Can Planet Fitness Survive
Trying to stay in shape during a pandemic means lifting dumbbells in front of the bedroom mirror, taking Pilates classes in the living room on Facebook live, and long runs in the park wearing a mask. By early April 2020, almost all of the 40,000+ health clubs in these. Shut down.1 out of every 5 Americans needed to find a new place to sweat. Since the start of the pandemic,
U.S.gyms have lost more than $10 billion dollars in revenue as of August1st, 2020.And according to the International Health, Racquet and Sports Club Association, without additional federal funds, about 25% of clubs could close permanently. In the meantime, Peloton’s sales have surged as people convert their apartments and houses into home gyms.Covid-19 has thrown the gym industry into a tailspin, wreaking havoc on some of the biggest names in fitness, including Gold’s Gym and 24Hour Fitness. Planet Fitness has also had to shut its doors for months. But unlike its rivals, the company is poised to sprint past the competition once the pandemic ends. Planet Fitness is the purple and yellow gym, where a basic monthly membership runs $10 bucks a month and the staff gives away free pizza and bagels.
Most Popular Planet Fitness Gym
“You know, I really feel that a situation like this, people really realize how important fitness is in health and wellness, and there are studies that show all the time that working out does build your immune system. You know, I think Planet Fitness, because of our economics our strong franchise system; we’re well-positioned to weather the storm. “Planet Fitness reported 53 consecutive quarters of positive same-store sales growth before Covid-19 hit in March 2020.But analysts say, without the rollout of a vaccine, it could be until the end of 2021 before the company reaches pre-pandemic levels of profitability.
So despite the dire situation in the gym industry, can Planet Fitness actually come out ahead? And what does social distancing mean for the future of working out? Planet Fitness’s origins can be traced back to Dover, New Hampshire in the early 1990s.In 1993, Brothers Michael and Mark Trandahl hired UNH student and future CEO Chris Ronda to work the front desk at their gym. The club looked a lot like its competitors: stacks of free weights, juice bar and group exercise classes. But the trio realized that to expand their clientele beyond the limited pool of power lifters and Tae Bo enthusiasts, they would need to go after the 80 to 85% of the population that didn’t go to the gym. They canceled classes, ditched oversize dumbbells, and shifted resources to cardio and circuit training. Planet Fitness was born.
History of Planet Fitness Gym
“Back then, there was only 15% had a gym membership, today still only20% have a gym membership. So we said, well, maybe its price. So we started dropping prices that’d get people off the couch and living out of desperation. We weren’t going to make it anyway, so we had to lose. So, we dropped the price and decided if we had a lot of volume and really figured out the model of catering to first timers and casual goers. “Planet Fitness is different than other gyms. Its basic membership is $10 dollars a month, well below the industry standard of $71 dollars. It gives out free pizza and bagels once a month and has lunch alarms as a reminder to power lifters who are grunting or dropping their weights that they are intimidating their neighbors. To keep costs low, Planet Fitness locations don’t have perks like pools and basketball courts, but the company spends big on advertising, and that has helped membership soar. As of June 2020, Planet Fitness had more than 15 million members at its more than 2,000 locations, more than double the amount it had in2015.
making it one of the largest gyms in the Using the U.S., franchisees spend 2% of their monthly membership dues on national advertising and 7% on local advertising. From 2011 to 2019, Planet Fitness spent over $870 million dollars to drive brand awareness, including sponsoring TV shows like “The Biggest Loser” and “Dick Clark’s New Year’s Rocking’ Eve with RyanSeacrest.” As of 2019, 95% of Planet Fitness gyms were owned by franchisees. “If you think about our business model and our marketing. A marketing machine is what I call it, okay? So, every incremental member that joins, 9% of those dues go to marketing. Fueling the next join. “And so the bigger they get the more of a marketing force they become. And so, it is going to be pretty difficult to compete with that marketing bulk. “In addition to revenue it makes from corporate-owned gyms and royalties from franchisees, Planet Fitness makes money selling all those purple and yellow workout machines to its franchise partners. In 2019, equipment sales made up 37% of the company’s revenue, and its banks on not a lot of people showing up to use them. In 2019, Planet Fitness averaged over 7,000 members per gym.
