visit the Сlub for a day, week, month and year it is needed a good understanding of the structure of their distribution or feature dependencies the number of clients from time to time. Naturally, it is impossible to consider the whole diversity of possible situations. By the fact that the structure of the attendance of the clubs, i.e. distribution of clients by the hour, day of the week and seasons-personal feature of each club in each location. Also in the field of sports and health there is the term "new life", which means that people tend to start "a new life" with certain dates. For example, from Monday, the first day of the next month, birthday, New year, after the release of "and so on. This effect also impossible to predict. In a nutshell, such effects depends on wide range of indicators which difficult or impossible to predict. Let us introduce some restrictions, scope of valid values.

Firstly, for instance, every client spends no more than 1 hour in gym zones and all clients replace each other every one hour.

Secondly, the structure of attendance every day is the same. Number of people who visit Club on Monday is the same with a number of people who visit the Club on Friday.

Thirdly, every week none of the customers aren't going away, and new customers don't come. Their total number is not changed.

Forth, clients purchase only membership cards without additional services as SPA and others.

Fifth, it will be considered that one visit to a Club customer visits only pool, only the gym, or just room for group classes, without transitions between them.

Such conditions are applied in order to show the technic of counting. Evaluation corrections that are connected with real consumer behavior are demonstrated further. It concerns the average training duration and distribution of clients by their amount during working day. There are common patterns of attendance, clubs and private practice of each club, due to its personal characteristics. For example, clubs that can be objectively assessed as belonging to economy class in Russia the main peak attendance, in prime-time, falls on the 19-21 hour. In clubs, which can be attributed to premium format is another structure of attendance. For example, there are clubs in which prime-time is morning from 7 to 12 hours.

All calculations are based on the assumption that the prime-time occupancy of a specific training zone of the club is maximum, however, the situation with filling each zone is within reasonable limits. Talking about a pool with 25x4 area, on each lane of the pool, the maximum number of clients can be no more than 4. Four people is a limit, beyond which customer irritation will significantly exceed the natural feeling of slight regret that the path does not belong to one person. In other words, when there are 5 or more people on a track at the same time, the inconvenience becomes intolerable, and customers start to leave. With the specified maximum number of customers on one track, the total number of people present at a time in the pool basin is 16 people. It could be added 2-4 people who are temporarily near the bowl. As for group classroom, if more than 10 clients come to a group with an area of ??50 m2 (based on the practical norm of classroom comfort, according to which each client feels comfortable in the center of a 2x2 meter conditional square), then discomfort will cause many not to come at that time next. In this way, it can be said that the maximum number of clients in each training zone is a quantity that is established naturally.

There is another remark. Pictures of the attendance structure of different zones of the club may not coincide. For example, in large cities, as practice shows, the pools at the earliest time, from 7 to 9, are usually filled. The reason is that there are a lot of clients who would like to start a working day from a workout, before starting work.

Number of customers (occupancy) in each training area of the Club is evaluated on a five-point system. The maximum number of clients in prime-time is estimated to be 5 points. The minimum number of clients in the dead watches will be 1 point. Suppose that the Club always someone there.

As a simplified calculation models take a fitness club, which is composed of the following training areas for customers:

· Swimming pool (25х4),

· Gym (10 кардиотренажёров, 30 силовых тренажёров, зона свободных весов),

· Group trainings, area 100 м2,

Working hours of the Club-with 7 to 11:00 pm daily.

So, the structure of the population will look as follows:

Weekdays

Table 5

Weekdays attendance analysis

Swimming pool

7:00 - 9:00 - The swimming pool zone occupied by working people who prefer to start day from the swimming. The occupancy level of the swimmimg pool is approximatly closed to maximum point but ot equel for maximum. That is why it could be estimated for 4 points per hour. In sum, 4x2 hours = 8 points.

9:00 - 13:00 - few clients. It is estimated for 3 points per hour. In sum, 3x4 hours = 12 points.

13:00 - 15:00 - few if any, lunch time is estimated for 1 point for hour. In sum, 1х2 hours = 2 points.

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