4 July 2021, by Herman Rutgers
The biggest opportunities and threats for the fitness sector in 2021 and beyond - Part 2: Suppliers
The vertical markets, digitalisation and new types of customers: According to Covid-19, there are many business opportunities for fitness equipment and concept providers, but the threats are also real.
As Covid-19 vaccination is progressing and we are coming out of the lockdown in most of the western world it is good to realize what impact this period has had on the ecosystem of our sector and how we can recover faster and see our sector boom again. I have written 2 articles to cover what I believe are the biggest opportunities and threats, one to cover “suppliers” in the broadest sense and one to cover the “operators”.
This is Part 2, addressing the supplier perspective ( please note that the opportunities and threats from the operator article also offer specific points for suppliers…it is the other side of the coin. )
Let’s start with the positives.
Operators will have to be better at developing methods to offer not only in the physical clubs (offline) but also outside of the clubs (online) health and fitness services. “Fitness anywhere/anytime” is the new mantra. Only the biggest operators will be able to do this in-house, most will have to outsource or buy this capability. This offers many opportunities for suppliers.
2. Home fitness
In the past clubs saw home equipment as competition for the commercial fitness business. Research has proven this is not the case. In fact, people who own a piece of equipment and practice at home are more loyal health-club members. The recent exponential growth of (connected) home equipment was stimulated by the forced closures of clubs due to the Covid-19 pandemic.
It forced people to find solutions for their training at home or outdoors.
Clubs will have to show their members that they are innovating and investing on a regular basis. Think innovation in all aspects of the business and not only in equipment. Particularly post Covid operators need to show consumers they are making the clubs safer and more fun to train in than ever before. This offers chances for suppliers. It has always been important for any supplier to listen carefully to what your customers want and how you can help them to solve their problems, but that is now even more crucial!
4. New target groups
Fitness penetration in most countries is still at 10-12% at best and this can be doubled if it would get to the levels of Scandinavia or the USA. That means possibilities for suppliers to help operators to find new types of customers with new types of equipment, training methods or marketing approaches. For instance the “senior” market offers great opportunities. Operators and suppliers should adapt and adjust products and programs to this target group; Baby boomers (60-75 years old) represent 35% of the population and have 12x the net worth of millennials! Tapping into this target group offers tremendous long term value.
Post-Covid, many clubs will have cashflow problems and this offers suppliers who are able to offer creative financing solutions possibilities to help these operators. This means suppliers with delayed payment plans or leasing constructions will have extra reasons to open new clients.
6. “Vertical Markets”
Many suppliers rely heavily on the traditional fitness club market, but that segment is only part of a much wider ecosystem of facilities where fitness is practiced.
Think of Hotels, Leisure Centers, Corporate, Medical, Military, Police, Fire-brigade, Condominium housing, etc. In all these organizations there is a need for physical activity and training and these organizations need equipment and other fitness services. These markets combined represent potential buying power as big as or bigger than the traditional fitness clubs.
1. Less equipment
The growing importance of microgyms / studios, the trend towards functional training and outdoor activities leads to less need for relatively expensive “traditional“ equipment. Suppliers will have to be able to respond to this shift in demand and also the growing importance of home fitness, which requires different types of products.
2. Financial distress
After the prolonged periods of zero or reduced income due to the closedowns operators not making enough money to invest and there will be payment difficulties, even possible bankruptcies which may mean supplies will be faced with uncollectable receivables. The financial difficulties of operators may also lead to a choice for lower quality, cheaper equipment and a race to the bottom on price.
3. Big Tech
or FAMGA (= Facebook ,Apple, Microsoft, Google, Amazon) have entered the fitness sector and this has been accelerated during the last year and a half. We have seen Apple launch their video on demand service with Fitness+; Amazon with their wearable and Google purchased Fitbit, just as 3 examples. These companies with billions to invest will raise the bar for the quality of content and marketing and will raise the expectations of the consumer who will be more educated.
4. Slower rebound
The EU economy declined overall by 6,1% in 2020 and for 2021 a growth of 4,2% is projected. The ECB is projecting that the EU economy will be back at pre-Covid levels by mid-2022. But the uncertainty is great even though there is a modest level of optimism with vaccinations reaching the majority of the population. At the moment of writing this article many countries have just started to reopen their economies and the big question is how will the second half of 2021 enfold. There could be a slower return of members after the 2nd lockdown… or worse.
5. Another pandemic
We do no want to think about it but scientists have warned us that this Covid-19 pandemic could repeat itself with another type of virus or a variation of the current one.
I am sure, dear reader, you can come up with more opportunities and threats from your own point of view but I hope this article has helped you to critically rethink your own future business strategy. Business people and entrepreneurs are all born optimists but it is important to look at both sides the same coin!