How Fit is the Fitness Industry – Report Card Q4

Remember the moment your parents first looked at your semester’s report card. What would follow? A pat on the back and “keep it up” or a doubling down and promises to do better, work harder and try more. That’s the fourth quarter in the fitness industry in a nutshell. A time filled with performance assessments, budget planning and the never ending question on which we all build our businesses. How are we doing as an industry? What’s the fitness landscape look like for brands, manufacturers and clubs? And what do I need to think about for the year ahead? Here’s my take as you consider strategies for growth in 2023 and beyond.


Fitness is volatile but smart growth will bring success

IHRSA puts the CAGR of the fitness industry at a respectable 7% through 2026 and overall the industry is worth an estimated $96 billion globally. Great news: we weathered the storm and came out the other side. But there are challenges amid those prospects and growth. Peloton, that grew exponentially through skyrocketing home sales during the pandemic, reported a 28 percent downturn in profits and announced a fourth round of layoffs in October that, together with others, totals 12 percent of their previous workforce. This follows the off-shoring of its product manufacturing to Taiwan based Rexon Industrial Group in August, a dramatic drop in its share price and product scandals that attracted negative news coverage. And all of this just two years after the brand saw a 66% increase in sales (May 2020) and a 94% increase in subscriptions.

Lesson learned: Whether you’re a brand, a club or a fitness company, growth must be smart versus fast. A surge in memberships for a club or virtual fitness provider can mean welcome revenue that looks like success, but if the scale and scope of that surge quickly over runs resources, your business is actually under threat. A sharp rise in subscriptions is really an indicator of consumer interest in your offering or product and a sign to assess operational resilience – and failing to deliver will hurt your brand and long term reputation. In the case of Peloton that surge (and threat) is two-fold: a combination of subscribers demanding content but more critically the need for a rapid ramp up in production that can divert attention, resources, funds and strategic focus away from other needs of the business.



Digital content and delivery will be a lead industry driver

When Spotify and then Apple music launched, record labels wrung their hands and bemoaned the death of the music industry. Those soon to be industry-redefining brands changed the global model for music consumption. Suddenly experiencing music wasn’t about owning a vinyl album, cassette or a CD – a physical product to be played – it became about access and experiential exploration across all music. That same dynamic is now playing out across the worldwide fitness industry.

Digital fitness content and virtual experiences aren’t replacing the live class or endangering the fitness club model, they’re enhancing it and driving engagement and interest from members. A shift in consumer behavior and the way club members now perceive fitness that started during the pandemic is here to stay – and the numbers support it. Globally virtual and digital fitness is expected to reach $16.5 billion by the end of 2022 and $79.87 billion by 2026. Growth is calculated at just over 49% CAGR – a seven fold growth curve compared to traditional fitness models. More than 83 Million people now use a fitness app as part of their overall exercise habit and the number is rising as consumers see digital content, virtual fitness and live experiences as part of an essential fitness experience.

Lesson learned: More than 80 percent of new fitness clubs fail according to industry analysts, so getting the mix of physical offerings and member experience across all platforms right is essential. While the industry is projected to grow year on year, clubs and other fitness providers that embrace digital classes and workout content, that provide streamed classes live from their studios and make virtual fitness experiences a core component of their offerings, are going to be best placed for business growth. There’s also huge upswing potential for interconnected fitness apps, integrated fitness product sales within the app universe and ongoing need for all kinds of specialty content from the best producers.



Brand extensions, crossovers and franchising is on the rise

When Lululemon purchased Mirror in 2020 for $500 million it was a clear sign of two things: non tech and non-content brands realizing the upside of being in the fitness content space as a brand and business builder; and secondly, an indicator that we’ll see more crossover extensions in the fitness landscape to come. In this instance, it’s a win win. Lululemon Studio charges members for access to branded content and sells Mirror units as part of membership. Meanwhile Xponential Fitness passed more than 2,500 franchised clubs under their banner, bringing brand and name visibility to boutique fitness studios across the country.

Lesson learned: Let’s all expect more movement as equipment manufacturers seek opportunities to further digitize and integrate content; as apparel manufacturers drive sales through brand experiential extensions; and as the app and content worlds continue to integrate into every facet of fitness clubs.

Interesting times.