Gym Operators – Near-term Pandemic Uncertainty & Multi-tier Outlook – 19 August 2021

SP: In terms of the customers that we talk to, we talk to club operators all day long, around the world. We talk  to people in North America, in Europe and stuff, and we were seeing people last fall being in that 55-60%  range in the fall of 2020 into the winter. We saw people go in the January-February time frame back to having  tremendous sales months, record-setting sales months for new memberships during that time, but not quite  getting back to where they were, of course, pre-pandemic. Over the last three or four months, we’ll be now into  the summer where we are here in August. I talk to operators who some of them are at 105% of where they were  two years ago, pre-pandemic. Some of them around 80-90%. I’m seeing a little bit of everything. No one is in  that 50-60% range anymore. Most people are at least back to 80-90% depending on who they are. Some  people are crushing it because they lost a lot of competition in their market, so, they were able to attract new  memberships from those people who were left without a gym. They’re above where they were pre-pandemic.  At the same time, they’re all starting to see some signs where it has slowed down a little bit and because of  these variants they’re actually starting to see people maybe start to postpone or be a little cautious, but  currently, taking that aside the last couple of weeks, we’re probably in that 80+ percent range to where they  were back pre-pandemic.

SP: The latter there is the mid-market. They’re still lagging compared to HVLP, HVLP-plus, like the Planet vs  a Crunch model, for example. We saw the higher end, Equinoxes, Life Times, kind of bounce back quicker.  That was the demographic who was not affected as much. They weren’t the hourly worker laid off or a store  manager who was laid off because it was closed for a while or whatnot. That bounced back fairly quickly in that  area, and then the HVLPs, they are the places there that obviously in that higher volume area with lots of  value. They have a cost-effective way for members to try a gym. It will be from one to another, or people who  were de-conditioned and who were not working out, who saw the pandemic and said, “Oh my goodness. I  should probably try to build a healthier lifestyle,” and so they saw a nice influx, Planet, the Crunches, the Club  Fit, the Edges, those HVLP, HVLP-two models of the world, saw a good uptick. Those are the two segments  doing well and seeing the continued growth that we’re hearing from. It’s the middle who are in that USD 25-50  who might not have as much differentiation or might not have that lower barrier entry point that are still,  they’re not at 50% or 60%, but they’re the ones who aren’t quite catching up as fast as the other two segments.

SP: Again, I’m opining a little bit about just what I’m talking to customers and what I’m hearing. I think, if  you take the Delta variant out for a minute, your top tier, your Life Time, Equinoxes should be very, very close  to back to where they were pre-pandemic, and same thing with HVLP. They might be at or above where they  were in some cases. We’re seeing some record numbers from some of these guys. I would say, let’s just put  some clear numbers on. I would see the higher-end-tier people being at 90-95% of where they were. I would  see the HVLPs probably being 85-90% to where they were. Some of them in different regions might be ahead  just because of the nature of the regions and the competition. I’m going to say the mid-market folks, from  what I’m hearing from most of them, are still probably in that 75-80% range, because of the various things  that still make it harder. People have to make a buying decision to either go to a different club, some of those  mid-market folks just won’t stand out as well as some of these other guys.

SP: It’s going to be hard to quantify with that change. What I think we’re going to see is a couple of things.  We’re already seeing cities with vaccine requirements to enter a gym, which is, the gym was the least  transmissibility, retractable, transmissible place for this COVID for the last 18 months. They’re still going to  put that in. You’re going to see that piece of it. That may have a positive. There may be something where  members go, “Okay. I feel good, I got my vaccine. My gym is the only the letting people in there with vaccines.”  This might be a driver to (a) have increased traffic of existing members for check-ins, and (b) have new  membership sign-ups because they feel more comfortable there. You’re going to see that aspect of it. I’ve  already talked about a couple of operators on the East Coast who have started to see a higher-than-normal  freeze or cancellation rate right now. I think it’s just people getting nervous again, with or without a vaccine. I  think what we’re going to see, in general, as it relates to this, is we are going to see people… we will not be back  into that 50%, 40% rate compared to what it was during May through last summer when we reopened. I think  we’re going to see people have a dip. I think they will sell new memberships but it’s not going to outweigh the  attrition for a couple of months as people get nervous. I do not think we’re going to see huge double dip drops. 

I just don’t think we’re going to see it now that people are feeling more comfortable. 

As long as we don’t have a lockdown and a shutdown, I think people are going to be more comfortable. I think  a lot of the healthier population who wants to go to the gym, who wants to be healthy, the large majority  probably understand the benefits of vaccines. They’re not the quote, unquote anti-vaxxers in that realm, and  obviously opining, but most of them feel that they understand what it takes to take care of their body. They’re  going to end up being there, and I think you just may have people who may feel inconvenienced because  they’ve got to wear a mask and I don’t really want to do that. You’re going to get some folks there. I would  expect to see probably, if I was take a guess, 10-15% short-term drop. Maybe it’s a freeze, maybe it’s some  cancels and people come back. I think if we can get this thing under control, maybe that’s a blip for Q4 and  then we really see the big rebound in January when we normally would see a big rebound.

