Given the overwhelmingly positive response to our last interview with Thomas Todd on the growth of the Nautilus phenomenon, it seemed like a perfect opportunity to pick Thomas’ brain on a subject of deep personal importance to both of us, the future of the fitness industry.
Having overseen the management and establishment of multiple gyms over the course of his career, Thomas has a unique perspective on both past and current trends in an industry defined by its incredible volatility.
With that in mind, today’s interview discusses the current state of the fitness market, which although thriving, is undergoing a seismic transformation. Simply put, older, large scale gyms are struggling to compete in an industry increasingly dominated by personalized fitness. Many gyms are failing and the industry, at least in the United States, is looking increasingly precarious.
Too Big to Fail?
Living in relative, but always blissful, ignorance, I was unaware of the extent of gym closures over the past decade despite my own troubles. Over the past five years, my membership in three separate large-scale gyms has been cancelled early because the gym was going out of business.
In 2008, I was shocked when I showed up to a padlocked gym door with a sign explaining that the owner had run out of money. In 2018, it had become normalized. I turned up to a padlocked door, sighed and went home. It seemed entirely normal. My experiences are not, however, unique.
The first thing Thomas stressed in our phone conversation was the rapid rise and fall of gyms in the United States. From 1985 to the present day, the number of American gyms has increased by over 300%. Americans have taken a much greater interest in fitness since that time, but the market is far from stable.
Many of the larger sized gyms, the ones first opened in the 1980s and 1990s, are facing mounting debts and uninterested clients. Some time back, a Bloomberg Financial article stressed that many medium to large scale gymnasiums are now saddled with debt and awaiting the inevitable.
In Denver, where Thomas has been based for several years, the results are already being seen as evidenced by now dilapidated sites where 55,000 square feet gyms once operated. Such facilities were opened at a time when the large fitness center had to provide racket ball, swimming pools, basketball courts, free weights, running tracks and fitness classes to a variety of patrons. In short, they were a one-stop-shop for people across the life cycle.
Now, and this is something we’ll come on to, individuals are instead going to a yoga only fitness center, a Crossfit box, Orange Theory Fitness or some other variation. The large-scale gym is no longer in vogue and cities are being left with gym graveyards in both downtown and suburban areas.
Several years ago, Robert Greenwald produced a tell-tale documentary about Walmart and the impact it was having on local communities. Something that always stuck with me was the image of abandoned Walmart locations, immensely large, with no other discernible use, simply rotting in a part of some far-flung American town. We have yet to truly experience this with the large scale, older, gyms but it is happening and is certainly something to think about.
Is this part of the natural life cycle of gyms? I mean, after all, Thomas is clear that the fitness industry is a volatile and fickle business – when was the last time you played racquet ball, for example?
It is a business in which consumer trends can change at the drop of a hat, where something that was once all the rage is now confined to the dustbin of history. But there is something else that’s influencing change at a rapid pace namely, the Boutique studio.
The Boutique Studio
Few people, I suspect, would like their gym to be called boutique. Anywhere that you lift weights or sweat like a pig deserves a better name. But boutique studios have experienced the largest growth in the US market over the past five to ten years. What, you may be wondering, makes a boutique studio different from a larger, multi-functional center?
Simply put, a boutique studio is one which caters to a single style of training only and, more often than not, exclusively uses personal trainers with clients. If you read our previous interview with Thomas, you’ll know that these types of gyms have been popular since at least the 1980s if not before. Certainly, Arthur Jones’ Nautilus centers represented one of the first large scale Boutique franchises in America.
Today it’s unlikely you’ll find a Nautilus center in your hometown but chances are there’ll be an Orange Theory Fitness, Crossfit Box, Zumba studio, Yoga studio and any other manner or weird or wonderful exercise class. In my own location, I’ve seen everything from ballet barre to surf board fitness classes. The latter studio, which mimicked big wave surfing indoors was, by any metric, particularly clever.
