Perhaps one of the biggest fears of a health club owner is that members will find a more convenient, cheaper, at-home exercise option that takes them away from the gym world for good.
That may be why Peloton has some health club operators worried. Peloton, which started in 2012 and tripled its revenue from 2015 to 2016, sells indoor bikes for $1,995 and offers up to 14 live streaming cycling classes per day as well as on-demand classes at any time for individuals who pay a $39 monthly fee to view the classes on a tablet that is included with the bike. That seems like quite a deal considering SoulCycle charges $34 per class and Flywheel charges $28 per class—and bikers must sign up in advance for those classes and travel to a SoulCycle or Flywheel studio to take the class.
If you don’t offer cycling classes at your facility, you may think that Peloton does not affect you. However, within the past year, Peloton announced three changes that may change your mind.
In October, Peloton executives shared that it entered a partnership with yoga instructor Colleen Saidman Yee to stream yoga content taught by Yee. John Foley, CEO of Peloton, recently told Fortune magazine that the company also will launch classes people can take on other fitness equipment. Club operators who didn't feel threatened by Peloton because they didn't offer cycling classes may have more reason to feel threatened now that Peloton is getting into yoga and other online group classes using other types of equipment.
Not only that, but Peloton has streamed its classes from a studio in Chelsea where people can take classes in person, and it now is planning another location in New York City geared toward content streaming in its four studios and that Foley indicated in the Fortune interview may be open to members.
Obviously, investors see growth potential in this model. Peloton announced in May that it had raised $325 million from investors, in part to possibly go public, Foley said in the Fortune interview.
Talk of a Peloton IPO is not new. In December 2015, Peloton received a $75 million investment from Catteron, a consumer-focused private equity company that has money invested in other fitness companies, too. At that time, Foley hinted to the New York Business Journal that a public offering might be in the works. However, a Peloton IPO stalled in 2016 when Foley said that the company would focus on growth instead. A similar story has played out for fellow cycling business SoulCycle, which announced in July 2015 that it intended to go public, but no further action has occurred at this point on that front.
With the most recent investment in Peloton, Foley and his crew seem to be thinking about an IPO again. What could all these changes and a possible move to a public company mean for the fitness industry? It would mean a higher profile for this at-home fitness offering, but Foley and William Lynch, who was hired earlier this year as president of Peloton, are former Barnes & Noble executives. Lynch was CEO of Barnes & Noble while Foley headed its online division. They have brick and mortar in their blood but also online savvy. Even though Amazon and other online retailers spelled disaster for many bookstores, Barnes & Noble found a way to survive. One can only imagine that the two learned from their experience at Barnes & Noble about how to survive in the brick and mortar world.
Along with the build out of a second location for their studios, the company launched in January commercial-grade bikes that are now sold into commercial clubs as well as hotel, corporate and residential fitness facilities. Plus, the company has expanded from 12 showrooms to 24 in the past few years, perhaps realizing the importance of hands-on experience with the bikes to increase sales.
It seems that Peloton is indicating that the online world can't stand alone any more than the brick and mortar world can. Sarah Robb O'Hagan, CEO of Flywheel, seemed to echo that idea when she announced in May that Flywheel will offer at-home bikes and online streaming classes by the end of the year. She noted in an interview with Club Industry at that time that the purpose of the move was to reach members outside the studios and to attract new members into its studios.
Online-only fitness offerings won't be sustainable any more than strictly brick and mortar health clubs will be. The two worlds are mingling and investors are taking notice. Whether you started online or with some sort of real estate, survival likely depends on being able to operate in both arenas—because your consumer lives in both and will expect you to do so, too.