SP: The worst case, the Delta variant, the Alpha, the next, whatever these variants are, if I saw another one  today and it popped up somewhere. If these things can’t be under control, I think we’re going to see ourselves  drop to where these operators are, we’re going to have issues. There are still operators out there. There are not  many, thankfully, but there are still operators out there who are still teetering right now and are making a final  decision about am I going to stay open or am I just going to shut this thing down? You do have that. I think the  worst case is you’re going to see those folks have to shut it down, and I think there was some public data out  already on the percentage of clubs that closed down in that mid-20 range already since it started. You might  see, worst case, that’s going to pick up into the high 20s or low 30s if this continues and if they just can’t get  the variants under control or there just becomes too much fear, uncertainty and doubt in people’s minds about  whether they should be in the gym or not. I think that worst case is you’re going to get a few more closures are  you’re going to see some flattening traffic and sales for a while. I think, honestly, the best case and what I’m  hoping will happen is that this whole population, as my teenager would say, is woke. They woke up and they  saw some of the benefits of what being healthy and active can do for them. 

They heard doctors for 18 months say what happens to people who are de-conditioned or over a certain BMI  or a certain preventable health issue, preventative care issue, that they get the virus worse, they don’t recover  quick, they have a greater, obviously, chance of the ultimate end with the virus. I think that woke a lot of  people up. They’re doing their best and they’re finding ways to get out there and be healthy and active. I do  think the best-case scenario is we are going to see not only continued return to the gym, that we’ve already  seen, but you’re going to see a new set of population make their way and go to an HVLP and just try for it for  the USD 10 a month on a month-to-month basis and get comfortable. They probably worked out at home first  and gave digital a try and said, “Hey, this is cool. I got this figured out a little bit. Let me go in the gym and give  it a try.” I think, all things considered, if the Delta and the other variants don’t wreak too much havoc, by the  spring, we should see gyms back to where they were, and then hopefully we should start to see some growth as  an industry, that we can get above that 20% or 22% of the population that we’ve been stuck at, that 60 or so  million people, pre-COVID who have joined a gym, we can start to make a dent into that and make that  percentage higher.

SP: Again, this is just an opinion, it’s from talking to a lot of folks, and for me, I sit on a national health and  fitness advisory board for the IHRSA, the governing body of the associations of fitness. We haven’t heard of  anything in terms of, knock wood, shutdowns and lockdowns and things of that nature. I’m guessing and this  is just, of course, one man’s opinion that, with the local governments and the local economy, people have learned that that probably was a really tough thing to do, and I’m hoping that that doesn’t happen. We’re not  hearing any of that yet. We haven’t heard threats of that through legislation or people that we’re talking to, and  I just don’t know. The one thing that could wreak havoc on there is just that some of the mandates, whether  it’s a mask, whether it’s a vaccine, whether people feel like they’re violated because I have to ask for a vaccine  card and put the picture inside the club’s point of sales system so we can track it or whatnot, I think that’s  probably the one threat. We have not heard any concern yet of anything, people, going backwards, back to a  year ago.

SP: To your point, some of the key things, sales are one thing, revenue, all that fun stuff, but this day and age,  most gyms don’t have a long-term contract, some do, if you commit they give you a discount, but most don’t. It  is about engagement. It’s not just about new sales. I think what people are mostly looking for now is how am I increasing visit frequency? Not only how do I get the member back, or the new member who is dipping their  toe in the water, but how do I increase the visit frequency so it becomes habitual? We all know it takes 90 days  at least, a couple times a week. It has proven time and time again in the fitness world to really build those  habits so that you don’t think twice. It’s just, look, “Monday, Wednesday, Friday, those are my gym days, now  it’s just habit, for my mind, my body, etc.” I think that’s the key piece people are looking for. They’re looking  at, the sleeping dogs are pretty much gone. If we 20% sleeping dogs or 30% depending on the gym, those  sleeping dogs realised they were being billed. That’s probably numbers cut in half. The more you can get  people engaged and have that check-in history improved, and frequency, the better, and that habit will build.  By the way, that check-in, I know we’ll talk about this a little bit later, but it doesn’t have to be in-person. The  more and more clubs adopt a companion digital offering, hybrid offering to their in club, the more you can get  a virtual check-in plus two physical check-ins each week and now you’re still building habits.

SP: What we’re seeing from customers is people that they were considering the regular gym members, those  who were just the regular, old, good, old customer, they used the gym, they were there X days a week, always,  those people are 1,000% back. They’re back to the normal habits, their normal frequencies. They are the gym  rats, they were always in there, whether it was posh gyms, HVLP, middle, they were just there. It’s their life  style. The moment the government said you can go back, they were back and that hasn’t changed. The people  who were like one, an average of once a week, last I spoke to somebody, they weren’t quite back yet to that  kind of four times a month visits, if you will, but they were getting there, I don’t know the exact number but  they probably were a good 20% off of that. Then, there are the sleeping dogs, like I said, that’s the one thing  that changed. Those people just realised they were being billed. They were going once every other month and  they cancelled or they still haven’t come back yet. 

