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  • Trying to stay in shape during a pandemic means lifting dumbbells in

  • front of the bedroom mirror, taking Pilates classes in the living

  • room on Facebook live, and long runs in the park wearing a mask.

  • By early April 2020, almost all of the 40,000+ health clubs in the

  • U.S. shut down.

  • 1 out of every 5 Americans needed to find a new place to sweat.

  • Since the start of the pandemic, U.S.

  • gyms have lost more than $10 billion dollars in revenue as of August

  • 1st, 2020.

  • And according to the International Health, Racquet and Sports Club

  • Association, without additional federal funds, about 25% of clubs

  • could close permanently.

  • In the meantime, Peloton's sales have surged as people convert their

  • apartments and houses into home gyms.

  • Covid-19 has thrown the gym industry into a tailspin, wreaking havoc

  • on some of the biggest names in fitness, including Gold's Gym and 24

  • Hour Fitness. Planet Fitness has also had to shut its doors for

  • months. But unlike its rivals, the company is poised to sprint past

  • the competition once the pandemic ends.

  • Planet Fitness is the purple and yellow gym, where a basic monthly

  • membership runs $10 bucks a month and the staff gives away free pizza

  • and bagels. "You know, I really feel that a situation like this,

  • people really realize how important fitness is in health and

  • wellness, and there are studies that show all the time that working

  • out does build your immune system.

  • You know, I think Planet Fitness, because of our economics our strong

  • franchise system, we're well-positioned to weather the storm."

  • Planet Fitness reported 53 consecutive quarters of positive same-store

  • sales growth before Covid-19 hit in March 2020.

  • But analysts say, without the rollout of a vaccine, it could be until

  • the end of 2021 before the company reaches pre-pandemic levels of

  • profitability. So despite the dire situation in the gym industry, can

  • Planet Fitness actually come out ahead?

  • And what does social distancing mean for the future of working out?

  • Planet Fitness's origins can be traced back to Dover, New Hampshire in

  • the early 1990s.

  • In 1993, brothers Michael and Mark Grondahl hired UNH student and

  • future CEO Chris Rondeau to work the front desk at their gym.

  • The club looked a lot like its competitors: stacks of free weights, a

  • juice bar and group exercise classes.

  • But the trio realized that to expand their clientele beyond the

  • limited pool of power lifters and Tae Bo enthusiasts, they would need

  • to go after the 80 to 85% of the population that didn't go to the

  • gym. They canceled classes, ditched oversize dumbbells, and shifted

  • resources to cardio and circuit training.

  • Planet Fitness was born.

  • "Back then, there was only 15% had a gym membership, today still only

  • 20% have a gym membership.

  • So we said, well, maybe it's price.

  • So we started dropping prices that'd get people off the couch and

  • living out of desperation. We weren't going to make it anyway, so we

  • had to lose. So, we dropped the price and decided if we had a lot of

  • volume and really figured out the model of catering to first timers

  • and casual goers."

  • Planet Fitness is different than other gyms.

  • Its basic membership is $10 dollars a month, well below the industry

  • standard of $71 dollars.

  • It gives out free pizza and bagels once a month and has lunk alarms

  • as a reminder to power lifters who are grunting or dropping their

  • weights that they are intimidating their neighbors.

  • To keep costs low, Planet Fitness locations don't have perks like

  • pools and basketball courts, but the company spends big on

  • advertising, and that has helped membership soar.

  • As of June 2020, Planet Fitness had more than 15 million members at

  • its more than 2,000 locations, more than double the amount it had in

  • 2015, making it one of the largest gyms in the U.S.

  • In the U.S., franchisees spend 2% of their monthly membership dues on

  • national advertising and 7% on local advertising.

  • From 2011 to 2019, Planet Fitness spent over $870 million dollars to

  • drive brand awareness, including sponsoring TV shows like "The

  • Biggest Loser" and "Dick Clark's New Year's Rockin' Eve with Ryan

  • Seacrest." As of 2019, 95% of Planet Fitness gyms were owned by

  • franchisees. "If you think about our our business model and our

  • marketing. A marketing machine is what I call it, okay?

  • So, every incremental member that joins, 9% of that dues goes to

  • marketing. Fueling the next join."

  • "And so the bigger they get, the more of a marketing force they

  • become. And so, it is going to be pretty difficult to compete with

  • that marketing bulk."

  • In addition to revenue it makes from corporate-owned gyms and

  • royalties from franchisees, Planet Fitness makes money selling all

  • those purple and yellow workout machines to its franchise partners.