Being ignorant on this aspect of the industry, despite being surrounded by them, I failed to see their benefits. I have, for nearly two decades now, trained in a regular gym, oftentimes one that has been running for several decades. Thankfully Thomas filled me in on why these smaller gyms have proven so popular. Simply put, they seem to make great promises to owners and members alike.
For owners, Boutique studios seem to have much lower startup costs. The space is smaller, you typically rent from someone else and, if it’s a franchise, you don’t have to worry about building a brand name. Oftentimes such gyms are spartan in design, meaning that they’ll just have a training area but minimal showers, a ting locker room and little other amenities. Compare that to an older, multi-functional gym which needed courts, a swimming pool, running track etc.
For clients, Boutique studios offer a more personalized experience. They often take the time to learn client names, a point Thomas stressed used to be the case in larger gyms before managers became too pressed for time. These gyms seem to have a specialized knowledge, they’re trendy and they’re often in convenient locations, especially for business men and women.
There is something ineffably strange about their popularity. Thomas had several anecdotes ready about clients who didn’t want to do yoga or Zumba classes in a traditional, larger gymnasium, but would happily pay extra to go to a Boutique studio offering the same services. The latter was evidentially cooler than the former.
What then, is the problem? Well first of all, we’re not entirely sure on the viability of these gyms. Growing up, one of the most popular Boutique franchises around was Curves Fitness. Catered entirely for women and using its own in-house equipment, Curves’ popularity was, at one point, beyond measure. For women of a certain age bracket, it seemed to be their only outlet for fitness.
In 2005, the company held nearly 8,000 franchise centers in the United States alone. Six years later, in 2011, it was down to less than half that. The company continues to exist but it has failed to reach such heights again. Curves is just one example, Nautilus is another, admittedly, older one. There is no guarantee of success and many boutique studios may have a life cycle of one to three years. This is problematic because these gyms are drawing people away from traditional facilities.
What then, is going on? From conversations with Thomas, there seem to be three major red flags at play.
1) Thinking Short Term
How many fads do we see in a single year in the fitness industry? Some, like Pilates and Yoga, have stood the test of time but many others drop out of fashion in a short space of time. Boutique studios nail their colors to the mast post and specialize in just one style of training. If people no longer think it’s cool enough or producing the right health benefits, an owner can find themselves in financial trouble quick.
Of the many boutique studios to emerge in the last decade, Crossfit is the only one that seems to have changed the fitness landscape. Things like Orange Theory Fitness have grown in popularity but their popularity have not extended outwards into the industry in the same way as Crossfit which now has Crossfit Games, apparel, celebrities etc.
Likewise, many of these studios provide in house certification, which is generally of a good standard but can be very restrictive. If a studio goes out of business, the trainers are forced to reskill or be left behind for the very simple reason that a highly specialized training diploma doesn’t make someone an expert in other kinds of training.
Aside from paying rent, insurance and franchise fees, Boutique studios can be expensive for owners and clients alike. For owners, there’s the expense of machine or equipment maintenance which, if unique to that franchise, brings its own set of problem. Many of these gyms are running of the edge of profit, so if there’s any downturn in popularity, they often have little equity to fall back on.
3) The Owners
While praising the ingenuity and bravery of anyone willing to open up a gym, Thomas raised an interesting point. Many of the new Boutique owners are completely new to the fitness industry. What oftentimes happens is that they are former clients of a particular franchise and, feeling so passionate about the benefits of that system, decide to open up their own gyms. This means that people from a variety of backgrounds are entering the industry, unaware of many of the hidden costs and pitfalls.
But what about the clients? Boutique studios are, for want of a better phrase, expensive. Oftentimes the monthly fees – and it seems to always be advertised monthly, never yearly – add up to far more than a year’s membership in a traditional gym. While this may be fine for the minute, any financial downturn, or change in interest, means that the fees add up quickly.
Admittedly many Boutique studios offer monthly contracts but the expense alone is something to consider. Connected to this point is the expertise of those involved. Boutique studios are growing faster than regulatory bodies can manage.