TB: What might drive that subset of individuals back? Could it be through promotions from the gyms  themselves or assurances around the cleanliness and protocols taken around coronavirus? 

SP: I think some of it is just personal feeling. They just don’t feel comfortable for whatever reason, some of  those people. I think that’s one of the things we’ve seen in some of the data, and that has been put out recently  by ClubIntel and by IHRSA, is the idea of, they’re just not there yet. The clubs learned right away, they needed  to promote cleanliness and sanitising and all the things in spatial, and all the distances, and I think that’s  something they have done and still do. I think some of these people are (a) they’re just not comfortable yet, or  (b) they just found they, for now, can make do with between home and outdoor workouts and they’ve just stuck with that routine. I think some of it is just time, making people feel finally comfortable that between a  vaccine and a larger percentage of the population getting there, that they feel comfortable getting back into the  gym because it’s just these are the folks who were pretty much locked down no matter what, and they’re slowly  starting to work their way out of their houses.

SP: I think that, yes, there was a subset of that. What’s that percentage? I think it’s less than 10% of members  who haven’t come back, probably much less, who have realised they can just work out at home. They were the  infrequent exercisers anyway. Somebody who was going to that gym once a week or 2-3 times a week to use  weights or to do this or to swim in the pool was going there for a real specific reason that is just not replaceable  at home. Somebody who was going once or twice a quarter walked on the treadmill, watched a Friends rerun,  probably wasn’t as dedicated to their fitness. If they’re working out and they found another way to do it at  home with an app, with a walk around the neighbourhood, with some running or whatever they’re doing or  some light weights and bodyweight workouts and they do it once a week and they feel like they fulfilled it,  then, they’ll be there. The people who were going to gym were there for pretty specific reasons that they  couldn’t get at their house, so, all this fudge you’re hearing about, “The gym is dead,” and the CEO of Peloton  saying the gym is an ancient thing of the past, which I think was a silly thing to say, it’s not from the majority  of the people that were going there for a very specific reason. Sure, there are plenty of people who want to ride  a Peloton, who can afford to do it and that’s all they want to do. Most of the people in Texas, I think, were pre pandemic, almost two-thirds of the people that had a Peloton still at home still kept their gym membership.

SP: Here’s the thing, most people did it courtesy. Most clubs do charge for a freeze. Maybe I’ll make this up. If  you’re a USD 30 a month membership and you want to freeze, they may charge USD 5-7 to freeze your  membership, to hold those rates, and your status within the club and all that fun stuff. Most of them do that. I  would say that the courtesy freezes are definitely over, and most people who froze, either they came back or  they cancelled at this point. That’s from the previous issue. Now, the Delta variant and all these things happen  with a whole new set of rules, but also clubs have learned a lot by then. They’ve put in tighter rules around  their freeze fees and durations and how long they can do it, or they’ve built and they’ve partnered with  someone like us and implemented a digital platform so they can say, “You know what? Yes, we’ll freeze you  from USD 30, but our freeze fee is USD 9.99 now, but you get access to our on-demand platform when you’re  not here so you can work out with us at home,” which then helps create and maintain that engagement and  that affinity to the brand, even if they are on a freeze.

SP: There were definitely some spikes, there certainly was, that’s what you’re asking. There were certainly  some spikes, they came back, there was spike in Q1. Even though the vaccine was still kind of just rolling out,  there were definitely spikes. Then, I think there was another spike, especially in the last 60 days pre this Delta  thing really becoming an issue. There were definitely some spikes with people getting into the gym and getting  back there. It wasn’t just slow, progressive growth. We had a couple of different spike periods, and then they  maintained the growth and it would normalise a little bit and then it would spike depending on what was  happening. I think that we will see that. We will see probably, unfortunately, a small 8%, 10%, 11% spike down  for a little bit because of what’s happening and then I think we’ll see, come January, a very large spike up  again. Hopefully that will just be consistent and start to progress into the early part of the year back towards  quote, unquote normal, the normal seasonality and cycles for the fitness industry.

SP: I would say that definitely there are going to be new gyms that will replace those. Most of those members  have found a home right now, but it’ll take more than a year to replace that 40%. Eventually, the gyms are  going to come back, new, the brands, competitors taking over, and so, that gym count goes back up even if its  with a competitive brand. There are always new concepts coming. There are bunch of HVLPs who have such  committed units, never mind Planet, I’m going to put them aside. Even Crunch has gotten committed, a  terrific number of committed units and some of these other mid-size facilities who are looking for these  18,000-25,000 square feet. They’re out there and they’re looking, so, they will come back, but it’s going to take  more than 18-24 months before we get those back into play. It’s going to be over the next five years, I think,  before we hit hopefully the same number of gyms we had. It’s going give members who are committed to the  gym places to go for the interim. There’ll be new offerings that come out over the course of the next few years.

