An unprecedented year in review, and a careful glimpse at 2021
by Herman Rutgers
People know me as a person who likes to look forward rather than backward, privately and in business, but this year I would like to make an exception. I started working in the wonderful health & fitness sector in 1994. In this quarter of a century I have seen industry growth every year, without exception. Fitness had proven to be a growth industry and to be recession resilient.
Well, that growth era came to a sudden halt in March 2020… In less than a year’s time, the fitness industry has been transformed.
Changes that would normally have taken years now took place in weeks/months, forced by the global Covid-19 pandemic. “Unprecedented” is an understatement; almost every week, there was news that altered aspects of society and the landscape of our sector’s ecosystem.
In this article - in an attempt to make sense of the main events of the last 12 months - I will try to describe the headlines that have undoubtedly changed fitness for good.
Setting the Scene
The year 2019 had ended very well for our sector in Europe (growth of almost 4%) and the first 2 months of 2020 showed a very encouraging economic and business development. Little did we know that at that time a disaster was in the making in Wuhan. Of course, I had read in January and February in the media about a mysterious and deadly virus from China, but that all seemed a faraway problem. The rude awakening came only a few weeks later when the Covid-19 pandemic arrived and most of Europe went into lockdown.
The Shutdown Begins…and Again
The Covid-19 pandemic came really close to home when Northern Italy was impacted in a very dramatic way by the virus.
On February 24 the first lockdown of fitness clubs was implemented regionally but soon spread all over Italy and Europe, with lockdowns implemented in most countries by mid-March. In the USA, on March 13, the government declared a national emergency and by March 16, most major fitness chains had closed their operations.
In a EuropeActive/Deloitte study (“Quo Vadis”, sponsored by FIBO) published in September it was made clear that fitness revenues had gone down dramatically. Luckily in many countries the government came with support packages in the form of wage suppletion programs and delayed tax collection. Also, landlords were helping the operators with delayed or reduced rents. But still the economic (and human) damage was significant. And then, after the summer when we thought we had Corona under control we were hit by a second wave in October. All together the health & fitness clubs in Europe will have been closed for at least 3 months and some even for 6 months during 2020. The only exceptions were the Scandinavian markets.
The Industry Pivots
So with these prolonged shutdowns, posting free content online was the stopgap solution. As time went on, brands needed a new business model to survive and outdoor and digital solutions became more important.
Big European operators like Basic-Fit, SATS and McFit were ready with a strong app and VOD (Video on Demand) offerings. Other chains and independents created a solution overnight. Suppliers like Virtuagym and Wexer were benefitting from this sudden need. Some operators created their own home-made solutions as did personal trainers. And when clubs could reopen again after the first lockdown, online offerings remained important as many consumers appreciated this hybrid model, “Onsite” and “Online” were here to stay!
Home Fitness Takes Hold
With gyms closed, commercial fitness equipment suppliers were struggling but interest in home fitness equipment soared. Free weights sold out while Peloton, Mirror, Tonal, Nautilus and many others experienced record demand. Unsurprisingly, apps like Strava, Freeletics, Mywellness, and MapMyRun saw downloads surge.
As spring turned to summer, prolonged shutdowns brought many big brands to their knees. In the USA, 24 Hour Fitness, Gold’s Gym (purchased in June by RSG/McFit), Flywheel Sports, Town Sports International, CrossFit, YogaWorks, and Youfit filed for bankruptcy or had to restructure. By some estimates, gyms in the US have lost $14B in revenue since March. By year’s end, 25% of US gyms could close for good is an estimate from FittInsider in a December newsletter. In the UK, we saw 50 Exercise4Less clubs being taken over by JD Gyms and Sports Direct acquired the 43 DW Fitness clubs.
Investors Flock to Fitness
During the pandemic, investors have poured more than $1 Billion into digital and connected fitness companies, including Zwift ($450M), ICON Health & Fitness ($200M), Tonal securing $110M, Tempo raising $60M, Freeletics $65M, Strava $110M, Hydrow $25 MM and Wattbike obtained £11,5 MM new investment.In July, in a move with implications across retail, fitness, and technology, Canadian apparel company Lululemon acquired Mirror (more than $ 150 MM in revenues this year) for $ 500 MM in cash.
In Europe we saw listed fitness companies recovering well after the drop in March. Basic-Fit raised € 133 million through a share issue in June and Pure Gym announced in October the strengthening of it’s financing by raising a bond issue and some further capital and The Gym Group reported recently that they had achieved an extension of bank facilities creating a strong liquidity position.
