With questions rising about the health of the U.S. consumer as we enter the final weeks of 2022, we thought we’d revisit our previous analysis on the fitness industry. We last looked at the fitness category in April, where we reiterated that 2022 would be a big rebound year for the category. Thus far in 2022, we've seen that visitation trends have outpaced last year. One reason for this might be because after more than 2 years of Covid, Americans report that they are prioritizing health and wellness even more than ever, with 50% saying it has risen as a priority.
The macro environment has changed quite a bit between April and November, so we thought we’d revisit trends. Looking back at the past 30 years, one of the first things consumers have historically de-emphasized during a cyclical downturn or recession is health club memberships. Although Placer.ai's data doesn’t go back to the Great Recession of 2008-2009 to view visitation trends, we can look at membership data from two of the publicly traded fitness chains at the time (Life Time Fitness and Town Sports International) to better understand the impact of macro headwinds. Interestingly, the recession did not hit membership trends at these chains immediately, but that was partly due to annual membership structures that kept consumers locked in longer. Additionally, Life Time Fitness was still opening up new centers during the early part of the recession, so it took longer for the drop in memberships to appear in the company’s reported numbers.
With more and more retailers highlighting an "uncertain macro environment"--a topic we’ve touched on in the Anchor the past several weeks–-how has the fitness sector fared? Relatively well, all things considered. Using January 2017 as a baseline, industry visitation trends have been running ahead of pre-pandemic levels for much of 2022. This comes even as fitness club trade group IHRSA data suggests that 25% of fitness club locations have permanently closed compared to March 2020, shrinking from approximately 41,000 locations to roughly 30,000 locations.
We did see the number of fitness club visitors trend down the past three months, but some of this is because of typical seasonality patterns and doesn’t necessarily signal the same visitor/membership losses that the industry has seen during previous downturns. While we certainly expect that macro headwinds will impact this category, recent visitation data and commentary from Planet Fitness and other fitness chains reveals why health clubs might be in a better position to weather a slower macro environment than in the past, including lower monthly fee structures, increased workout frequency among consumers, a shift to younger members, and reduced seasonality.
- Lower monthly fees have disrupted the category status quo. As we’ve pointed out in our previous analyses, lower-priced fitness alternatives have disrupted the status quo for the fitness club category, with players like Planet Fitness, Crunch Fitness, EOS Fitness, Vasa Fitness, Blink Fitness, and Chuze Fitness (most of which have $10 monthly fee opening price points) accounting for the bulk of category visitation and unit growth the past several years (and validating our choice of Blink Fitness on our "Brands to Watch" list heading into the year). At its investor day on November 15, Planet Fitness noted that it accounted for 87% of the industry’s new memberships added from 2011-2019 (11.1M of 12.8M memberships added industry-wide) and 13% of the industry growth and believe these trends have continued the past few years by comparing chainwide trailing-twelve-month visitation gains to 2019 (below).
- Increased workout frequency. Recently, Planet Fitness noted that its member trends remain strong, with 3Q22 new membership adds back to pre-pandemic seasonally adjusted levels. Importantly, the company noted that members who are visiting the gym continue to visit more frequently and membership cancelations are lower compared to 2019, which we believe are signs that members are more committed to fitness. At the time of Planet Fitness’ initial public offering (IPO) in August 2015, management noted that the average person was working out about 5 times a month. That number has now moved to more than 6 times a month. Visit per location trends for Planet Fitness (below)–which have outpaced the broader category and have trended above pre-pandemic levels in 2Q22 and 3Q22–also support this claim. Because of this heightened level of engagement, we believe that attrition due to macro pressures will be less pronounced than previous cyclical downturns.
We see the same increased visitation trends with other value-oriented fitness clubs. We compared a Crunch Fitness in Tallahassee to a nearby Orangetheory and found that dwell time was similar for both, and the number of unique visitors was relatively similar. What differs is the frequency with which they work out. Crunch Fitness members are likely to come almost 5x as often as Orangetheory members. One metric used to measure stickiness of fitness membership is the frequency with which members come. The more often you visit, the more likely you are to renew.
- Shift to a younger membership base. While all age cohort groups are back to or above their pre-pandemic penetration levels, Planet Fitness continues to see increased penetration with the Gen Z cohort. According to the company, Gen Z comprised 12% of its membership base in 2019 (representing 5.1% penetration of the total cohort group in the U.S.), which has since grown to 25% of its membership base thus far in 2022 (representing a penetration rate of 8.9%).
We reviewed the median age of the consolidated trade areas for a sample group of fitness club chains, and perhaps unsurprisingly found that the value-oriented fitness clubs were generally lower than other chains (below). While younger customers have been impacted by inflation and other macroeconomic headwinds, increased usage rates among these customers combined with an affordable monthly price point should keep member attrition to a minimum over the coming months.
- Less seasonality, greater member retention. Historically speaking, the first quarter of any year is the busiest time for fitness club visitation trends as consumers act upon New Year’s resolutions and recommit to health and wellness goals. However, most chains see a reduction in visits during the second quarter of a given year, another drop in the third quarter, and the fourth quarter posting the lowest visitation/membership numbers for the year. Looking at visit per location trends across the industry (below), we saw that this trend played out in 2017 and 2018. However, by 2019, we had started to see the typical member attrition rate smooth out, with a much smaller decline in industry-wide visits per location between the first quarter and fourth quarter (admittedly, the lower peak in 1Q19 was partly because of Planet Fitness’ expansion efforts, which freed up capacity at centers that were running close to their maximum number of members). It’s tough to gauge normalized membership attrition plans the past three years due to COVID, but we believe new fitness club offerings like small group classes, personal training, and alternative sports like pickleball have contributed to the smoothing out of the typical yearly membership attrition curve.
When we examine at the brand level, we see that there is more than meets the eye in terms of which fitness chains are increasing visitation. We compared 3Q22 change in visits for the largest gym and boutique fitness chains in the U.S. with trailing-twelve-month household income for these chains’ aggregated trade areas (below). Value-oriented fitness chains like Planet Fitness (up +34% for 3Q22), Blink Fitness (up +34%), and Crunch Fitness (up +33%) have held up well, while more premium chains and boutique fitness operations like Orangetheory, Pure Barre, CrossFit, and SoulCycle have not fared as well, likely due to share of wallet pressure wrought by inflation. Even their more affluent customer is running the value equation through their head. In addition, boutique fitness can be more repetitive and those looking for workout variety might prefer a gym.