They often offer in house training and certification to clients which, depending on the franchise, can be found wanting. While Crossfit recently won a major court case against the National Strength and Coaching Association based on the validity of their coaching process, question marks still remain over the kind of training found elsewhere.
Finally, training in a Boutique studio can eventually become boring. If you’re locked into one style of training, the variations available to you eventually peter out. Where Crossfit has maintained its freshness through the use of complexes, other franchises are rigidly locked into one style of training. Over time this becomes problematic, especially when you’re paying high prices.
Looking Towards the Future – The Class Pass?
As Thomas was at pains to stress, we’re now at a tipping point in the industry. Large scale gyms seem to be failing, boutique studios are beginning to undergo some pressures and few people know where the industry is going next. The rise of ClassPass is one example of a concept that threatens the future of boutique studios.
What the boutique studios are doing to the traditional gyms and fitness centers, ClassPass may be doing to the boutique studios. For those unaware of ClassPass, which included me before my conversation with Thomas, ClassPass is an online source for their users, who pay a monthly fee, to use a huge variety of discounted classes in the yoga, Pilates, cycling, rowing, boot camp or barre style small studios that have quickly sprouted across most major American markets.
In effect, the ClassPass acts as a go-between broker between users who want workout variety, and those facilities who provide it. Rather than being locked into a single gym or studio, it gives access to several studios across a country.
As if competition among all the workout choices isn’t difficult enough, now the newest version of the ClassPass business model has many studio owners and operators up in arms. For boutiques, the ClassPass initially seemed like a win-win. It brought in extra money and offered free advertising. Under such a system, each ClassPass visitor represented an opportunity to sign up a new member. Studios could decide how many spots to open for each class for ClassPass and there was a fair level of payment given to the facility.
This was all fine until ClassPass’s decided to recently change to a new algorithm. Under the new system, there is significantly lower payouts being given to studios. How long? Many now receive less than $10 a visitor which is less than half the existing rate. Studios are also under pressure to open all slots in their classes to ClassPass users, which risks alienating existing members.
Finally, it has now become clear that ClassPass visitors very rarely convert to a regular membership. Classes are now being sold at a new low price that simply isn’t sustainable for studios which has resulted in a bizarre situation in which boutiques now have fuller classes but are making less money.
Just as gym chains like Planet Fitness lowered the bar for what a fitness center should cost, the sheer volume of $5-9 classes on ClassPass is forcing boutiques to lower prices in order to stay competitive. How this will play out in the future – especially when combined with the additional pressures on boutique studios mentioned above – is anybody’s guess.
A Bright Side?
It’s not all doom and gloom for the traditional gym however. LifeTime fitness is one of the few larger gym chains that is undergoing impressive growth in the current market. What separates LifeTime from many of its competitors is its approach to clientele.
In many locations, staff make a point of greeting each client by name, they target families and, at least initially, have relatively low membership fees. In effect, LifeTime seems to have taken the best elements of the Boutique studio and combined them with the advantages of having a larger facility.
From my own, but brief, LifeTime membership, I know that they make a huge effort to stay on top of current market trends. Included in the gym membership is access to yoga, spin, TRX, CrossFit style workouts and a host of other group classes. Similarly, efforts are made every few years to revamp the gym’s interior so that it remains trendy for the average gym goer.
They also don’t offer long term contracts. This takes a lot of courage in the fitness industry as the older, large scale gym is often defined by a strict enforcement of membership contracts.
On the other side of the large-scale gym spectrum we have Planet Fitness, whose low costs and, at times controversial, business model have achieved consistent growth over the past year. Where LifeTime is attracting the middle to high earning gym goer, Planet Fitness is making money on those who want a gym membership but don’t want to pay dearly for it.
In both instances, we have evidence that a larger gym can survive and thrive in the current market. What struck me about my conversation with Thomas however, is that we just don’t know what the next two to five years will look like in the industry. Will Boutique studios, which continually rise and fall, push larger gyms into extinction? Or will we see a re-structuring in the industry, one which allows larger and smaller gyms to both thrive?
In a business as fickle as this, anything can happen.