That’s a big number to fit in a 20,000 square foot space. In fact, according to analysts, the average Planet Fitness gym member visits only once or twice a week at most. “Our average members use it about 5 to 6 times a month, believe it or not. So they use it.It’s very it’s kind of like their second or third priority. They’ve got kids, they’ve got a second job, and they’ve got yard work too. But they get it in when they can get it in’s it’s not that 7-day-a-week person; it’s a very different customer.” To help bring in new members that were unlikely to become gym rats, the company commissioned a 2019 study that said 61% of Americans believe a “dad bod” is sexy.
“I think the biggest thing that they’ve done is they don’t compete directly, for the most part, with other gym chains for customers. They acquire the majority of their customers from the couch, so to speak. Meaning their customer is the non-gym goer.They’re able to be extremely profitable despite the fact that they’re only charging $10 or $20 dollars a month because they have so many customers per club. And that, I think, is really the key to the business model. “In August 2015, the gym operator debuted on the New York Stock Exchange, and the stock soared 450% to $88 dollars by February 20th, 2020. As of October 26th, 2020 Planet Fitness had a market cap of $5.9billion dollars.
“On the idea of convenience, the way that Planet Fitness is winning that war is that every year they’re growing about200 new units per year, which means they’re getting closer and closer to where we all work and live. And that’s a key reason why people join a gym as well. “The fitness industry in the U.S.is a $32 billion dollar market with more than 41,000 gyms and 64million members. In addition to independent mom and pop clubs, gym chains like L.A. Fitness, Lifetime Fitness, Snap Fitness and of course, Planet Fitness, were forced to shut down most all their locations in March 2020 to curb the spread of Covid-19.”It’s a cataclysmic event.
It’s a major hurricane. It’s a major problem. “I think longer term, what this has probably created, you know, the silver lining behind all of it is horrible situation we’re all in, is that I think it will probably accelerate probably 10 years of cleansing the industry in a matter of probably 12 months. There’s a lot of mom and pops up here; it’s a very fragmented industry. There are 41,000 gyms in the country. If you take us and LA Fitness and 24 Hour Fitness, the big national guys out, you still have 35 or 36,000 mom and pops. Old clubs have been around for 20 years, you know, lack of capex, old equipment. So you know, I think it would really cleanse the industry, and the cream will come to the top, and the good guys will survive longer term.”55-year-old Gold’s Gym filed for bankruptcy in May 2020 and said it would shut down 3 company-owned gyms due to financial stress caused by the coronavirus pandemic.
According to a statement, the move would not impact franchise gyms. In July 2020, Germany’s RSG group, a leader in the European fitness space, was selected as the winning bidder for Gold’s in court-approved auction for about $100 million dollars. It’s a similar story for 24 Hour Fitness, which filed for bankruptcy in June 2020.The company plans to use bankruptcy to eliminate debt and close clubs that were either out of date or in close proximity with other 24 Hour Fitness clubs. And Planet Fitness has faced major headwinds, too. The company reported second quarter 2020 revenue decreased by 78%from the year prior to $40 million dollars due to gym shutdowns. According to analysts, Covid-19 may have accelerated a trend in fitness that was already taking hold prior to the pandemic: working out at home.
“I think a lot of the bigger gyms were probably already struggling to some degree. I think this secular shift away from traditional gyms and toward sat-home fitness had already started. “In a survey published in June 2020 by TD Ameritrade, almost 60% of Americans polled said once the pandemic ends, they would not renew their gym membership. One of the main reasons? Affordability. Respondents said that Americans who choose to live healthy lifestyle shell out an average of $177 a month on personal trainers, fitness classes and gym memberships. More than half the people surveyed said the pandemic helped them find cheaper way to live healthier. As gyms shut down because of lockdown orders across the U.S., demand for fitness equipment soared. According to NPD Group, fitness equipment sales rose 130% in March2020 compared to the prior year.