  • In 2019, equipment sales made up 37% of the company's revenue, and

  • its banks on not a lot of people showing up to use them.

  • In 2019, Planet Fitness averaged over 7,000 members per gym.

  • That's a big number to fit in a 20,000 square foot space.

  • In fact, according to analysts, the average Planet Fitness gym member

  • visit only once or twice a week at most.

  • "Our average members use it about 5 to 6 times a month, believe it or

  • not. So they use it.

  • It's very it's kind of like their second or third priority.

  • They've got kids, they've got a second job, they've got yard work to

  • do. But they get it in when they can get it in.

  • So it's not that 7-day-a-week person; it's a very different

  • customer." To help bring in new members that were unlikely to become

  • gym rats, the company commissioned a 2019 study that said 61% of

  • Americans believe a "dad bod" is sexy.

  • "I think the biggest thing that they've done is they don't compete

  • directly, for the most part, with other gym chains for customers.

  • They acquire the majority of their customers from the couch, so to

  • speak. Meaning their customer is the non-gym goer.

  • They're able to be extremely profitable despite the fact that they're

  • only charging $10 or $20 dollars a month because they have so many

  • customers per club.

  • And that, I think, is really the key to the business model."

  • In August 2015, the gym operator debuted on the New York Stock

  • Exchange, and the stock soared 450% to $88 dollars by February 20th,

  • 2020. As of October 26th, 2020 Planet Fitness had a market cap of $5.9

  • billion dollars. "On the idea of convenience, the way that Planet

  • Fitness is winning that war is that every year they're growing about

  • 200 new units per year, which means they're getting closer and closer

  • to where we all work and live.

  • And that's a key reason why people join a gym as well."

  • The fitness industry in the U.S.

  • is a $32 billion dollar market with more than 41,000 gyms and 64

  • million members. In addition to independent mom and pop clubs, gym

  • chains like L.A. Fitness, Lifetime Fitness, Snap Fitness and of

  • course, Planet Fitness, were forced to shut down most all their

  • locations in March 2020 to curb the spread of Covid-19.

  • "It's a cataclysmic event.

  • It's a major hurricane.

  • It's a major problem."

  • "I think longer term, what this has probably created, you know, the

  • silver lining behind all of it is horrible situation we're all in, is

  • that I think it will probably accelerate probably 10 years of

  • cleansing the industry in a matter of probably 12 months.

  • There's a lot of mom and pops up here; it's a very fragmented

  • industry. There's 41,000 gyms in the country.

  • If you take us and LA Fitness and 24 Hour Fitness, the big national

  • guys out, you still have 35 or 36,000 mom and pops.

  • Old club's have been around for 20 years, you know, lack of capex,

  • old equipment. So you know, I think it would really cleanse the

  • industry, and the cream will come to the top, and the good guys will

  • survive longer term."

  • 55-year-old Gold's Gym filed for bankruptcy in May 2020 and said it

  • would shut down 3 company-owned gyms due to financial stress caused

  • by the coronavirus pandemic.

  • According to a statement, the move would not impact franchise gyms.

  • In July 2020, Germany's RSG group, a leader in the European fitness

  • space, was selected as the winning bidder for Gold's in a

  • court-approved auction for about $100 million dollars.

  • It's a similar story for 24 Hour Fitness, which filed for bankruptcy

  • in June 2020.

  • The company plans to use bankruptcy to eliminate debt and close clubs

  • that were either out of date or in close proximity with other 24 Hour

  • Fitness clubs. And Planet Fitness has faced major headwinds, too.

  • The company reported second quarter 2020 revenue decreased by 78%

  • from the year prior to $40 million dollars due to gym shutdowns.

  • According to analysts, Covid-19 may have accelerated a trend in

  • fitness that was already taking hold prior to the pandemic: working

  • out at home. "I think a lot of the bigger gyms were probably already

  • struggling to some degree.

  • I think this secular shift away from traditional gyms and towards

  • at-home fitness had already started."

  • In a survey published in June 2020 by TD Ameritrade, almost 60% of

  • Americans polled said once the pandemic ends, they would not renew

  • their gym membership. One of the main reasons?

  • Affordability. Respondents said that Americans who choose to live a

  • healthy lifestyle shell out an average of $177 a month on personal

  • trainers, fitness classes and gym memberships.

  • More than half the people surveyed said the pandemic helped them find

  • a cheaper way to live healthier.

  • As gyms shut down because of lockdown orders across the U.S., demand

  • for fitness equipment soared.

