The beneficiaries of consumers’ heightened focus on health and fitness after the COVID-19 pandemic will be specialized sets of offerings and evolving innovations rather than traditional health clubs and group fitness, according to an L.E.K. Consulting report, “The Future of Fitness: Looking Past COVID-19.”
“Consumer trepidation around using in-person fitness facilities will likely push a full recovery out to 2023 or 2024,” said Alex Evans, co-author of the report and managing director at L.E.K., a global management consulting firm. “And even once gym use reaches pre-COVID-19 levels, it will be based on a different mix of in-person and digital, at-home activity.”
The gyms that will recover more quickly will be differentiated studio experiences and the high-volume, low price gyms, the report projects. In addition, integrated ecosystems of hardware, software and content as well as wearable-enabled coaching services will lead the recovery.
Because of COVID-19, fitness industry revenue dropped by more than 50 percent in 2020, according to the report. The growth in digital fitness and outdoor classes wasn’t enough to offset the decline in traditional membership fees. Some major chains, including Gold’s Gym and 24 Hour Fitness, declared bankruptcy, and overall, 17 percent of fitness locations in the United States closed.
Lingering consumer concerns are expected to draw out the recovery of traditional fitness clubs. A recent survey found that 43 percent of fitness club members say they will not go within the next three months and 10 percent report they won’t go within the next year.
Many traditional gyms — especially small, independent locations — will likely continue to struggle with membership numbers, according to the report. Group cycling studios may find it hard to reach pre-COVID-19 levels of participation — mainly because of tremendous competition that has emerged from virtual providers. Peloton alone added approximately one million subscribers in 2020. Equipment-light concepts, such as yoga and barre studios, likewise will struggle in the face of comparable digital experiences at home.
However, concepts and offerings with greater points of distinction will fare better during the rebound, according to the report. For instance, multi-modal, equipment-intensive and community-oriented boutique concepts — such as Orangetheory, CrossFit and 9Round — are better positioned for greater-than-market growth than other studio offerings (such as group cycling and yoga).
Digital fitness will continue to grow faster than the overall fitness market but more slowly than during its COVID-19-fueled peak. Most of the growth will be driven by integrated ecosystems of hardware, software and content, such as Peloton, Hydrow and Mirror. These companies are uniquely positioned to deliver a seamless, turnkey experience to a scaled audience and to fuel higher engagement with gamification elements and progress tracking over time.
Digital wearable ecosystems have the opportunity to enhance the fitness-focused propositions of existing services, such as Noom and Strava, and to spawn new fitness, rewards and incentives programs.
“We’re seeing that well-capitalized concepts that have a relatively small space footprint, like Barry’s Bootcamp, are nicely positioned to capitalize on post-COVID-19 commercial real estate dynamics — namely, favorable rent terms and location availability. In fact, some of these kinds of players, including Xponential Fitness, increased rather than decreased their number of locations in 2020,” said report coauthor Jon Weber, managing director at L.E.K.
HVLP gym brands such as Crunch Fitness and YouFit Health Clubs could be among the first chains to rebound, owing to their attractive pricing and appeal to value-oriented consumers, according to the report. The potential for ancillary revenue for these brands is there: HVLP members are not likely to adopt a separate digital fitness solution, so HVLP brands have an opening to upsell their own digital fitness services.
Like differentiated boutique fitness experiences brands, HVLP gyms may be able to take advantage of a favorable post-COVID-19 commercial real estate market to keep costs in line.
“The COVID-19 pandemic hit the fitness industry hard, largely due to its reliance on in-person facilities,” said report coauthor Geoff McQueen, Managing Director at L.E.K. “But it also has accelerated the inroads that were already being made by digital fitness concepts — in particular those, like Peloton, that leverage integrated ecosystems of hardware, software and content to enable tracking of performance. It also has highlighted the attractiveness of various differentiated boutique concepts. So, while it may take until 2023 or 2024, the fitness industry will not only recover from COVID but will also offer numerous attractive investment opportunities along the way.”