NewsWire: 2/4/21
- Nearly a year into the pandemic, home workouts have become the new normal for fitness lovers. Along with pricey at-home equipment, subscriptions to online classes and connected devices are also proving to be popular. (The Wall Street Journal)
- NH: Back in August, I predicted the looming death of gyms as consumers turned to home workouts. (See “The Death of Gyms.”) And now new data show that gyms are indeed in trouble. A Nov. report from the International Health, Racquet & Sportsclub Association estimated that 15% of gyms had already closed by Oct. 2020 and that 1 in 4 gyms could close by the year's end. What’s more, a study by the New Consumer and Coefficient Capital found that 76% of consumers have switched to exercising at home, and 66% say they prefer it to gyms.
- But as one thing dies, another emerges.
- Home workout companies saw profits surge in 2020. Last year, Mirror, a smart workout display owned by Lululemon (LULU), brought in $100M. That's significant given that the product was launched in 2018. Similarly, Peloton (PTON) brought in $1.8B. Its profits grew by 100%. As for their stocks, LULU is up over 35% YoY, and PTON is up 350% YoY. Even more impressive, Nautilus (NLS), a fitness equipment company, is up over 660% YoY--that's incredible even in this market.
- Ironically, people are spending significantly more money on their home workouts than they were on gyms. While a gym membership is a simple monthly fee, home fitness often requires a machine, a subscription to classes, and additional accessories.
- Take Peloton, for example. The cheapest machine costs $1,895. A subscription for its classes costs between $13 to $40 a month. And accessory packages (shoes, weights, headphones, etc.) cost between $150 to $450. Forget the pandemic-related reasons for working out at home; many people are just trying to justify their expensive purchases.
- If you want to know why a firm with market power will choose this sort of pricing scheme (one price to gain access and another for incremental use), you'll be happy to know that what microeconomists call a "two-part tariff" has been demonstrated to maximize profit. (It's the same reason bars often charge a cover before they charge for each drink.)
- But let's return to commercial gyms. IMO, they can't go back to what they once were. People have forged new path-dependent habits around home exercise and find that they like it better. What's more, many have invested too much money to back out painlessly.
- So the future of the casual and low-priced fitness center is probably in peril. Planet Fitness (PLNT), for example, is down YoY and showing few signs of recovery. For better prospects, gyms will need to refashion themselves either as specialized boutiques or as group experiences. On the boutique side, I can imagine fitness centers offering high-end equipment that most people could never afford for their homes. Or I can see them offering intense group experiences that just can't be generated online (the sort of rush that SoulCycle became famous for). But in between, not much there.
