These are the best of times for the fitness industry. The growth over the past two decades has been staggering.
To give you an idea:
In 1996, health clubs generated $8 billion in revenue, and 12 percent of Americans 15 and older had a gym membership. By 2017, revenue had climbed to $28 billion, and 22 percent of the population now belonged to a gym. Today the U.S. has 38,477 gyms, the most of any country. More than 60 million people are gym members, the highest ever recorded, and analysts predict it’s going to grow 2 to 3 percent per year through 2021.
If you’re a gym owner, or hope to become one in the next year or two, you probably know all this. The question isn’t whether the opportunity exists. It’s where to find the best opportunity for you.
You’ve probably heard some variation on this:
“Big box gyms are dead. Times have changed. People don’t want to rent equipment. They want a community. That’s why you should open a studio gym.”
Studio gym growth has been impressive. While regular gym memberships grew about 5 percent between 2012 and 2015, membership at studio gyms jumped by almost 70 percent in that same time. And even though boutique gyms have only been around for about a decade, they now account for 40 percent of the gym market.
The rise of boutiques wasn’t caused by a single event or shift. It comes from three major trends:
- The retail apocalypse that began in the Great Recession took down former giants like Toys “R” Us, Sears, Kmart, and Macy’s, and left thousands of spaces empty. Many of them are prime locations for gyms.
- Millennials are the largest generation in the U.S. workforce. Because they’re looking for a more stimulating experience than simply running on a treadmill in isolation for 60 minutes, and they’re willing to pay a premium price for it, they’re driving the boutique boom.
- For entrepreneurs, fitness studios offer a better return on your investment than traditional gyms. They require less equipment (a big box gym might spend $100,000 just on treadmills), cost less to operate (you save a fortune on payroll alone), and bring in much more revenue per customer.
It’s the perfect confluence of opportunity and demand. The low start-up costs and quick profitability make it easier to expand to multiple locations, with plenty of potential spaces to choose from. Every shuttered RadioShack or Payless is a potential boutique gym.
When you take all that into account, it’s easy to believe the gurus who say studio gyms are the future of fitness, and if you don’t get in now, you’ll miss out on the opportunity of a lifetime.
In fact, I think studio gyms have already hit their peak. If anything, they’re a bubble about to burst.
But at the same time, I see several opportunities you can still take advantage of.
The brutal math of gym ownership
Most aspiring facility owners I talk to have in mind two primary revenue streams:
- Small group training
- Large group classes/bootcamps
The idea, promoted by the aforementioned gurus, is that if you have 100 members paying you $100 a month, you’ll have a six-figure studio gym. In a country where two out of three adults are considered overweight or obese, how hard could it be to get 100 of them on long-term contracts?
I’ll also predict that the gym you envision is an open, rectangular space with a turf floor, a rig along the back wall, a few kettlebell and medicine ball racks along the side walls (right below the MyZone TV screens), and some foam rollers near the front desk. And you believe this is exactly what your community wants.
You may be right, but I’m here to tell you it’s far from a sure thing. A few points to consider:
- A lot of people really like big box gyms. They like cardio equipment and machines, and they don’t like the idea of working out in any group, small or large. Franchise gyms like LA Fitness and Gold’s aren’t going away anytime soon. Even the much-maligned Planet Fitness has 10 million active members in 1,300 locations, and anticipates even faster growth over the next decade.
- Those fast-growing boutique gyms have one thing in common with traditional health clubs: They offer a predictable product. Customers know what to expect at SoulCycle or Orangetheory, just as they know what they’re getting at a CrossFit box. An independent studio is a completely different proposition, one that may be unfamiliar to your target audience.
- Both types of operations have advantages for their members. Big boxes can fill a warehouse-size space with expensive equipment while charging less than $50 a month. Why? Because they know most of their members will rarely show up. Boutiques, meanwhile, can charge a premium because there’s no commitment. You pay for what you use.
- At a traditional gym, the person leading the yoga class might also teach Spinning, train clients, and run bootcamps. Someone who’s serious about yoga or group cycling or HIIT can do it at a studio dedicated to that specific type of training. And with services like ClassPass, they can have access to all of them for a single monthly fee.
In most cities and affluent suburbs, you’ll have competition from everything I’ve just mentioned—franchise gyms, CrossFit, boutiques. Some of the big chains are now creating gyms within gyms: smaller, niche clubs inside the big boxes. The more competition you have, the more options your potential members want—options you can’t give them in a members-only studio gym that offers several versions of group training.