Sales of exercise bikes were up 170% and weight bench sales were up259%. Suddenly, there was a shortage of dumbbells and kettle bells one-commerce sites. One company that was well-positioned in the at-home workout space was exercise bike-maker Peloton. The company has seen sales surge. In the third quarter of 2020, Peloton had revenue of $520 million dollars, more than 66% higher than a year earlier. It also reported more than 170,000 paying digital members, up 64%from the previous year. In September 2020, Peloton announced new products, including a lower priced treadmill and a more expensive bike option. The price of the original Peloton bike will drop by $350dollars.
Peloton hit a market value of $35 billion dollars in October2020. And it’s not just Peloton that is making inroads into home fitness. In June 2020, yoga pants-maker Lulu lemon said it was acquiring fitness company, MIRROR, for $500 million dollars. MIRROR offers live classes in its wall mounted device, which retails for $1500 dollars. Subscribers pay $39 a month to stream classes. Apple is planning to get in on the at-home workout boom as well. In August 2020, it was reported Apple was working on an exercise video subscription service for the iPhone and Apple TV that could include activities like indoor running, cycling, rowing and strength training. Planet Fitness thinks it may have a future in your living room, too. The gym launched the Planet Fitness app in the summer of2019. “We launched our app last summer, and we loaded in 500 workout videos and exercises to do, whether you’re in club or at home, and saw some good traction with that.
But literally the day we close our gyms in March skyrocketed the consumption and really interesting, we saw is: 24% of the consumption were non-members. “And because of its low monthly membership fees, analysts say Planet Fitness is a natural fit for people who like to workout at home but also want to occasionally hit the gym. “Historically, there’s been an 80% positive correlation with at-home fitness sales and fitness club memberships, indicating that they both rise together. And actually, people who work out of fitness clubs are more likely to have at-home fitness. That kind of makes sense, right? Because you want to have that optionality. “With clubs reopening, Planet Fitness announced on August 1st, 2020, masks would be required inside gyms except when members were actively working out.
The company suspended Pizza Mondays and Bagel Tuesdays, started live streaming at-home workouts on the company’s Facebook page and blocked off equipment in gyms to create social distancing. But even with all the precautions, is it safe to work out in the gym during a pandemic? A study from Norway said it just might be. The research started in May 2020 included 5 gyms in Oslo with over3, 700 members who did not have underlying medical conditions. The results? No one at the gym got infected. The study surmised that with good hygiene and social distancing measures, there was no spread of Covid-19 in gyms. Planet Fitness said that since May 1st 2020; with over 45 million check-ins only a fraction of people have tested positive forCovid-19. That’s 1 in 354,000, and there’s no evidence anyone contracted the virus in its clubs. “I do also think, though, that this will also create a renewed sense of awareness of wellness. I think people really realize from all the news reports you see that, geez, the people that this is affecting the most? Are people that are obese or chronic diseases or diabetes, heart disease, and I think this will get people to really say, ‘Hm.We’ve been hearing it for 20, 30 years, maybe I should really listen.'” But what about boutique fitness studios that tend to have larger classes in smaller spaces? Boutique studios like Barry’s, Soul Cycle and Orange Theory are one of the hottest trends in fitness and pre-pandemic were a go-to social destination.
“And what’s interesting is that, up until about last year, the boutique industry accounted for about 30% of fitness spend, which is up dramatically from about 10% of fitness spend about 5, 10years ago. “Barry’s, formerly Barry’s Boot camp, known for its Red Room, has more than 70 locations in 14 countries. The company normally charges $25 to $38 dollars per class, but on March 17th, began offering free Integra live workouts while some venues remained closed. As of October 27th, 2020, Barry’s had 13 U.S.studios and 23 international clubs open for indoor workouts and 12open for outdoor workouts.
SoulCycle, the indoor cycling studio owned by the Equinox Group, said it was moving some studios outdoors for the summer, and clubs that have reopened will have an upgraded air filtration system, and every bike will be disinfected after each class. The company also sells a bike for your home that costs $1,650dollars. And with brick-and-mortar studios shut, Class Pass has made some moves out of the gym as well. The fitness class subscription service has over 4,000 free on-demand digital workouts available, including boxing classes from Shadowbox to meditation sessions from Unplug. With less people booking sessions, Class Pass announced in April 2020, it was lying off or furloughing over half of its employees.