SP: I don’t think it’s shrunk because of that. You see a little bit of member loss because of it, there’s no  arguing that. I think the blows it out of proportion. I think that it is certainly not as drastic as people say. Yes,  Peloton, Tonal, XYZ, all these people have these great products. They are not taking people out of the gyms in  the volume that the pandemic did, and the volume, they didn’t cause those closures, and they won’t be a  reason why someone doesn’t open back up in one of those facilities or those gyms don’t get replaced  eventually. Take it in perspective. There were 60 million gym members pre-pandemic. Now there’s, I don’t  know the number, you’ll have to quote me and your people listening can look it up, but there are like three  million Peloton subscribers, whatever the number is. There are still a drastic number of people who still go to  gyms, and I think that’s not going to change. This is not going to be the Blockbuster of fitness. This is not going  to happen. This is not the Netflix, the Blockbuster. It just won’t happen.

SP: You’ve got a couple of different areas. Unfortunately, they have to pay attention to labour now more than  ever, even though labour was always something you watch. As a gym operator, that’s something I looked at every day, but labour now more than ever and cutting back a little bit in certain areas and having people do  multiple things is going to be critical for at least the next couple of years. That’s a really important spot. The  second piece is that they’re going to have to try to find ways to create more unique fitness experiences for their  member. It won’t just be the same old same old. They’re going to have to add new things that you can’t get  outside of a club, new class types, new formats. If you ever did small-group training before, you should be  adding that. If you have group exercise, you should be looking at that and seeing how you can make it even  more exciting. You put heart rate tracking in there to get people more engaged. If you’ve never had a digital  platform, which most of them did not, pre-pandemic, you absolutely need a hybrid platform so that you can  have your members in your top-tier membership. They get on-demand and live streaming as part of it. When  they can’t get in there, they can grab a work out quickly at home, or when they’re in the gym and they need  something to do in the functional area, they can pull their phone up and it’s your people, your trainers and  your coach is showing them through a workout and what that looks like. Gym owners are going to need to  watch the labour, like I said, and tweak those models even more. 

Everyone is learning how to do that every day. Change up the unique experience inside the club, add the digital  component for both outside and inside the club, and then just take advantage and find more ways, and it’s  easier said than done, but they’re doing it, to take advantage of what the one thing that Peloton and some of  these guys will never have, which is the ability to shake the hand, have the hyper-local connection, be in the  community, recognise the faces. That’s the piece, that’s why people will go to the gym, because they want to get  out of the house, they want to see the faces they see every day. It’s home, work and gym, the third space, and I  think that’s something that gym owners now, more than ever, need to continue to find ways to leverage that,  that in-club community, just like Peloton has done in the digital community, but leverage that in-club  community. That’s something they’ll have over everybody, unless these guys open tens of thousands of gyms around the country, which they won’t.

SP: The 800-pound gorilla, of course, everyone knows is Planet Fitness. They have a really smart  management team, making smart decisions, investing where they need to invest. Obviously have lots of private  equity behind their franchisees and so, you can’t look at that and not say they’re going to win. They’re going to  come out, and certainly if not on top, as one of the leading players like they already are from their size and  scope, of course, but they pivoted nicely, they added a digital component, they got engaging with their  members as best as Planet could, and I think that that they’re back out there. They’re also that lower barrier to  entry and they’re the entry point that people see, and they’re going to get some of the first-time gym goers to  give it a shot there. If the first-time gym goer doesn’t need a lot of hand-holding and support, then Planet  might be a good place for them, but because their model is kind of like, “Hey, just come and go as you please,  and we don’t do training and we don’t do classes,” that’s only going to work for some first-time gym goers.  They’re certainly positioned to win. I think, though, the HVLP with the most growth ahead of them from  where they were could very well be Crunch. They have a strong leadership team. They’re getting more and  more private equity behind their franchisees every day. They have that HVLP 2.0 model where you can do  group acts, you can do personal training. 

They’ve got a variety of other options in there, and it’s becoming more and more popular. They’ve got some  aggressive franchisees, and I think they’re probably the one to watch. Planet is who they are. They’re going to  do what they do, but I think Crunch is the one to watch where you’re going to see some pretty exponential  growth there. They’re also outside of the US, so expanding in other countries and they’re not afraid to do that  and they built a model that supports that. I see that as something to certainly keep an eye on. There are lots of  regional players in the HVLP space. The Edge is all over the northeast and growing and working their way out.  You’ve got Youfit down in the southeast, you’ve got Club Fit in the midwest, you’ve got a variety of other HVLP  players on a regional basis. TruFit in Texas has got 50 locations that are all HVLP. There are plenty of  regionally based leaders that are growing out there, and HVLP as well. I would say Planet will continue to do  what they do because of who they are and what they have behind them. I think Crunch has got some strong growth ahead of them. I know a lot of their management team, and they’re very good and they’ve got a clear  vision, and I think they’ve got a lot of momentum behind them.

