Issue No. 122: Unbundling the Gym

Accelerated by the pandemic, the gym is being unbundled.

From connected equipment and digital communities to remote coaching, the business of fitness has been transformed.

The result?

Gyms and studios will no longer be the hub of a fitness seeker’s universe. Instead, they’ll be a spoke in the exercise ecosystem, giving way to a new kind of fitness bundle.

The Great Unbundling

Nothing new, lumbering incumbents fall victim to disruption. In tech circles, it’s a tale as old as… the internet.

In theory, an all-in-one platform is the holy grail. Among the early examples, horizontal platforms like Craigslist and eBay rose to prominence by serving a variety of adjacent verticals. But eventually, upstarts catering to a specific vertical begin to dissect the platform.

From banking to retail and higher education to healthcare, the unbundling analogy, when loosely applied, signals a shift to tech-enabled, narrowly focused, consumer-oriented solutions.

Specific to the fitness industry, as exercise moves beyond the four walls of a gym or studio, the entire value stream is being impacted.

Gradually, and Then Suddenly

Coronavirus didn’t create new behaviors; it accelerated existing trends.

In some ways, the unbundling began in the early 2000s with the rise of boutique fitness. The vertically focused alternative to a big-box gym, studios specializing in a single modality ushered in a new era of exercise.

More than a workout, fitness became an experience. Epitomized by candlelit rides at SoulCycle and bootcamp in the Red Room of Barry’s, studios became the place to sweat, see, and be seen. Compounded by community, membership to boutique studios grew by 121% between 2013 and 2017.

A welcomed trend, the brick-and-mortar fitness industry benefited from the studio boom.

According to the International Health, Racquet & Sportsclub Association (IHRSA), 2019 was “a year of abundance for the fitness industry.” In all, global revenues reached $94B and gyms/studio memberships were on pace to reach 230M members by 2030. Then, COVID happened.

From Place to Personality

Yes, the pandemic shuttered gyms and studios. But the advent of the celebrity instructor altered the industry long before the lockdowns.

Prior to March of 2020, while the industry’s growth was tied to physical locations, the value was shifting from place to personality. More than a workout or brand name, the instructor was the main attraction.

As this fact became clear, the balance of powers shifted. Soon, A-list instructors commanding top dollar got their way or started businesses of their own — opening a rival studio or launching a digital product.

Thanks to platforms like Instagram and YouTube, instructors and influencers rose to prominence. No longer limited by a physical location or an hourly wage (or a certification), fitness creators earned well into the six figures.

The prime example of a trainer turned creator turned full-blown founder, Kayla Itsines got her start by selling PDF workout guides. Now, her fitness app SWEAT has 1M active users/month and annual revenue approaching $100M.

Anywhere, Anytime

While exercisers and operators were consumed by the boutique fitness boom, innovators were sizing up the industry.

Don’t be fooled by the recent home workout gold rush. Peloton was founded in 2012, Zwift started in 2014, and Strava has been around since 2009. They’ve seen this day coming for some time; it’s consumers who are playing catch-up.

Now, the economics of exercise have fundamentally changed. From the means of distribution and the underlying business models to the core value proposition, the consumer, not the gym, is the central figure in the fitness universe.

This fact will be reflected in a continued evolution, one that prioritizes convenience, adherence, and personalization in addition to non-negotiables like fostering a strong sense of community and industry-leading instructors.

But, more than the changes we can see, the pandemic accelerated the rate of future innovations. Meaning: the Peloton of ‘X’ era—where consumers panic-bought smart bikes and connected fitness companies raised massive amounts of capital—will soon be the target of disruption.

As our “Unbundling” graphic illustrates, a new wave of disruption is upon us.

More specifically, the areas of “Personal Training/Coaching” and “Business Management” have exploded as fitness professionals, and entire brick-and-mortar businesses, move their operation online. Far from comprehensive, this graphic stops short of incorporating the impact of wearables like WHOOP and Oura, gamified options like Zwift or Supernatural, and aggregators like ClassPass.

Bundle and Unbundle

According to Jim Barksdale, the former CEO and President of Netscape, there are only two ways to make money in business: bundling and unbundling.

If that’s true, the future of fitness won’t be defined by hybrid or omnichannel offerings alone.

In reality, new bundles will emerge that combine digital and in-person offerings. For example, Life Time Fitness already offers Apple Fitness+ to its members.

Going a step further, nutrition, health data, and mental wellness will be bundled. And, as we’ve already seen, the bundles will move beyond working out as retailers like lululemon and tech giants like Apple bring exercise into their ecosystems — redefining what it means to be a fitness company in the first place.