It has has been a busy time for the health club and fitness industry in the past few months. Life Time Fitness, Chanhassen, MN, announced it is being acquired for $4 billion, while Planet Fitness prepared for a public offering. Club Pass closed another financing round bringing its total of venture capital raised to more than $50 million at a valuation of more than $200 million. Under Armour invested more than $560 million in purchasing MyFitnessPal and Endomondo last month while Town Sports International considers a sale.
So what does all of this mean?
Welcome to the fitness and health club business in 2015 as disruption has placed its talons firmly on the industry space. Entrepreneurs love to discuss disruption, though I'm not sure many know what it really means. Better products and services are mistaken for disruptive ones. Creating products or services that are better, cheaper and faster does not necessarily mean they are disruptive, and this is often a point of misunderstanding when exploring the subject.
Clayton Christensen, Harvard Business School professor, defined disruption in his book, "The Innovator's Dilemma," as a disruptive product or service addressing a market that previously couldn't be served or it offers a simpler, cheaper or more convenient alternative to an existing product or service, known as a low-end disruption. This is clearly a relevant dynamic in the health club and fitness industries today.
According to Christensen, incumbent competitors in the market find it nearly impossible to respond to a disruptive product. In new market disruption, the unserved customers are unserved precisely because serving them would be unprofitable given the incumbent's business model. In a low-end disruption, the customers who are lost typically are unprofitable for the incumbents, so the big companies don't mind losing them. This is the innovator's dilemma. Incumbents appropriately ignore the new product or service because it is uneconomic to respond, but the incumbents' decisions can lead to their later demise as those business models take hold and steal market share.
We are seeing disruption in action in the expansion of low-cost models such as Planet Fitness, in alternative models such as Class Pass that are driving down price and increasing convenience, in Under Armour's foray into digital fitness, om NBC's entry into fitness content via Radius, and in many others. The sale of mature business models and the public funding of others tell us where the growth is going to come from in the future in the eyes of the investment community.
The news isn't all bad for brick and mortar fitness business models, however. The traditional health club industry has reached a maturation point setting the stage for an upcoming explosion in the marketplace. I wrote about this S Curve theory for the industry in 2011, and it has pretty much played out as predicted. Digital, alternative models and new innovations represent disruptions that are going to increase the number of health and fitness customers dramatically. It will be up to entrepreneurs to seize the opportunities that the market is creating, and believe me, they will.
These concepts were shared during my presentation at the IHRSA conference earlier this month. You can read the content and watch the videos relating to "Navigating the Revolution, New Technologies Creating Opportunities" here. An interesting point is how specialty retails have resulted in the most successful brands being the ones that integrate digital and physical experiences around the customer. In the end, the same will be true for brands in the fitness industry.
So what do you think? Is the fitness and health club industry being disrupted? What does it mean to you? Please leave your thoughts in the comments section below.