SP: I would say it’s grabbing from the mid-tier, mainly. I don’t think it’s going to all these other competitors  in the space, and the HVLP space, specifically, would just be taking it away. It’s not a left pocket, right pocket  thing. I think it’s two places, the mid tier, because they’re so close anyway. The mid tier is between that USD  25 and USD 50 mark, and in some cases Planet, the new gym, more facilities. A lot of the people that go to the  mid-tier probably don’t have a complicated demand for working out. Maybe they can do it with a Planet  environment. The weights aren’t that heavy. There are certain things it has and it doesn’t have. It works fine  for them. They’re not taking it from the upper tier. That’ a different customer altogether. I think one thing they  are doing is, they are getting, a Planet and a Crunch, are that type of group where they are kind of that  jumping-off point for people new to fitness. They see them everywhere. Those guys do a ton of advertising and  they’re cost-effective to get your foot in the door and just give it a try. I think it’s not a take, per se, but they’re  also going to win because they are going to get a lot of new exercisers to give them a shot, first. 

TB: What are your thoughts on Planet Fitness’s comments on competitors, including statements around fast food restaurants even taking share of time away from its potential target market? 

SP: I’ve got to be honest with you, I’m not really privy to a lot of those comments. If they’re making those  things, if they want to stick it on the table and see if it gets chopped up, that’s up to them. I haven’t really seen  many of those, to be honest with you. I’ll probably just stay out of that and let the drama unfold as it may.

SP: I do think they’ve got, not just Planet, all the HVLPs have a runway. There’s a lot of white space left. I  think, at first, they were looking at their demographic income level, population and they’re still looking at that  key area for dense populations, but at the same time I’ve heard plenty of stories in the industry about the  HVLPs opening up in places you wouldn’t think they could, because maybe the population didn’t support it. At  the same time, the rents were USD 3.50 a square and they were able to draw from two other small towns  around there, and now, all of a sudden you’ve got a really profitable gym that people don’t mind driving 10 or  15 minutes for because it’s the only game in town. They’re starting to experiment with a lot of things like that,  both Planet and some of the other HVLP models. I don’t have it in front of me, but I know Planet has some  pretty aggressive 4,000-plus locations they talk about. I don’t see that as being impossible at all. It’s a big  country, it’s spreading out and every major city just continues to spread out, out, out and these guys will  continue to follow suit and build where it’s appropriate, especially if they can get the rents that they’re looking  for in those areas, if it makes for a cost-effective facility and a profitable one.

SP: No, I think early on it was benefiting everybody. I don’t think it has been in just HVLPs. I think some of  those guys have strong buying power. A lot of them are building, some of them have consistent landlords,  depending on where they are and their various regions. They can negotiate pretty well just because of their  buying power, but I don’t think it was just favouring them. I think, for a while there, even at Gold’s we saw  some considerable concessions and some things to help right the ship. I think you’re pretty much back to just  about normal now. I was just talking to someone the other day. I still tried like it was eight months ago, and I  pretty much got the deal I would have gotten two years ago. The landlords are pretty much back to where they  were. Again, just from a one-off conversation with one club operator. I don’t think anyone in particular in any  segment is probably better off getting a deal. It’s just some of those guys, because they’re growing so fast, have  that buying power.

SP: They certainly have a challenge. You just talk about the big guys, the LAs, the 24s, the Gold’s of the world  or the World Gyms of the world, they definitely have a challenge. To be quite frank, they’re really having a  hard time differentiating themselves from some of the HVLP-plus-type models, because most of those guys’  membership start above, the base memberships start above the premium memberships at the HVLP. They’re  really having a hard time differentiating. I know LA continues to test pilot converting some of their core clubs  to more of an HVLP-type model. They’ve been doing that in many cities and playing with that. I think that’s a  smart move and they’re looking at how do they diversify themselves there. I don’t know exactly where 24 Hour  is playing in that, but they just emerge and are leaner and are trying to still maintain the differentiation. Even  they’ve dropped their pricing where you can get into a 24 Hour with a really well-equipped mid-market club  for USD 29 a month. That’s not that hard to sell against if you’re against a premier or HVLP model. These guys  have a challenge. They’ve got a lot of older leases. Obviously 24 Hour was able to renegotiate during the  restructure, but LA didn’t and they’ve got a lot of leases usually with a lot of TI built in and recoup with that.  They’re definitely up for a challenge in some of these areas. 

