What's the Future of Fitness?

Will the digital transformation affect fitness studios in Switzerland and elsewhere, following the transformation in retail? Which fitness club concepts are fit to survive? Does the eventisation of the industry help? While the traditional business model of fitness centers might experience tough times, in this article I explore the why's and the how's of the way forward. 

This is the English translation of the original article "Die Digitalisierung und Eventisierung der Fitness-Branche", which was first published in German language in my blog www.new-world-of-retail.com on 30.12.2019. 

The best customers are those who don't come 

Have you also had too much to eat over the holidays and now made good New Year' resolutions to quickly lose the unwanted kilos again and do more sport? Well, you are not alone.

The turn of the year is high season for the gyms. January is the best month for new registrations and the studios are full every day. From about March onwards, however, it is precisely the members with the good intentions who make themselves scarce again, because for regular training, the inner bastard must be overruled. And that's not something everyone can do.

These new start of the year customers are therefore also the favourite ones of the many fitness studio chains. The expensive annual subscription continues to run mercilessly even when they are absent and the passive members leave more space for regulars at the gyms, which are often already operating at their full capacity. Fitness studios therefore consciously calculate with the lazybones. To be profitable, they have to take in more members than they actually have capacity for.

A billion market

According to the industry report of the Swiss Fitness and Health Centre Association (SFGV), there are around 1,200 fitness studios in Switzerland. The clubs have 900,000 members, which means that almost every 9th Swiss resident has a gym membership. According to the SFGV, the number of providers has increased by about 35% between 2015 and 2018. Respectively, the number of gym members has also risen sharply in recent years.

It's unknown how many of the fitness club members, after a euphoric starting, no longer find their way to their studio and do not cancel their membership simply because of a guilty feeling, laziness or lack of time. However, it is unlikely there are a few. It is estimated that up to half of all memberships that have expired are not renewed. With a total turnover for fitness centers in Switzerland of just about CHF 1 billion and around 28,300 employees, an enormous number of new customers must be won over every year, otherwise the industry would collapse.

Changed values boost fitness 

Current trends certainly indicate that this can continue to be successful because a life with more exercise, a healthy diet, leisure time and good social contacts is a priority for more and more people, and is now valued much higher than material consumption or a traditional career with overtime and business trips. The buzz-word "mindfulness" touches many areas of life, especially the own body and soul. There is much to suggest that this is not just a short-term trend but a mega-trend. Yoga courses enjoy great popularity and companies like Lululemon Athletica Inc. (LULU), that sell fashionable yoga clothing, publish increasingly sales figures year on year.

Migros and Coop invest in fitness chains  

The two largest retailers in Switzerland, Migros and Coop, have been focusing on the trend towards health and fitness for years. The distributors are heavily involved in the billion-market of the fitness industry. According to current surveys by BILANZ (Bilanz 01/2020), Migros is the market leader in Switzerland with 138 clubs (Migros Fitnesscenter, ONE Training Center, M-FIT, Flower Power, ACTIV FITNESS, Only Fitness), ahead of Let's Go in French-speaking Switzerland with 62 studios and the Update Fitness chain with 52 branches. Coop is the main shareholder in Update Fitness. Migros took over all the studios of Geneva-based Silhouette Wellness SA in 2017. However, the majority of fitness studios in Switzerland are still individual businesses, only about 30% of the studios are in the hands of chains.

The fitness club market has become a tough displacement market. It is difficult for individual studios to compete with the economies of scale of the chains, thus further takeovers or closures are likely to occur. But even when it comes to the chains, not all studios are profitable. The sale of the fitness chain M-Fit, which belonged to Migros Ostschweiz (Migros Eastern Switzerland's cooperative) demonstrates just that. The 15 MFIT fitness studios in Eastern Switzerland will switch to the Migros Zurich-based fitness provider ActivFitness at the beginning of 2020. Outside of Switzerland Migros owns more fitness chains: Elements (in Germany) and Injoy (in Germany, Austria, Belgium). In terms of turnover, Migros is the 3rd largest fitness club provider in Europe (Deloitte, European Health & Fitness Market Report 2019).

The trend towards eventisation 

In light of the health and mindfulness trend, one can hardly doubt that fitness centers are a worthwhile investment and that growth will continue. In addition, more and more age groups are doing sports including older generations, who have also discovered the fitness centers. Recently, however, trends have emerged in the fitness industry that can cause worry lines, at least for those concepts that insofar have focused mainly on the use of fitness equipment and perhaps a few additional training classes, to which probably the majority of studios in Switzerland currently belong.