  • According to NPD Group, fitness equipment sales rose 130% in March

  • 2020 compared to the prior year.

  • Sales of exercise bikes were up 170% and weight bench sales were up

  • 259%. Suddenly, there was a shortage of dumbbells and kettlebells on

  • e-commerce sites. One company that was well-positioned in the at-home

  • workout space was exercise bike-maker Peloton.

  • The company has seen sales surge.

  • In the third quarter of 2020, Peloton had revenue of $520 million

  • dollars, more than 66% higher than a year earlier.

  • It also reported more than 170,000 paying digital members, up 64%

  • from the previous year. In September 2020, Peloton announced new

  • products, including a lower priced treadmill and a more expensive

  • bike option. The price of the original Peloton bike will drop by $350

  • dollars. Peloton hit a market value of $35 billion dollars in October

  • 2020. And it's not just Peloton that is making inroads into home

  • fitness. In June 2020, yoga pants-maker Lululemon said it was

  • acquiring fitness company, MIRROR, for $500 million dollars.

  • MIRROR offers live classes in its wall mounted device, which retails

  • for $1500 dollars.

  • Subscribers pay $39 a month to stream classes.

  • Apple is planning to get in on the at-home workout boom as well.

  • In August 2020, it was reported Apple was working on an exercise

  • video subscription service for the iPhone and Apple TV that could

  • include activities like indoor running, cycling, rowing and strength

  • training. Planet Fitness thinks it may have a future in your living

  • room, too. The gym launched the Planet Fitness app in the summer of

  • 2019. "We launched our app last summer, and we loaded in 500 workout

  • videos and exercises to do, whether you're in club or at home, and

  • saw some good traction with that. But literally the day we close our

  • gyms in March skyrocketed the consumption and really interesting, we

  • saw is: 24% of the consumption were non-members."

  • And because of its low monthly membership fees, analysts say Planet

  • Fitness is a natural fit for people who like to workout at home but

  • also want to occasionally hit the gym.

  • "Historically, there's been an 80% positive correlation with at-home

  • fitness sales and fitness club memberships, indicating that they both

  • rise together. And actually, people who work out of fitness clubs are

  • more likely to have at-home fitness.

  • That kind of makes sense, right?

  • Because you want to have that optionality."

  • With clubs reopening, Planet Fitness announced on August 1st, 2020,

  • masks would be required inside gyms except when members were actively

  • working out. The company suspended Pizza Mondays and Bagel Tuesdays,

  • started live streaming at-home workouts on the company's Facebook

  • page and blocked off equipment in gyms to create social distancing.

  • But even with all the precautions, is it safe to work out in the gym

  • during a pandemic? A study from Norway said it just might be.

  • The research started in May 2020 included 5 gyms in Oslo with over

  • 3,700 members who did not have underlying medical conditions.

  • The results? No one at the gym got infected.

  • The study surmised that with good hygiene and social distancing

  • measures, there was no spread of Covid-19 in gyms.

  • Planet Fitness said that since May 1st 2020, with over 45 million

  • check-ins only a fraction of people have tested positive for

  • Covid-19. That's 1 in 354,000, and there's no evidence anyone

  • contracted the virus in its clubs.

  • "I do also think, though, that this will also create a renewed sense

  • of awareness of wellness.

  • I think people really realize from all the news reports you see

  • that, geez, the people that this is affecting the most?

  • Are people that are obese or chronic diseases or diabetes, heart

  • disease, and I think this will get people to really say, 'Hm.

  • We've been hearing it for 20, 30 years, maybe I should really

  • listen.'" But what about boutique fitness studios that tend to have

  • larger classes in smaller spaces?

  • Boutique studios like Barry's, SoulCycle and Orange Theory are one of

  • the hottest trends in fitness and pre-pandemic were a go-to social

  • destination. "And what's interesting is that, up until about last

  • year, the boutique industry accounted for about 30% of fitness spend,

  • which is up dramatically from about 10% of fitness spend about 5, 10

  • years ago. "Barry's, formerly Barry's Bootcamp, known for its Red

  • Room, has more than 70 locations in 14 countries.

  • The company normally charges $25 to $38 dollars per class, but on

  • March 17th, began offering free Instagram live workouts while some

  • venues remained closed.

  • As of October 27th, 2020, Barry's had 13 U.S.

  • studios and 23 international clubs open for indoor workouts and 12

  • open for outdoor workouts.

  • SoulCycle, the indoor cycling studio owned by the Equinox Group, said