One of the things HVLPs do really well that you don’t hear about all the time, they do a good job with customer  service. Even if they’re lightly staffed, they try to over-service the customer no matter what they’re paying  because they want them to always have a great experience when they’re there so no matter what, that USD 10  or USD 15 just never gets cancelled, whatever those membership dues are. Sometimes that’s a challenge for  some of these mid-tier clubs because there’s a lot going on in their clubs, there’s personal training, there are  group acts, there’s lot of cleaning, there are big locker rooms, there’s kids’ care. There are lot of places where  they could potentially have a customer service issue, and so you tend to see more complaints and lower net  promoter scores and things like that where there’s more opportunity for failure at points like that. I think  they’re going to have a hard time differentiating and they have got to be innovative and creative. Any of those  three I just mentioned, you’re not seeing them innovate with technology. You’re not seeing new digital  platforms coming out from them and things that they’re doing. In fact, one or two of them just ripped theirs  out. They’re going to have to really work hard to differentiate themselves. The posh clubs are doing it, the Life  Times, I think the Equinoxes are differentiating in lots of ways. The HVLPs are experimenting and doing it  and these guys are kind of stuck there. They’re going to have to work hard to get that done.

SP: In the mid tier? If you look at just the big three that are out there, that’s a tough one. I think, if you look at  24, they had their chance, and they did, they shed the leases they needed to shed, they restructured measured  and the M&A. If anyone set themselves up to be successful, I think they did just because they also had a lot of  clubs. They had more clubs than Gold’s, not quite as many as LA but more than Gold. They have a good  leadership team, Tony is a good guy, and they’ve got a good group there. There may be an opportunity for  them. I think Gold’s, under new ownership, has the smallest number of company-owned gyms. I forget the  exact number. It’s public knowledge somewhere, I think it’s in the 70s range. They’re starting to build some  more. The new owner likes to build company-owned gyms. That’s great but that does take time. Their  franchise over the last decade. Their franchise market has dropped significantly through the previous  ownership shining away from franchising. It’s going to be hard-pressed for them. I think you’ll see them grow  outside the US, probably more than in the US for a while. They’re looking to rapidly expand throughout  Europe because that’s where the new owner is headquartered. 

I think that growth will grow, but domestically, I think they’re going to be similar, slow growth. LA, they’ve got  a lot of locations. They’re moving quickly to try to pivot and do some new things and implement new models  into clubs and maybe some new innovative technologies, but slowly. Again, I went through all of them again,  but it’s hard to pinpoint exactly which one. I think, if anything, 24 Hour, because they were hoping to set  themselves up with a better cost structure through that restructuring effort, and they have a pretty good shot  right now from a company-owned perspective where they’ve got seamless operational standards and they  don’t have to worry about franchisees deviating because it’s all company-owned. There could be an  opportunity for them there.

SP: As I mentioned, I think the new ownership likes to build. They’re thinking more, how do I build as many  company-owned Gold’s Gyms as possible? They built one in Berlin, they’ve got a bunch more going in Europe,  they’re opening a couple here in the US, from my understanding. From a franchise perspective, I think,  remember they’re, of the mid-market of the three we just discussed, they’re the only one that does franchising.  World Gym is out there. They’re a good little group there. I know those guys well, but they’re just small and  they’re bigger outside the US than they are in the US, just like Gold’s is. I think you’re going to see more  company-owned Gold’s Gyms open up worldwide. I think you’ll see franchising slow tremendously. I think if  that brand is going to continue to grow, it’s going to be through company-owned gyms and the new ownership groups taking the time to build or take over and rebrand clubs.

SP: I think if they can continue to pivot and if they find success in this new model, and I forget what market it  was, forgive me, I thought it was St Louis where they tried the first kind of eight or 10 converting their clubs to  more of the HVLP-type model. I think it’s starting to work and I think they’re starting to convert more. If they  can successfully navigate that and learn and pivot as that goes and make that successful, and if they can do a little better job because one of the knocks they have is just upkeep of clubs and CAPEX spend or lack thereof  and equipment issues and club deterioration and things like that, if they can get over that hump, there’s  definitely a possibility out there. I think it’ll depend on how those continue to converge into this HVLP  whatever model, 2.0-plus model, that they’re looking at goes for them.

SP: They both have good leadership, they both have good dollars behind them, they are both being  diversified. If you look at those guys, right, whether it’s hotels, whether it’s Life Time’s, “Live, work, play,”  concepts that they’re opening up, they’re all being innovative. I can’t say that one is drastically better than the  other in my opinion. I happen to be a member of Life Time. I happen to be a member of some other clubs too.  I have three or four of them, so I think they both have their benefits. I think Equinox is certainly behind in  terms of number of locations compared to Life Time. Life Time, Bahram and his team are super aggressive at  trying to grow their footprint and sign new leases and open up in a lot of new markets where they weren’t. A  bunch of new ones in Massachusetts, New York, I just read about. I think if I give the edge to accelerated  growth, certainly to Bahram and his team at Life Time. I think they’ve got some good plans ahead of them. I  think you’ll see a lot more of those guys continue to pop up, and he’s just a machine, he knows how to build  clubs, they know how to manage them very well, they are quite diversified, they do a ton of camps and  swimming and teams and stuff. They’ve just got some good, diversified revenue stream there, obviously as  does Equinox, but I think really more so for the family Life Time. I think that’s where people craving  community being out with their families and doing stuff, I think they’re poised to really grow and to take a  solid position there. 