But current trends, many of which come from the US and UK, are clearly going in a direction that is not limited to the use of equipment and strength training. In fact, topics such as mental well-being, nutrition, functional training and sports such as swimming, yoga, cycling, Zumba, Crossfit, HIIT, boxing, yoga and Pilates, but also dancing and meditation are all playing an increasingly important role. Remarkably many of these trends do not require special equipment and therefore do not really need a fitness center anymore. Here the added value of the studios lies more in the individual consultation, but above all in the shared experience in the group, whereby social factors play a much greater role than in the classic fitness center, where everyone usually trains in isolation of their headphones, using certain machines.

Some new independent niche players explicitly focus on this group dynamic element and have brought new trends to Switzerland. One of them is Velocity in Zurich. On its website Velocity presents itself as the city's first indoor cycling and strength training fitness studio. The "Cycling Room" is kept pitch black and is reminiscent of a Berlin techno club rather than a fitness center. The state-of-the-art sound system and the club atmosphere lighting are given special emphasis on the website. Mounted on the indoor bikes are monitors which help you to see how you performing, compared to fellow training buddies. Cycling events have been held together with the Kaufleuten disco. Traditional fitness centers do not have the same coolness factor. With Open Ride and Spark Cycle there are now other indoor cycling providers in Zurich with a similar disco ambience. The huge success of SoulCycle from the US is the model for these new indoor cycling concepts.

John Reed Fitness also focuses on the club atmosphere with music. The daughter chain of McFit, the discount fitness center concept from Germany has opened its first studio in Switzerland in spring 2019 in Zurich. Further, John Reed studios already exist in Germany, especially in Berlin as well as in Budapest, Prague, Venice, Salzburg and Istanbul. Once again, the premises are reminiscent of a disco or even a pub. Apart from the fitness equipment, a lot of attention is given to music, emphasised by their very own John Reed radio station channel and a bi-weekly DJ. Another focus is on the range of offered coursed, such as Zumba, pilates and body toning or yoga. Some classes are broadcasted live via screens, making sure you can see your yoga teacher live from the Californian desert, helping to create a completely different ambience and maybe giving that little bit of extra motivation.

Digital Fitness  

In addition to the new fitness studio concepts that focus on lifestyle, ambience, music and in particular the shared experience of an event, another trend from the US has now landed in Europe. Smart home gym equipment from companies such as Peloton, Mirror or Hydrow want to bring the social feeling of a live class and the atmosphere that concepts such as SoulCycle offer, into the living rooms of our homes.

PELOTON, a company from New York, was founded in 2012. With numerous stores in the US and Canada, it is now also present in Europe. First in the UK, and since 2019 also in Germany, where Peloton has rapidly expanded, now operating shops in top inner-city locations in Hamburg, Berlin, Düsseldorf, Cologne, Frankfurt and Munich. The stores, such as the one on the prestigious K?nigsallee in Düsseldorf, look very stylish. Peloton Indoor Bikes, which you can test, are on display. In addition, there are accessories and suitable sportswear. If you like the bike and the concept, you can have it delivered free of charge and test it for 30 days without any costs or obligations.

Listed on NASDAQ since the end of September 2019, with a current market cap of USD 1.17 billion, Peloton describes itself on its investor website as an interactive fitness platform and not as a fitness equipment producer. Peloton does sell cardio equipment, especially the Peloton Bike, but the real story is that exclusive content is streamed over the internet via the monitor attached to the Peloton Bike. The user of the such a bike can log in to Live Classes at home at any time and then watch and listen to a Live Instructor who is training in a studio in New York or London together with other participants. All are connected via the live stream, can compare and virtually give each other a high five. There are also on-demand courses that meet individual training needs, personal one-to-one training and scenic bike tours on epic routes that you can virtually ride along from home. 

The bikes themselves look like masterpieces, similar to a design object than a piece of home fitness equipment. And since people like to show how much they value health and fitness, most people who buy such a device should have no problem displaying the Peloton Bike in their living room. It is no longer the expensive car in the garage that is the status symbol of the future, but the elegant fitness equipment in the living room. 

And if somebody really doesn't want to put a cardio machine in the home because of lack of space, the company MIRROR offers a good alternative. The NYC start-up presented its first product in 2018: An LCD screen to which you can stream live classes or on-demand courses and one-to-one personal training sessions via an app.

When switched off, the full-body mirror with integrated (and coverable) camera for personal training looks like a normal mirror. When on, you can see the coach and your mirror image at the same time, so that you can check how you are doing during the exercises. Currently, about 70 live classes per week are offered from different genres, such as Strength, Cardio, Yoga, HIIT, Pilates or Boxing. Mirror showrooms are currently only to be found in New York, Los Angeles and Palo Alto. Since Hollywood celebrities are also enthusiastic about Mirror, and strong investors such as Lululemon have invested in the start-up, it is only a matter of time before more shops will open, possibly in Europe too. Mirror founder Brynn Putnam, a former ballerina at the New York City Ballet and Harvard graduate, has much bigger plans than "just" offering home fitness classes for a monthly fee. With Mirror she wants to create content for all areas of life "from fashion and beauty to medicine and healthcare" (https://www.fastcompany.com/90434763/fitness-startup-mirror-has-big-plans-including-telemedicine-were-building-the-next-iphone). 

