The world is facing challenging and uncertain times with respect to medical, human, political, social and economic topics of society. When the coronavirus hit the European health and fitness market in March and governments subsequently closed gyms across Europe, club operators had no manual on how to handle such a unique situation. As it turned out, club closures lasted anywhere from six to 18 weeks in Europe, depending on how severe the impact of the COVID-19 virus was in the country in question. Some regions even suffered a second lockdown.
Various governments were quick to provide significant financial help, and yet the financial damage for operators and other actors in the fitness industry is massive. In fact, it still is unclear how high the losses really are. For this reason, EuropeActive and Deloitte launched a study this summer to examine the business impact of the COVID-19 crisis on the sector in both the short and the longer term. The fieldwork took place in August and a total of 17 European key operators were interviewed, covering around 10 percent of all members in the European health and fitness market. Results of the study are available in the report, “Europe COVID-19 Impact Study.”
Main Research Findings
As of March 31, the surveyed operators experienced an average membership shortfall of around 3.5 percent compared to their original budget. In comparison, as of June 30, these shortfalls reached their highest point with around 15.8 percent, primarily as a combination of membership cancelations and the absence of new membership inflow during club closures. The average shortfalls compared to budget with respect to the number of clubs amounted to only 2.5 percent as of June 30.
In the medium and long-term, both average membership shortfalls and average club shortfalls are expected to decrease. As of December 2020 and December 2021, European operators expect average shortfalls in memberships of 13.9 percent and 9.9 percent respectively. With respect to clubs, average shortfalls compared to budget are expected to amount to 1.8 percent as of December 2020 and 0.6 percent as of December 2021. Overall, the shortfall of clubs might be higher in the European fitness market, especially with respect to single club operators, who might face higher financial difficulties than chain operators.
The extent of the pandemic-related closures in the second quarter also was reflected in financial terms. Primarily due to the absence of membership fees, European fitness operators experienced an average income shortfall of about 65 percent compared to budget in the second quarter. Discrepancies in income shortfalls between operators in the study can be explained by different approaches to the handling of membership fees during the period of club closures.
Although some operators continued to collect membership fees unless customer objections were received, other companies stopped collecting membership fees altogether. However, operators were able to achieve cost savings of 43 percent compared to budget in the second quarter, mainly due to the lower rental, personnel and other operating costs. They also had additional savings with respect to personnel costs, which were significantly subsidized by local governments.
It should be noted that income shortfalls vary considerably between regions. Operators with a UK focus expect the highest financial shortfalls when compared to the initial budget. Income shortfalls of UK-focused operators were especially high in the second quarter (about 94 percent). This is attributable, in part, to the interruption of payment schemes and monthly terminable contracts which – in contrast to Germany and most of the other European markets with primarily longer-term contracts – are more common in the UK fitness market.
Published first half 2020 reports of listed European key operators also show the significant impact of COVID-19 on financial results. Due to an approximately 18-week lockdown in the UK, total revenues of UK operator The Gym Group decreased by around 50 percent in first half of 2020 compared to first half 2019. Similar results have been published by PureGym for its UK-business (a decrease of 49 percent in first half 2020 compared to first half 2019). In comparison, Dutch operator Basic-Fit, which operates in various European countries, recorded an overall decrease in revenues of 24 percent compared to first half 2019.
To counter the crisis, operators have undertaken a wide range of monetary and non-monetary measures. Among the monetary measures, short-time work, government grants and loan application were the most popular means. In addition, frequent scenario analyses, which were introduced by all operators surveyed, as well as the establishment of emergency plans and the introduction of early warning indicators represent popular non-monetary measures.
The use of digital fitness offerings increased during the COVID-19 lockdown. Survey results suggest that consumers’ interest toward digital offerings is no one-off effect but rather that COVID-19 has served as an accelerator for the increasing demand of digital sports offerings (apps, videos, etc.).
By providing relevant content through digital channels and engaging with customers via homepage and app, operators have been able to keep in touch with their members during the crisis.
Basic-Fit, for instance, actively increased member engagement through its already existing social media channels and mobile app by offering additional services and content. The company-own mobile app was also temporarily available for the general public. According to Virtuagym’s COVID-19 impact study, the number of fitness app users more than tripled and reached its first peak in March when COVID started in Europe. However, the peak was reached in July when clubs started reopening. This indicates that in-person club visits and use of digital offerings can coexist (and accelerate each other) rather than cannibalize each other.
Existential Threat and Future Outlook
As an overall result, major European club operators consider their existence only partially threatened, assuming no further forced club closures. None of the operators stated that their existence was or will be either severely or highly threatened in the future. However, single club operators, which represent the majority of fitness clubs in the European market, appear to be more threatened in their existence than larger operators due to limited resources and refinancing possibilities.
The fact that fitness club operators are looking confidently into the future can be proven not only by the lower expected shortfalls but also by further studies. More than 60 percent of the Spanish operators surveyed in the FNEID/Valgo COVID-19 impact report thought that revenues would return to previously expected levels in the third quarter of 2021. This could be supported by the fact that consumer behavior in the fitness market has barely changed. Eighty-eight percent of consumers in the ukactive/4Global COVID-19 impact report stated that after the reopening of clubs in the UK they would visit the gym as often or even more often than before the pandemic. The confident expectations for the future of the fitness market are also reflected in a considerable number of mergers and acquisitions and financing activities that have taken place in the last couple of months. For example, RSG Group expanded its investments by acquiring Gold’s Gym for $100 million as well as 35 percent of the shares of Gym80. Furthermore, other players such as PureGym, BASIC-FIT or The Gym Group were able to raise large sums of capital during this period.
The report noted it is not possible at this stage to predict what the full impact of the COVID-19 crisis will ultimately be, due to the increasing number of cases and the uncertain future of policy decisions. Nevertheless, the study shows the impact on membership and financial losses, but also that, assuming no further club closures, the industry can recover quickly and is still confident to achieve the long-term goals of 80 million members by the midpoint of the decade and 100 million by 2030.
The study was supported by main sponsor FIBO and co-sponsors Virtuagym and BRP Systems/Sport Solution.