TB: Any thoughts around Equinox’s SoulCycle business? In a previous Interview [see At-home Fitness  Equipment – Industry Proliferation & Near-term Continued Consumer Adoption – 11 August 2021] I hosted  on the sector, the expert characterised it unfavourably. 

SP: There’s a specific demographic for that area. It’s a tough one. This is one of the areas I obviously know  plenty about but just don’t have a lot of hands-on experience with the bicycles. I’m not a cyclist. I don’t  understand that passion there. It hurts my butt after 10 minutes of being on the bike. I do think that it was a  huge rave, it was a passion. There was a great following around that. I just don’t know how fast that rebounds  and whether it grows again. I think it’s two different things. They rebound and at least become a viable  business and continue to drive revenue, or does it really tend to grow? That remains to be seen, but I just don’t  know enough to comment past that.

SP: I think all, just about all, of the HVLP models that I mentioned to you, they’ve done a good job taking the  approach to digital. Planet added digital to their app and has a bunch of content in there. Crunch has had  Crunch Live since before it was cool. Crunch Live has been out for years pre-pandemic. A few of these other  guys are deploying the digital platforms now and they’ll be launching three or four of those HVLPs. I think  that the middle market will struggle a little bit just because some of the people who can afford to either go up  to the posh or who want to stay at home. Like I said, I don’t think you’re going to see a significantly materially  measurable amount of membership loss from clubs because of at home. I think you had that spike, just like in  our company, we had our spike during COVID, so did those guys. You’re seeing significant decline in revenue  growth from there even though they’re still growing. 

Like I said, I still think that about two-thirds, that was the last number I heard in some of reports, people who  have at home, whether it’s a Peloton or a Tonal or a Mirror or whatever these things are, a Hydrow, a climber,  they also maintain gym memberships because they can afford to have both, and they enjoy one of those  modalities tremendously enough to keep it in their home but they still want to take the class or swim in a pool  or lift weights and that’s not something that’s easy to do unless you’ve built a 1,500 square foot home gym. I  think you’re going to see the trend grow. I think you’ll continue to see gyms hybridise their model to offer some sort of digital offering, but I don’t think we’re going to see that trend of 60 million gym members cut  down to 30 over the next five years. That is not going to happen. At home is not going to that to fitness. If I  would say anything, I would probably see that, it may be a little bit of the upper markets suffer. I don’t think  you’ll see as much of the HVLPs suffer in that demographic in that area. I think people go there for a reason,  whether it’s price point, whether it’s flexibility of the offerings, and I don’t they’re going to be in that  demographic to spend a ton of money to put in an expensive piece of home gym equipment and only do that at  home.

SP: It happens sometimes. People lost their jobs, they downgraded from a mid-tier to an HVLP just to save  some money. It is possible. I think, again, it won’t be a material thing. For example, if I do Peloton at home  three days a week on a bike and I just want to go lift some weights and do some strength training twice a week,  I don’t need to go to a USD 50-a-month gym for that. I could spend USD 10 at Crunch, Planet, XYZ, Eos, you  name it, and I can get the weights I need a couple times a week. That is certainly plausible. Whether people  will do that because they like the gym, their friends are there, it’s more than just equipment, it’s more than just  price, it’s that community, it’s the people that go there, it’s the same faces they see, it’s the people they shoot  the bull with afterwards. I think it’s feasible, yes. Materially amounts, amounting to something, probably not.

SP: At home, you’re seeing everything. A decade ago, over the last 30 years it was, you could get a bike at  home, you could do some equipment, you could do some basic stuff, video tapes, and all of sudden everything  is connected. I think we’ll continue to see, I don’t want to say odd, but just every type of modality possible.  Who would have thought you would see a climbing machine designed for the home, with hundreds of  workouts, and cost-effective and now climbers out there, imminent with their launch. You’ve got that, you’ve  got multiple rowing machines. You always hear the rumours that Peloton is going to add that modality at some  point. I think you’re going to see people very much continue. I think you’ll see unique clubs and start-ups who  are going to try to get in that space, whether it’s connected strength like Tonal and Mirror or other ways to  connect it. I think people are trying to be that next first one to market, like a Peloton was but with something a  little different, and you’ll see lots of entrepreneurs and venture-backed groups coming to play with that. I  think we’ve just hit the tip of the iceberg. Other at-home solutions, every week I read the funding list of who  got funded in a smart home or at-home technology, and there’s just another five start-ups out there trying to  make their way and get big. There’s only so much share of wallet around there, and there are only so many  people who want to do a single thing at home more than a couple times a week. I think you’ll see continued  growth. You’re going to see the leaders like Peloton diversify. 

That’s why I think it’ll just be hard for anyone to catch them. It’s not rocket science. Now that Peloton has  created the community, they’ve mastered that, they’re the best at it, the digital community, they’ve mastered it  for the bike, they can master it for the tread eventually, they can master it for a rower. It’s rinse and repeat at  that point. It’s just making great workouts, great, engaging content and a piece of equipment people want to  have in their home. As much as there will be a lot of these start-ups and other modalities coming to play, once  they’ve built the machine, it won’t be that hard for them to continue to add different modalities.

