Like any industry, the health and fitness world is constantly evolving. Hannah Clark Steiman, an associate at Innosight, an innovation and strategy consulting firm, recently shared with Club Solutions the most recent changes she’s noticed in the industry, and how clubs can evolve to keep up.
CS: In a recent article you wrote for Bloomberg Businessweek, you discussed the impact new fitness companies and startups are having on health clubs. Can you be more specific — what’s the impact?
HS: There are a wide variety of fitness companies — both established firms and startups — that are impacting the health club industry. On the high end, there are gym chains like CrossFit that offer highly-specialized workouts. But the bigger threat to health clubs comes from the low end. Today, a wide variety of fitness services offer a level of convenience that gyms just can’t match, and at a much lower cost.
For example, “wearables” like the Fitbit and FuelBand cost just $100 to $150 and let you track how many steps you walk each day. Apps like Strava, RunKeeper and PactApp also let you track your workouts, and offer various motivational tools. Not only are these services much cheaper than a gym membership, but they also offer additional functionality – you can track your progress online, and connect with friends to compare your results.
And they are so much easier to use. I don’t have to travel to a gym or use any special equipment. In fact, when I use the Fitbit or Fuelband, I don’t have to “exercise” at all in the traditional sense; I can just take a stroll around the office.
There are also online services like DailyBurn and YogaGlo, which offer classes on demand. YogaGlo costs $18 per month, and offers 2,000 yoga classes. It has a great search tool — if I want a 45-minute, advanced class focused on core strength, I can easily find several different options. The service is cheap, it’s customizable, and I don’t even need to leave the house to use it.
Customers, particularly young customers, will start to abandon gyms in favor of these more attractive options. In fact, there is some evidence that this is happening already. Memberships dropped 2.5 percent at Town Sports last year, and rose only .3 percent at Life Time Fitness.
CS: How can clubs best compete? What are specific things they can do?
HS: There are some low-hanging opportunities. Fitness clubs can layer on social media to build a greater sense of community within their membership — for example, by broadcasting group classes online and by letting members connect and compete with each other on the web. And they could allow members to be more connected at the gym by offering services like Wifi so members can stream video content on their tablets while they work out.
But these are short-term approaches to a long-term problem. The bottom line is that they need to prepare for a world in which large, expensive facilities are a smaller part of the industry. Purchasing disruptive competitors — or launching their own disruptive fitness services — may ultimately be the only way to survive.
CS: In the Bloomberg article, you discuss “disruptive fitness services.” What do you mean by “disruptive?”
HS: We mean something very specific when we talk about disruption: inexpensive services that don’t have all the frills offered by large incumbent firms. The services I mentioned don’t have pools or locker rooms or exercise machines, for example. But they offer value on other dimensions, generally cost and convenience.
Large companies typically don’t pay attention to disruptive competitors. After all, if you’re earning $60 a month from your members, why would you consider launching a service that costs only $10 a month — or even, worse, a service that’s free? But slowly, the disruptive competitors become more and more popular, until ultimately they can force incumbents out of the market entirely.
CS: What do you predict will happen in the near future if health clubs don’t find ways to compete with growing startups?
HS: Health clubs may not suffer in the very near term. Take Life Time Fitness, for example — its stock price rose after it reported 2013 earnings, because revenue and net income growth were both healthy. But increasing attrition and slower membership growth hint at broader challenges. It’s hard to say when it will happen, but in the next 5 to 10 years, many gym chains could face the same kind of challenges that bricks and mortar retailers like Barnes & Noble are facing today.
