The Evolving Fitness Frenzy
The global health club industry boomed to an estimated $94.0 billion in 2018. The U.S. alone contributed $32.3 billion to the industry. (1) The industry has been rapidly changing due to several key trends, including increased disposable income, growing health consciousness, a changing age mix, and new workout preferences. As generation Z and millennials start dominating the fitness industry, health club providers can no longer rely on the “one-size-fits-all” approach when thinking about their product or services offered. Wide-ranging fitness abilities, diverse health conditions, and heavy time constraints create demand for individualized fitness and wellness experiences. Boutique studios and home fitness solutions have risen to meet this new demand. To compete, traditional health clubs have expanded amenity offerings and even adapted some of the most successful boutique fitness concepts, like High Intensity Interval Training classes (“HIIT”), to their clubs to attract and retain customers.
Technology’s influence in fitness and wellness has also expanded tremendously. Fitness posts on social media and apps exploded in 2019, allowing friends to compete and share their fitness experiences with each other. In conjunction with rising awareness of health measures, consumers highly value the ability to track fitness data in real time. For example, wearable technology like smart watches, apps, and other forms of fitness monitors have been cited repeatedly in the top 10 fitness industry trends over the past couple of years, as they allow users to track progress and participate in a “community.”
Yet the two preeminent deals in the digital and tech-enabled fitness market of 2019 have both faltered. Peloton announced its IPO in September and has remained relatively flat hovering at around $28 per share. After speculation by Wall Street in recent months over Peloton’s value, the stock price has not achieved steady growth, highlighted by falling stock prices following negative reception of its holiday ad campaign. In November, Google announced that they would be acquiring Fitbit for $2.1 billion. However, the Department of Justice announced it will be reviewing the acquisition due to data privacy concerns, in addition to existing scrutiny of Google’s business practices, potentially halting the transaction.
Notwithstanding the aforementioned “bumps,” tech-enablement attributes differentiate fitness companies in a highly competitive and constantly evolving fitness industry. We believe the trend is here to stay, as the proliferation of new digital and technology-driven fitness businesses continues. Direct-To-Consumer (“DTC”) models, in particular, that marry both the “equipment” and “data” are in a particularly attractive spot. DTC models are highly customizable and allow for higher quality interactions between the end user and the brand. Companies and investors in the space tend to agree and view Peloton and Fitbit’s setbacks as mistakes not to be repeated in their own ventures, rather than flaws in the industry itself. Digital and tech-enabled fitness firms such as Tonal and iFit have both successfully secured VC funding recently (Serena Ventures/ Shasta Ventures/ Mayfield Fund and Pamplona Capital respectively) and garnered significant media attention.
MHT Partners, a leading consumer investment bank, will closely follow the exciting activity in the digital and tech-enabled fitness world and the continued evolution of the fitness and wellness space.
1) 2019 IHRSA Global Report