Insider No. 79: And Then What?

To open, or not to open, that is the question. Like the rest of the economy—and the country at large—gym owners are weighing the pros and cons of returning to business as usual. If only it were that simple.

What’s happening: Fighting battles on multiple fronts, brick-and-mortar fitness operators have been catapulted into the future.

Why it matters: While reopening dominates the conversation (and headlines), it doesn’t begin to scratch the surface of what’s next. From sanitizing studios to social distancing measures and the risk of a second wave, not to mention the surge of at-home exercisers, a return to “business as usual” is a false reality.

The big picture: Even after gyms and studios reopen, second- and third-order effects still have to play out. As a result, COVID’s cascading impact will reshape the industry beyond what meets the eye.

Level Set

Is it safe for gyms to reopen? Can local authorities stand in the way? Does anybody even want to go?

Sidestepping the shouting match, let’s jump ahead to the inevitable — some gyms, somewhere, are open. Maybe gyms everywhere are back in business. Now, look around: are gym-goers lining up, credit card in hand, ready to re-up their membership?

  • According to a Washington Post poll, 78% of Americans oppose reopening gyms.
  • 50% of US gym-goers surveyed by RunRepeat said they won’t return upon reopening.
  • As US unemployment tops 36M+, spending on premium health clubs and studios could take a hit.

Price and personal preference aside, let’s pretend demand is sky-high. From the jump, demand still could get cut in half. Why? Social distancing.

A light at the end of the tunnel, a few leading operators have released their reopening protocols. But upon closer examination, it’s beyond complicated. Masks, temperature checks, reduced capacity, intense cleaning… the list goes on; this is the new normal.

There is no pandemic playbook, so everyone’s on high alert. Life Time Fitness, has a 400-page manual to consult. Equinox also rolled out a laundry list of requirements. Likewise, studios like SoulCycle will go to lengths to reduce the risk of infection. Even then, despite the tireless effort of owners, instructors, and staff, there’s still a risk.

The inevitable rebuttal is that the community, amenities, and post-workout vibes make rolling the dice worthwhile. But when gym-goers realize what they’re actually getting—a heavily policed, stripped-down exercise experience—they might put those dice back in their pocket, take out their phone, and fire up a fitness app.

Second-Order Thinking

This pandemic is temporary. Its impact is permanent.

In recent weeks, we’ve had countless Zoom sessions with founders, executives, and investors across the fitness industry. Despite the current reality and an uncertain future, folks still want to debate the semantics of at-home versus in-person workouts, or streaming versus on-demand content. All of which misses the point.

Second-order effects refer to the downstream consequences of an initial event or decision. Said differently, nth-order effects are the consequences of consequences. Whereas first-order thinking is focused on the immediate problem, second-order thinking asks: “And then what?”

“Failing to consider second- and third-order consequences is the cause of a lot of painfully bad decisions, and it is especially deadly when the first inferior option confirms your own biases. Never seize on the first available option, no matter how good it seems, before you’ve asked questions and explored.” — Ray Dalio

And Then What?

Yes, gyms and studios will reopen. Without fail, some people will go back. But what comes next is more telling.

Open-ish. Worse than socially-distanced exercise, some 40% of small businesses won’t reopen at all. Restructuring is one thing — Gold’s Gym has entered bankruptcy as 24 Hour Fitness and Town Sports mull similar fates. But, many mom-and-pop operations will also be forced out of business — half-full classes don’t pay the bills.

The lasting impact of remote work further complicates matters. As companies large and small decide to work from home indefinitely, gyms in urban centers could see foot traffic decline. If city living or venturing out in public lose their appeal, even temporarily, the local boutique fitness scene could prove to be oversaturated, leading to more closures in the months ahead.

Omnichannel. Like retail before it, omnichannel fitness will become a buzzword. In theory, building a digital offering on top of physical locations makes sense. Effectively pulling it off is another story.

Let’s start with the recent pivot to video. From Zoom and Instagram Live to standing up a proprietary app, the industry was forced online. Trouble is, this process should have started years ago. The opposite of a lifeline or a Band-Aid, digital should already be a viable revenue stream. Instead, a pandemic forced traditional brick-and-mortars to the starting line of a race that has long-been underway without them.

WOFH gold rush. Just because the race already started doesn’t mean catching up or competing is impossible. But it does make it a lot harder.

A next-order effect of COVID, founders and investors have pounced on the workout-from-home (WOFH) opportunity. While gyms and studios try to figure out content, startups backed by millions in funding are focused on building hardware and algorithms for more effective, personalized, and convenient workouts.

Likewise, concepts like Silofit and NEOU are reimagining the gym while physical-first brands like Equinox try to enter the home. In that way, omnichannel fitness will come to fruition. But optimizing for out-of-studio first may prove more successful than the inverse.

