Originally posted for Linkedin
There was a time when low-cost memberships and packed gym floors was the primary model for a successful brick and mortar fitness business. Over the past decade, there has been a slow but steady shift in the market toward boutique gym experiences. Smaller spaces with trained staff members who offer greater personal attention and a strong focus on customer service began chewing up a decent-sized chunk of the commercial gym market. If big commercial gym chains that were racing to the bottom on price weren’t concerned before, they’d better be now.
Fitness industry experts and analysts have varying predictions about the post-covid gym market and what’s in store for its stakeholders. Some are forecasting the end of the industry, while others are absurdly optimistic. While I’m no McKinsey and Company consultant, I have my ideas about what’s next for fitness.
Prediction 1: The market will shrink (significantly)
I attended a zoom meeting a few weeks back from a leading franchising group who believes that brick and mortar fitness will come roaring back as soon as a viable vaccine gets distributed. The speakers compared it to the roaring twenties. I am not so optimistic. Even though working out in your basement is often less productive than the exerciser intends, the giant leap in sales of at-home exercise equipment and programs should be a red flag for gym owners. Even those who don’t keep up their at-home exercise regimen will have difficulty overcoming the sunk cost of a two-thousand dollar Peloton bike or a fully equipped at-home gym. The growing virtual market will not be an example of ‘a rising tide lifts all boats.’
The more virtual, at-home exercisers there is, the less in gym members there will be. Secondly, attitudes toward rapidly spreading viruses and public spaces will not change once a vaccine arrives. The last global event that was as impactful and publicized as this one was 9/11. While I would not equate the lingering fear of a terrorist attack to that of a virus, it would be silly to assume that a life-changing global event will evaporate from the minds of the affected overnight.
People who are legitimately afraid of catching COVID-19 are not going to rush back into a gym anytime soon. Lastly, it takes decades for the average person to get to the point where s/he enters the gym doors. For many, it is one of life’s most daunting experiences. Once a person (who doesn’t naturally come by fitness) leaves a gym for a prolonged period, the 10-year clock will reset for their return. People who struggle to go to the gym just received the biggest excuse of their lives to never return.
The gym market is already highly competitive, and shrinking market size of even 10%-20% would be disastrous for large-scale operators, which leads me to my second prediction.
Prediction 2: High debt holders will struggle, default, or disappear
As we have already seen with a few major gym chains’ bankruptcies, debt load is a problem for most large-scale fitness operations. The square footage demand and labor cost alone is astronomical in most brick and mortar operations. The vast majority of these large gym chains run on a model of low-cost memberships and packed gym spaces. That’s all well and good when you have the market share to repeatedly sell memberships and serve your customers. But what’s going to happen when both your ability to sell at a high volume and house your giant membership base falls apart?
Lockdowns, restrictions, and the shrinking market (see prediction 1) will spell big trouble for big-box fitness. Corporations can mask the bleeding while receiving copious amounts of government funding, but in 2021 that well will run dry, and there will be bills to pay. Private investors will be hesitant to sink more cash into a volatile business, and those with the most significant debt load will be forced to liquidate. It’s not a good time to be a giant machine with many bills to pay.
Prediction 3: High service and high spend will win
It’s a great time to be small and expensive, and boutique gyms and large gyms that focus on high customer spend (instead of high customer volume) are in the best position to thrive in 2021. Revenue per square foot, and more importantly, revenue per active member will dictate most gym operations’ survival rate and success.
High levels of service, clean, spacious environments, and an element of community and connection between the business and its customers are critical right now. These are ingredients that most big box fitness operations do not truly offer. There is still hope for commoditized gym chains to move toward this model, but something tells me that most will hang onto rock-bottom pricing and ride it out to the bitter end. I don’t see it ending well for these companies.
In the wake of the coronavirus, boutique gyms and smaller operations which operate with the high service, high spend approach will be well-positioned to grow when other competitors collapse. The big-box market’s shrinking will create a larger market for small competitors and many opportunities for those who come out ahead.
To summarize, it may be a good time to be small, expensive, caring, and agile and not such a great time to be big, cheap, stubborn, and commoditized. I can’t say for sure what 2021 will bring to the fitness industry, and I wouldn’t listen to anyone who tells you s/he has all the answers. What I do know is that the assumption that ‘everything will go back to normal’ is reminiscent of Blockbuster video during the rise of Netflix. If you believe the market isn’t going to change and that businesses won’t implode because of that change, you are making a critical error.