Issue No. 101: On the Other Side

Courtney Powell

Despite the recent surge in spending on home exercise equipment, the record level of funding poured into digital fitness, and the newly formed workout habits, gyms and studios will inevitably reopen.

While there’s no way to know when that may be, exercising in person will take on a new form upon its return.

It Will Get Worse

When we say reopen, we mean zero-restriction, post-pandemic return — which still feels a long way off.

In Issue No. 79, we discussed the next-order effects of being “open-ish”, writing: Masks, temperature checks, reduced capacity, intense cleaning… the list goes on; this is the new normal.

For what it’s worth, that was written back in May. Since then, there has been little progress made. Some places have seen gyms reopen. Others opened, then closed again. Meanwhile, boutique studios in New York City and Los Angeles remain closed.

Now, with winter approaching and COVID cases climbing, the situation is likely to get worse before it gets better. From bankruptcies to outbreaks, recent weeks have signaled a cause for concern.

Outdoor classes. Some fitness operators have been able to subsist on outdoor workouts. But when the seasons change, any cash coming in will drop right along with the temperature outside.

Bankruptcies. Cyc Fitness and YogaWorks are the latest additions to a growing number of fitness bankruptcies that include Gold’s Gym, 24 Hour Fitness, Town Sports International, and Flywheel Sports.

Outbreak. An Ontario, Canada cycling studio was determined to be the source of a coronavirus outbreak that infected 74 people. The outbreak occurred despite precautionary measures, like reduced capacity and temperature checks.

Safety First

The outbreak in Ontario fuels the debate about the risk of in-person exercise.

For starters, it’s not the first fitness-related outbreak. An Orangetheory Fitness in Illinois reported 18 cases, a San Diego gym was linked to an outbreak, and 200 gym-goers in West Virginia were forced to quarantine when a member tested positive.

There’s also the fact that both the CDC and Dr. Anthony Fauci, immunologist and director of the National Institute of Allergy and Infectious Diseases, have issued warnings about the safety of gyms and studios.

These warnings are based, in part, on a study published in Emerging Infectious Diseases that identified 112 coronavirus cases resulting from participation in or association with fitness dance classes. The report concluded: “Vigorous exercise in confined spaces should be minimized during outbreaks.”

A glimmer of hope, IHRSA championed a study declaring gyms safe under the headline: “Current Data Shows No Evidence of COVID-19 Spread in Gyms.”

But, as The Washington Post reported, public health experts found the study to be “methodologically flawed and open to conflicts of interest.” One researcher described the findings as “unfounded, unsupported, irresponsible.”

To be clear: We’re not advocating for or against opening or attending gyms. Ultimately, everyone has to assess the risks and act accordingly.

But the larger point remains; if would-be gym-goers are worried by the spike in COVID cases or warnings about exercising in person, the shift to alternative means of fitness will continue for the foreseeable future.

An Industry in Flux

Long before the pandemic put the brakes on the booming exercise economy, the fitness industry was experiencing change.

  • A boutique fitness bubble has been looming for years.
  • Gyms reliant on unused memberships racked up debt.
  • In 2019, 85% of all gym members also exercised at home.
  • Since 2016, Peloton grew revenue 100% YoY, from $60M to $1.8B in 2020.

No surprise, the shift we’re seeing was well underway. Free from COVID, the effects would have played out over a decade’s time. Now, a new era of exercise is upon us.

Post-pandemic, the exercise ecosystem that emerges will include brick-and-mortar fitness options. But, in many ways, it will look different than the gyms and studios of old. When a vaccine arrives and the masks come off, here’s what we can expect to see:

Closures & consolidation. By some estimates, 25% of gyms could close by year’s end. Ultimately, this means fewer gyms overall. And it sets the stage for M&A.

Beyond scooping up real estate holdings or a member base, digitally focused or technology-enabled brands can use this opportunity to acquire in-person touchpoints. Indicative of this trend, RSG Group’s acquisition of Gold’s Gym is one to watch.

Smaller footprints & new formats. In an era of video on demand, personalized workouts, and at-home offerings, gyms and studios may see fewer patrons or less frequent visits.

As a result, gyms could shrink — Crunch Fitness already announced plans for a smaller footprint. In an effort to diversify, they’ll bundle digital content with a membership. The configuration will also change to accommodate exercisers following along with an app.

Showroom+. Connected fitness showrooms are the new studio. Companies like Peloton and Tonal see physical locations as an opportunity to engage with and educate consumers. But mall kiosks and standalone stores are just the beginning.