Looking further ahead, it’s entirely possible that instructors and trainers begin to unbundle from gyms and studios. Armed with new digital tools and a disproportionate amount of the value, instructors will monetize their own audience.

Takeaway

The list of potential ramifications is endless. And attempting to predict the future is futile. So, to some extent, we have to let the cards fall. But passively standing by isn’t an option either.

To be sure, COVID didn’t invent new behaviors as much as it accelerated existing trends. Pulled into the future, imagine it’s 2030. Through that lens, operators will be well-served by using this moment to move beyond short-sided, first-order thinking to ask, “and then what?”


👀 Be on the Lookout

Just yesterday, Instagram unveiled a new Guides feature focused on wellness tips.

How it works: Available to a small group of handpicked influencers, publishers, and organizations to start, the new article-like posts combine photos, videos, and original text into a single “Guide”.

Why now? According to Instagram CEO Adam Mosseri, the company wants to support the well-being of users during the pandemic. On Twitter, Mosseri wrote:

“We know people are struggling due to COVID-19, so the first Guides focus on wellness content from respected organizations and creators.”

Said differently. When the quarantine forced the fitness and wellness industry online, social platforms like Instagram boomed with workout and well-being content. In the near-term, wellness-focused Guides are an effort to capitalize on that attention and keep users on the platform longer.

Why it matters: Recognizing the larger opportunity around WOFH and wellness content in general, larger platforms and tech companies like Facebook, Apple, TikTok, and Twitch could double down on the category.

  • Facebook is adding the option to charge for live streams.
  • As we previously covered, ‘Apple Fit’ could prove to be a disruptive force.
  • On YouTube, videos with “self-care” in the title have more than doubled, while home workout videos have climbed by 515%.
  • On TikTok, videos tagged #fitness have been viewed 23B times and #mentalhealth has logged 733M views.
  • The Chinese version of TikTok is already experimenting with health and fitness content, using AR exercise filters to make working out more social.

Takeaway: COVID didn’t just accelerate the need for brick-and-mortar fitness providers to move online, the opportunity in digital workout and wellness content has piqued the interest of much larger players. The depths to which they wade into the category is TBD, but for now, all signs point to the rise of the fitness creator.

🌱 Food for Thought

As the situation at America’s meatpacking plants deteriorates, plant-based alternatives look to seize the moment.

What’s happening: Across the country, meat processors are shuttering as workers contract and die from coronavirus. Beyond the human toll, farmers face financial ruin, animals will be euthanized, and consumers will find empty shelves in the meat aisle.

  • Beef, pork, poultry, and fish plants in more than a dozen states have closed.
  • Grocers like Costco and Kroger are rationing meat purchases.
  • Fast food chains like Wendy’s are running out of burgers.

On the other hand: Plant-based meat alternatives are seeing demand skyrocket during the pandemic. In response to meat shortages, Impossible Foods has quickly scaled its retail footprint, a channel that will increase 50-fold this year. Meanwhile, Beyond Meat has seen its stock soar more than 60% in 2020 to a $7.4B market cap, prompting CNBC’s Jim Cramer to remark“I think the pandemic is saying start eating plant-based.”

Zooming out: The boom goes well beyond meat alternatives to include the broader plant-based category. If concerns about climate change, animal welfare, and a focus on overall well-being helped propel the industry forward pre-pandemic, supply chain issues and industrial farming practices are now at the forefront.

Combined with the fact that a record $930M was invested in plant-based or cell-cultured meat or dairy alternative companies during the first quarter of 2020, and it’s plain to see how the momentum could carry on post-COVID.

Punchline: In the short-term, the success of the plant-based category could come down to the price. As Food Dive points out, given unprecedented levels of unemployment and economic uncertainty, shoppers aren’t likely to opt for more expensive meat alternatives.

Listen up: Dan Gluck, Managing Partner of PowerPlant Ventures, on the Fitt Insider Podcast.

📰 News & Notes

💰 Money Moves

  • Keep, a Chinese social fitness app, closed an $80M Series E funding round at a $1B valuation.
  • Big Sky Health, makers of health apps including Zero, Less, and Oak, raised $8M in funding led by Greycroft.
  • Meru Health, an online platform connecting licensed therapists with patients, secured $8.1M in Series A funding More from Fitt Insider: Startups Confronting the Mental Health Crisis
  • FORTË, a technology and subscription-based streaming platform for fitness studios, raised $1.25M in funding from SeventySix Capital. Listen in: FORTË CEO Lauren Foundos on the Fitt Insider podcast
  • Immunai, a startup using AI to map the entire immune system, announced $20M in seed funding.
  • PEAR Sports acquired AI-enabled health coach Performance Lab.
  • Nanit closed $21M in funding for its baby monitor, app, and wearables for infants.

Raising funding or recently closed a round? Email us: team@fitt.co 

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