SP: I think it’s interesting. I think Apple is where they are for a reason. They’re super ridiculously intelligent,  they take risks, they fail quickly. They’re amazing at that. They’re all about that whole ecosystem. It started  with the computer 20 million years ago and then the phone and now the watch what else can I just tie to that,  and they’re just doing a great job of putting that together. Do I think it’s a threat to any of these three areas  and segments that we talked about? No. Do I think that people will do it at home and do some workouts there?  Yes. Do I think that you’ll see people in a gym doing an Apple Fitness work on the functional (? 53.59) by  themselves before they go swim or will they do a run of the treadmill and whatnot? Yes, I think you’ll start to  see that as well, and I think they’re going to be successful in their own way. They’re going to get their share of  people willing to add the, what is it, I think it’s USD 10 a month, who have the Apple Watch, who have the  phone, who have everything else and they’re just Apple ecosystem and it all comes together. They’re going to be super successful in that, but I don’t see that as something that is going to materially take away members  from those three segments we’ve been discussing. It’s not enough there unless they start shipping dumbbells  and equipment at home and just go into the whole ecosystem, which you can never put past them, I suppose,  it’s not going to materially pull people out of the gym.

SP: They’re the wild card. Yes, Apple has more money than probably them but more money than every other  company. Amazon is right up there. They’re a wild card. Look what they did with Whole Foods, look at that,  and they bought 400 grocery stores. 400 distribution points, they then probably, even the beyond their  investment piece if they’re already utilising those stores, for more than they thought, I would not put it past  them. They’ve got this, whatever wristband, Halo. They’re getting more and more into connected. They can  innovate, they can move quickly, they can acquire. Again, I guess I’d be a little surprised. I certainly wouldn’t  put it past them if they just go out there one day and just acquire 400 or a 400 health club chain. I’m not going  to name names, but they could acquire any one of these ones that we talked in the mid market segment and all  of a sudden now there are another 400 distribution points and there are all the supplements on the health.  They want to get into health, Amazon. They’ve already said that in a big way, health and health care. Now  those gyms can also become health care, multi-point areas for health care and preventative care and things  like that. 

They could do a million things. I wouldn’t put it past them. I bet you they do something to be disruptive over  these next couple of years. They may do the monkey see monkey do thing. They make come out with their  version of Apple Fitness and content, and I’m sure that’s going to happen, but I think they’re going to leave  from that at some point and do something is not going to put people out of business by any stretch. Them  buying whole foods didn’t put all these other grocery stores out of business, but it just adds another layer of  complexity and competitiveness to what they’re doing because of who they are.

SP: That’s what I was alluding to. I wouldn’t put it past them. I really think in the next three years maybe ish,  I bet you they do that. Who would have thought they would have bought Whole Foods, like I said? I think it’s  very plausible.

TB: Who do you think it might go after if you had to guess? 

SP: It has to be somebody that’s company-owned. If you buy a franchisor, you can’t force the franchisees to do  anything. It has to company owned. It has to be somebody like an LA, 24, who is a pure company-owned-type  environment. Those are the two big ones that come to mind that are obviously, you’ve got Equinox and Life  Time, but I don’t think that’s the demographic you’re trying to go after. You never know but I think LA and 24  make the most sense because they’re just one set of company-owned managed properties that could be picked  up in a fell swoop, I suppose.

SP: It will get back there. There’s no doubt. It’s going to happen. If you’re asking do they never get back to  pre-pandemic because of at-home, I think no. They will get back to pre-pandemic or more eventually. At-home  will not stop that from happening.

SP: One of the bigger things for me is coming together of health club and health care. I think the medical  fitness, the more and more push to preventative care, I think that helped club operators, big, small, any  segment. Don’t pay attention to that. Don’t do something to bring themselves to be part of that ecosystem, and  some of them are. I think they’re going to get passed by. I think there’s so much money in the health care  system and insurance. If the health club operators don’t look at this as becoming kind of… I’m not saying  they’re all going to come together and merge, I’m just saying that there is a morphing of health care and health  club that is going to happen. Health club operators want to be the ones driving that, not the other way around.  They’re going to lose control and they’re not going to be leaders in that space. I think that’s something to  consider, to keep an eye out. Now that the pandemic opened people’s eyes to the healthcare benefits of fitness  more than most, that’s certainly important, and I think just the second thing will be that these operators have  to be able to meet their members when, where and how they want to work out. I can’t overemphasize that  enough. 

Otherwise, they will lose share, either to people being home more or to other operators who got it and said. “I  will meet you where you want to work out. It doesn’t matter if it’s not always in my club.” I think that’s super,  super important. Those two things are probably over the next 3-5 years. Health care and health club and just  making sure that you’re meeting members where they want to exercise, when where and how because of that  unique fitness experience, and just like Instacart and DoorDash let people get groceries or eat when, where  and how they want, that’s saying fitness operators have to do the same thing.