How Covid - And Millennials' Aversion To Long Term Contracts - Is Killing Gyms

Covid has accelerated another trend: younger people, who were just getting back on their feet financially from the Great Recession, were then hit with the virus.

In addition to fears of getting sick while working out with others, the digital workout with a trainer is on-demand which lessens the financial commitment. JL

Chinwe Onyeagoro and Revell Horsey report in Venture Beat:

Another factor speaks to the preferences of Generation Y/millennials and Generation Z, who account for 50% of all health club members: These consumers have a preference for on-demand services and are less attracted to locking in annual membership fees. It was the recurring annuity stream of annual membership fees that attracted private equity to gyms, which need stable and predictable cash flow to cover operating expenses. Paying as you go is where the market is moving. Facilitating this trend is the emergence of mobile apps that provide fitness trainers and coaches with a business-in-a-box

The fitness industry is in the midst of a digital transformation. Fitness, like just about every industry from transportation to leisure, has witnessed the emergence of digital as a force for change, and brick and mortar gyms are having a tough time keeping pace. Entire companies have been successfully launched to capitalize on the rise in digital fitness as evidenced by the popularity of companies such as MIRROR Home Fitness, Peloton, FiiT, and SWEAT. These are just a few fitness providers that have leveraged digital technology to engage audiences that are looking for customized fitness experiences that meet their individual schedules and routines.

We have Jane Fonda to thank for bringing fitness into the home back in the 80’s with her Original Workout video on VHS that went on to become the biggest selling video of all time. Fast forward 40 years and we can thank technological innovation for taking home fitness to a new level.

But there is another factor at play which speaks to the preferences of Generation Y/millennials and Generation Z, who account for almost 50% of all health club members: These consumers have a preference for on-demand services and are less attracted to locking in annual membership fees. Remember, it was the recurring annuity stream of annual membership fees that attracted private equity to brick and mortar gyms, which need stable and predictable cash flow to service debt and to cover high operating expenses. Working out at home or in private sessions with a personal trainer (in-person or virtual) doesn’t require an annual membership.

Paying as you go is where the market is moving. Facilitating this trend is the emergence of mobile apps that provide fitness trainers and coaches with a business-in-a-box so professionals in all aspects of fitness, but who are not necessarily astute in how to run a business, can manage scheduling, client on-boarding, invoicing, payment processing, and communication. The many thousands of certified trainers who have been laid off from gyms are now empowered to run their own businesses thanks to cloud-hosted back offices and video conferencing capabilities that provide real-time delivery of services.

Disruption creates winners and losers in any industry. Sometimes disruption is a gradual process and the eventual losers don’t detect the shifting landscape for periods that can extend for years. Think of Kodak and digital photography or Sony and its inability to capitalize on the success of the Walkman, thereby allowing Apple to become the dominant player in digital music. Disruption has been underway in the fitness industry for several years, but until recently it has been a slow and steady disruption.

COVID-19 accelerated the pace of disruption in fitness, and studios and clubs both small and large are increasingly vulnerable. 24 Hour Fitness recently filed for bankruptcy, citing Coronavirus-related causes. With 420 clubs in the US, 24 Hour Fitness is the second largest fitness chain after LA Fitness. With the filing, the company announced it would permanently shut down 100 of its gyms, leaving roughly one million members to find a new place to exercise. Earlier this week, Town Sports, owner of Boston Sports Club, and several other club brands announced they will likely file for bankruptcy in the coming weeks. Gold’s Gym filed for bankruptcy in May.

There is no debating the devastating consequences to gyms due to the COVID lockdown. However, it’s worth noting that large gym chains were not in the best of health even before COVID. For example, Town Sports reported comparable gym revenues declined 2.3% in 2019, a year that was “abundant” for the industry, according to the International Health, Racquet & Sportsclub Association.

Demand for fitness isn’t going anywhere but up. In fact, the $30 billion fitness industry has been growing 3 – 4% annually for the last 10 years. How it is  delivered, however, is changing before our eyes. The often quoted expression “Never let a good crisis go to waste” speaks perfectly to the opportunity in the industry today.

Stuck at home, trainers and consumers have had to adapt and get creative about how they think about fitness. Many have also discovered a new meaning of community through virtual experiences that were never seriously considered just 12 months ago. No surprise that MIRROR and Peloton have experienced record sales during the pandemic because they provide consumers a workout experience that feels pretty close to being in a room surrounded by fellow workout enthusiasts. And now that they have gotten into the routine of working out from home, either with a trainer or on-demand through an app, many will never go back to a traditional gym.

The implications of COVID on the fitness industry offer insights into the way a number of industries will shift as a result of the shelter in place orders. Restaurants will get more creative about take-out options that engage the diner with the preparation, travel experiences may turn to staycations, and the beauty industry may have to move to home services or even more training than doing for their customers. The winners in every case will be the ones that are agile and ready to adapt to the change.