That’s aside from the competition from high-tech companies like Peloton and Daily Burn, which bring live and pre-recorded classes directly to the consumer’s home.
But wait, there’s more! There’s supply and demand. The supply of fitness options is growing a lot faster than either the total population or the percentage of that population interested in working out.
What happens when more fitness businesses compete for the same 20 percent of adults who work out regularly? It’s only a matter of time before the price wars raging at traditional health clubs trickle down to the boutiques and studios. That means lower revenue, higher advertising costs, and smaller profit margins for everyone.
The idea of getting 100 people to commit to paying $100 a month doesn’t look quite so easy anymore. Especially when your gym doesn’t have 24-hour access or shiny new equipment. You don’t have to be a mathematician to realize that one month at your gym costs the same as 10 months at Planet Fitness.
So where does that leave you, the aspiring gym owner? I see two options.
READ ALSO: 10 Questions to Ask Before Opening Your Gym
Option 1: Find your blue ocean
A saturated market, with cutthroat competition, is sometimes referred to as a red ocean. You’re all fighting for the same customers, and there’s blood in the water, metaphorically speaking. (At least we hope it’s metaphorical.)
I knew I wanted to have a small facility with 24-hour access. But I didn’t know where to put it. Every location I considered looked like a place that would soon have a Planet Fitness, if it didn’t already. I knew I couldn’t compete with deep-pocketed investors who charge just $10 per month. (Today you need at least $1.5 million in liquid assets and $3 million in net worth to even be considered as a Planet Fitness franchisee.)
Then I looked closer to home. As a pharmacist in Gillespie, Illinois—a small, rural community of 3,200—I’d seen firsthand the rise of the dollar store. They popped up in almost every town with at least 1,000 people. Once established, they were resistant to competition. The big chains like Walmart wouldn’t build in communities that small, and the local mom-and-pop stores couldn’t compete with their prices.
If Dollar General could turn a profit in a town like mine, why not a gym? Fitness was mainstream enough for the demand to be there, while Gillespie was too small to attract competition from franchises. And start-up costs, especially real estate, would be much lower.
I’ve been right about my blue ocean so far. I even helped my cousin open a second location in Staunton, 10 miles down the road.
There are more than 10,000 communities just like Gillespie and Staunton across the U.S. Hundreds of them are blue oceans, just waiting for an aspiring gym owner to find them.
But like I said, that’s not your only option.
Option 2: Ride the wave
Success leaves clues. If you look at enough successful gyms, you’ll find patterns shared by franchises like Orangetheory and SoulCycle. And once you find those commonalities, you can increase your odds for success by incorporating them into your own facility.
I’ll use myself as an example once again. I fell in love with the studio gym concept. I liked the intimacy of the smaller space, the higher membership fees, and the fact all the workouts are with trainers, by appointment only. I also saw a couple dozen presentations from studio gym owners at fitness events, all of whom described the model as a raging success.
But when I opened one, I soon learned it’s a lot harder to sell annual contracts for $100 a month than they’d made it seem.
We had a great team. We had a great niche. Our location was really good. We had the sales scripts and systems the speakers suggested. We just weren’t growing like we thought we would. We were profitable, but just barely. Every time we grew a little, a new competitor would pop up, and we’d hit yet another plateau. It was frustrating, to say the least.
I knew we had to be missing something. I just didn’t know what. That’s why I dove into the research for this article. (Which, I should note, was twice as long before editing.)
It didn’t take me long to realize the statistics I cited to open the article didn’t apply to independent studios like mine. We were a gym built on committed members and long-term programming, but we were swimming against the current of an increasingly popular pay-per-class model.
As I saw it, we had two choices: Continue to operate as we were, and struggle for profitability; or find a way to cater to the free spirits of the fitness world.
We chose the latter, opening a pay-per-class gym right next door. Not only did it reach a bigger market, it served as a funnel for our studio gym, giving us a steady supply of leads. You can guess what happened: We started seeing the growth we expected, and it’s been going strong for almost two years now.
I don’t want to pretend these are the only answers to the big questions about opening a gym, or that I’ve even thought of all the questions. Every situation is different.
Never assume that what worked for the person in the front of the room at a fitness event will work for you. Nor should you assume it won’t. Do your research into both the fitness industry in general and your market specifically. You may get your best insights by looking at success or failure in entirely different industries.
All you know for certain is that a fifth of the population is looking for workout options. Put yourself in the best position to be someone’s first choice.
You Can Run a Successful Gym, But Only If You Follow These Important Principles
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