And on the NYSE Peloton Interactive closed yesterday at an unbelievable valuation of almost $ 48 BN…and announced that they had agreed - in a bold strategic move - to acquire Precor for $ 420 MM.
Some firms used the pandemic lockdown to rethink their strategy. For example Pure Gym announced in November that they would close their 19 Polish clubs and launch a franchising model for new regions of the world, starting with Saudi Arabia in 2021.
The Gym Group acquired a stake in FiiT, the UK online streaming business, Anytime Fitness bought out their master franchise in Spain and established a subsidiary to run the business in Iberica. RSG/McFit bought a 35% stake in Gym80 in September.
This month, two leading US chains introduced for the first time “Digital Only” memberships; LifeTime ($ 15,- /month- including Apple Fitness+) and Planet Fitness at $ 5,99/month. Will this become a trend that will be followed by European chains to capitalize on their digital offerings and create an ongoing income stream when clubs are locked down?
In a different strategic move, Under Armour is divesting its Digital Fitness division and recently sold MyFitnessPal for $ 345 MM – a company they bought in 2013 for $ 475 MM –to a private equity firm and decided to shut down Endomondo (acquired in 2015 for $ 85 MM). Another example is Nautilus Inc. deciding to focus on the consumer market and to divest Octane Fitness for $ 25 MM (acquired 5 years ago for $ 115 MM). These are obvious examples of “shareholder value destruction”.
Big Tech Firms Eye OnlineFitness
It is interesting that during the second half of 2020 several of the “big tech” global firms entered or increased their presence in the fitness sector. Apple launched Fitness+, a fitness video on demand (VOD) subscription integrated with Apple Watch and Apple Music. Amazon launched a fitness tracker and “Halo” a wearable app and a subscription VOD service. Oh, and Google is acquiring Fitbit for $ 1,2 BN.
EuropeActive and FIBO had to cancel all live events planned for 2020.
As a result we saw a successful online European Health & Fitness Forum on September 30 and FIBO online. During the lockdown I was involved with many webinars to keep the sector informed and to share best practices between operators.
It was heartwarming to see how on a national and international scale the industry came together and supported each other. Associations really stepped up to the plate and proved their value! EuropeActive published last week very important research proving, based on 115 million visits to health clubs in Europe during the April-November period, that clubs are safe and play a minor role in spreading the virus; only 1,12 reported cases per 100.000 visits!
I was involved with the Deloitte/EuropeActive study “Quo Vadis”, sponsored by FIBO, in which we tried to predict the impact of Covid-19 on the sector for this year and the near future.
I am afraid that the developments of the last weeks (further lockdowns and the spreading of a new more aggressive variant of Covid-19 discovered in England) have changed that picture and will not make things easier.
With FIBO’s recent announcement to move from April 2020 to the end of June, we have a very good chance to meet again in person. If anything I have missed my international travel and meeting colleagues from around the world. After all the zoom meetings and webinars it is important to meet and greet again face to face in our industry where human relations are so crucial.
Looking Forwardto 2021
Some say let’s quickly forget 2020, it is a lost year…but every cloud has a silver lining…
I would rather call 2020 a “wake-up-call-year”, the year in which our growth assumptions were turned upside down. There were also some positive influences from the C-19 pandemic. It forced our sector to accelerate its digital developments and rethink its strategy, recalibrate our financial situation and the debts on the balance sheet, focus more on cleaning facilities and health & safety in general; it created a more positive vibe for the environment and human values.
These elements will continue as we go into the new year, and we need to continue to spread the word that our sector is part of the preventative healthcare!
Key Questions for 2021 and Beyond
If anything, the pandemic has strengthened the fundamentals for growth of our sector; more appreciation for our sector as part of the health solution by authorities and investment for prevention, increased awareness that a fit person has a stronger immune system. Benefits of a healthy lifestyle have been highlighted during the pandemic.
From an overall business perspective, some key questions remain:
Will people who cancelled or froze their membership return quickly to gyms when reopened?
Will digital fitness democratize access, helping more people to be more active, more often?
Can connected home fitness equipment sustain its trajectory, when clubs are open again permanently without restrictions?
Will online and VOD keep their audience and continue to grow?
How many members and clubs will we have lost at the end of 2020 versus 2019?
Are our European industry goals of “80 Million members by 2025” and “100 Million by 2030” still realistic?
The new EuropeActive/Deloitte Market Report 2021, to be published in April 2021 will hopefully give some answers to these questions.