To an earlier point on in-person touchpoints, digital-first brands will back into physical manifestations. Part of a broader visionlululemon’s acquisition of Mirror epitomizes this trend.

Going forward, showrooms could be a launchpad for meetups or members-only events and foreshadowing of full-blown studios.

Shared spaces. From pop-ups and outdoor workouts to coworking-style gyms and curated shops, an effort to minimize overhead and lessen commitment will result in multiple takes on shared spaces.

Brands like 305 Fitness and Camp Gladiator have used pop-ups and outdoor workouts to their benefit. Both Silofit and WE11 cater to freelance fitness professionals searching for a space to train clients. Fitness halls like BYNDfit could help reduce costs for operators.

Looking to retail for inspiration, Neighborhood Goods or Pop Up Grocer could serve as a model for a workout, shopping, and sampling experience.

Wellness communities. Pre-COVID, wellness hangouts and events brought people together around self-care and socializing. While many pivoted online during the pandemic, chances are good that we’ll re-emerge stronger on the other side.

We crave community and human interaction. And we gravitate toward people and brands with shared values. In many ways, these truths contributed to the rise of boutique fitness. But now, as convenient and effective at-home options take hold, exercising might become a more transactional, solo pursuit.

Of course, we’ll still want to seek out and socialize with our “tribe”. To that end, wellness communities, events, and retreats just might fill that void in the same way that music festivals create a shared experience among friends.

Looking Ahead

By no means is this an exhaustive list. And in a world where things change by the minute, it’s impossible to predict the future. But a return to business as usual is out of the question.

Whatever happens, let’s hope that fitness finds a way to welcome and accommodate first-time exercisers instead of catering to consumers who are already fit. Ultimately, that’s where the biggest opportunity lies — in broadening the base of fitness seekers, not competing for them.

🎙On The Podcast

This week, on the Fitt Insider podcast, we’re excited to bring you the first episode of Startup Spotlight — a recurring series where we speak with early-stage founders working on fitness and wellness startups.

Episode 53: Cam Porter, the Founder and CEO of Core.

Core is making it easy for fitness instructors to create a branded digital experience across iOS, Android, and the web. The company’s content and client management tools help instructors launch and scale their business.

In this episode, we discuss:

  • The current state of digital fitness
  • The disconnect between fitness and health
  • Empowering instructors to build an online business
  • Challenges Core is working through to bring its product to market

Listen to the full episode here.

A quick note: We’re working with Cam and the Core team in an advisory role. We’re excited to play a small part in helping fitness instructors grow their businesses.

🏛See You In Court

As connected fitness becomes more competitive, the category is growing more litigious.

The latest: ICON Health & Fitness is suing Peloton for patent infringement.

The claim: Parent company of brands like NordicTrack and iFit, ICON claims to own patents for two features Peloton added to its newly released Bike+, stating:

“Some companies, like Peloton, have built (at least in part) entire businesses on the back of ICON’s patented technology.”

ICON pointed to the swiveling touchscreen and the ability for the bike to automatically change resistance levels during classes. More specifically, the lawsuit says ICON obtained “hundreds of patents on these systems before Peloton was founded.”

Of note, the lawsuit also claims Peloton chief executive John Foley met with ICON in 2013, hoping to gain permission to use ICON-owned patents. The company declined.

Lawyer up. Legal battles are becoming par for the connected fitness course.

On deck. To date, cardio has taken center stage. But the struggle for dominance in strength training is shaping up. Something to keep an eye on, Tonal has a robust patent on “a method and apparatus for digital strength training.” This could spell trouble for FORME LifeTempo, and others in the at-home strength category.

🚚 Demand for Delivery

Like at-home fitness companies, Thrive Market has seen demand surge during COVID.

What it is: Founded in 2014, Thrive Market describes itself as “Costco meets Whole Foods.” By charging an annual membership ($5/month or $60/year), the online marketplace is able to offer natural and organic food and products at a 25–50% discount per item.

Stay-at-home. When the pandemic disrupted the daily routine, Thrive Market filled the void. Instead of venturing out to the grocery store, consumers ordered online. And, with well-being top of mind, Thrive’s health focus stood out.

Pre-COVID, Thrive was on track for 40% YoY growth. Now, that number has nearly doubled, with sales up 90% YoY.

Members. With membership approaching the 1M-mark, Thrive is seeing 85% of members opt for the annual subscription and 70% of members renew.

Takeaway. Overall, Grocery delivery caught on during COVID, but healthy food options like Thrive, Daily Harvest, and ButcherBox gained ground, strengthening the staying power of wellness-focused brands.

📰 News & Notes

💰 Money Moves

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