Gearing up

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While the overall UK fitness market continues to grow, the most exciting innovations have come from premium fitness classes.

This segment of the market has recently been attracting investors’ cash. Indoor cycling concept Psycle recently received £3m of funding, following on from a £6m investment in fitness brand Frame from Piper Private Equity and a £6.6m fundraise by spinning operator 1Rebel in October 2017.

While these brands all currently have relatively small estates, the US market suggests there could be considerable headroom for growth. Leading brands such as Soul Cycle and Barry’s Bootcamp have 85 and 30 sites respectively and have become established parts of the US fitness market.

We believe that the popularity of these concepts comes from 3 core features:

Flexible use: most operators offer a pay as you play model, allowing urban consumers to be flexible and avoid annual gym fees.

Sense of community: Successful operators have positioned themselves as not only places to work out, but hubs to socialise with like-minded people. Participants are encouraged to make friends and socialise with classmates and instructors alike.

Strong lifestyle marketing message; brands have excelled by marketing their products as both physically effective and socially desirable. In the premium market, a consumer’s class choice can be both indicative of their physical goals and their social image.

However, while market growth remains strong, we consider there are certain key considerations when looking at investing in this sector:

How significant are barriers to entry?
Low barriers to entry mean that operators need to be wary of both new entrants and imitation from larger gym chains, who have developed their class offer in recent times. However, while studios can be relatively easy to replicate, class instructors are a key differential that can drive loyalty from users. Soul Cycle have an internal scouting team for instructors and thorough auditions process before successful applicants undertake a thorough training programme.

How reliant is the brand on intermediaries?
The presence of strong intermediaries (such as ClassPass) in the market can be a poisoned chalice. While they can offer great exposure to new brands, discounted rates can put downwards pressure on margins, remove customer touchpoints and damage brand credibility. To avoid this, brands need to understand how they can successfully upsell consumers from intermediaries to their own platforms.

Can the concept adapt to stay relevant?
While specialisation on a single activity gives brands a clearly defined offer, it can be a barrier to repeat visit and present risk if the activity going out of fashion. Brands have therefore looked to take a more holistic approach and diversity. A good example of this is Psycle, which has added to its core spinning product to offer barre, HIIT and yoga.

If you wish to learn about our work in the fitness market, simply reply to this email.

Edmund FitzGerald