The LCD screen's graphic capabilities with the mirror surface are already impressive. It seems that the way is not too far to the holograms from science fiction movies that appear in the middle of the room. New VR solutions will further accelerate this development. At that point at the latest, the experience of a fitness class should be almost perfectly replicable at home. Other providers of digital home fitness products are for example Hydrow (rowing) and Tonal (strength training). 

The threat to classic fitness centers comes from two sides

Traditional fitness chains are doomed to lose customers. On the one hand to the lifestyle concepts described, which focus on event, music, community and ambience. These concepts address the young urban target customers who want to enjoy a workout together with others after work. On the other hand, older people and those pressed for time, including families, are more likely to be attracted by the new digital offerings such as Peloton or Mirror. Training on-demand even late at night, in live classes or one-to-one sessions at home, is appealing. The coolness factor with high-quality and well staged live training classes is also available. Men are less shy to take part in yoga or pilates classes if they can participate from home, teenagers can try ballet or HIIT together with friends, stay at home moms or dads can spin with a trainer in LA...

Completely new customer groups will have their demand fulfilled, thanks to the digital newcomers, and will no longer make their way to the physical establishment - the good old-fashioned gym.

The hurdles to purchase a Peloton bike or the Mirror device and to get a membership are low: Online with free home delivery. You can inform yourself and test the equipment in the modern and welcoming showrooms, which can be found in good inner-city shopping areas and shopping centers.

And the passive members of the gyms as described in the introduction will happily embrace the new digital offers. A fitness device that is at home and at the same time offers a fitness club atmosphere no longer offers an excuse to make good resolutions a reality. 

The future of fitness is content-based

Based on the assumption that virtual reality technology will become even more realistic in the coming years, I believe that this is where the greatest threat to traditional fitness centers lies. If the experience of a good fitness class or a personal training can be replicated almost perfectly at home, the classic gym will become obsolete. The only added value would then be the simple provision of a large and varied range of fitness equipment. However, since the trend is more towards training with your own bodyweight or classes such as Zumba etc., this business model is not necessarily sustainable. The future of fitness is content-based. 

With the rise of these trends as described above, it is questionable for how much longer will the traditional fitness clubs be able to attract enough new members each year to keep the studios profitable. Therefore, significant changes are necessary in the configuration and design of the premises, but especially in the services offered. This will not be easy, especially for the chains with a large number of locations, as a change of concept will again require high investments and many of the studios are only a few years old. In addition, the staff will have to be trained differently. It is not always possible to put a fitness coach who has trained on fitness equipment with his customers before, in front of a Pilates or Crossfit class that has completely different requirements. The large chains will be slower to respond. In the meantime, the newcomers will gain market share and at the same time the digital attackers will open up new target groups who have never set foot in a fitness club before and are unlikely to do so anymore. 

Similar to the situation in the retail sector, the structural change described above will particularly affect fitness studios that are positioned somewhere in the middle and do not have a clear profile. Discount providers with convenient and cheap access to high-quality fitness equipment without a lot of extras definitely have a chance of survival. But this only works through price. The digital offers from Peloton and Co. currently cost around USD 40 per month in a membership, which enables discount fitness centers to compete with. Fitness clubs at the upper end of the price segment can score points with extras such as wellness, swimming pools, spacious, luxuriously furnished studios and, above all, individual and holistic advice, including nutritional topics. 

The new lifestyle concepts, which focus on the group experience, are also more likely to be found in the upper price range. In the mid-range segment, on the other hand, there is a clear lack of added value compared to the new digital competitors, with a simultaneous lack of offers of new trend genres and equipment-free offerings. Larger chains will probably have the financial strength to adapt to the changed demand and competition, but this will take time, in that smaller niche players can establish themselves. Individual players and smaller chains may try to specialize in specific target groups or offers.

Either way, there will be further consolidation of the fitness market in Switzerland. This development strongly reminds me of the disruption in the stationary retail trade caused by e-commerce competition. Retailers with physical shop space must either focus on experience and service or alternatively be so low-priced that they can compete with pure online players. Everything in between is problematic and likely to disapear.

The Swiss population is affluent and health-conscious, so it's probably only a matter of time before Peloton and Mirror also come to Switzerland. In the meantime, there's no reason why you shouldn't put your sporting ambitions for the year into practice and get rid of those extra kilos from the holiday season, whether on a cardio machine with your headphones in a regular gym, at techno basses together with buddies in one of the new lifestyle indoor cycling clubs, at home with a live yoga teacher from LA or on a forest run that is just as healthy for body and soul. 

?Michael Dressen, Zurich, Switzerland, January 07, 2020

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