$30 for a Single SoulCycle Class? Not When a Recession Hits

(Bloomberg Opinion) -- What do you get when you combine an earnest quest to get healthier with a vain desire to look fabulous on Instagram? A growing number of Americans spending an increasing amount of money at boutique fitness centers.

But the boutique-fitness market — which includes not just old-standby yoga studios and CrossFit “boxes” but also newer exercise meccas such as SoulCycle, Pure Barre, Orangetheory Fitness and Club Pilates — may be getting irrational. It’s not just that the workouts are becoming comically niche, though they certainly are. (Would you prefer a so-called “prison-style” workout, or a hybrid of boxing and ballet? How about a studio designed around cold-temperature workouts?) It’s that the explosive growth of boutique fitness centers masks some harsh realities about their chances of long-term survival.

The rise of small, specialized workout centers is not unlike the “unbundling” trend seen in television in the streaming era. Big-box gyms, like cable companies, offered a staid experience and frustrated consumers with long-term contracts that were notoriously hard to escape. Then insurgents in both industries offered more novel programming and more flexibility — and consumers showed up. But just as the streaming category now includes a seemingly unsustainable number of entrants, the boutique-fitness industry looks to be headed for a shakeout.

The general backdrop for the fitness center industry is plenty favorable. Annual revenue grew 7.8% in 2018 to $32.3 billion, according to the International Health, Racquet & Sportsclub Association. Annual visits to U.S. fitness centers are up 42% since 2008, the trade group reports.

At the same time, there is a limit to this market — especially for the smaller, boutique players. First, they can be astronomically expensive: SoulCycle is $32 for a single class in Washington; Barry’s Boot Camp is $34. According to IHRSA, the average monthly fee paid by a boutique studio user in 2017 was $92, compared to $52 for health club members overall.

The unit economics of small workout studios also make it hard to see how prices will come down as the businesses scale. There are only so many hours in a day — no one wants to attend a barre session at midnight — and only so many exercise bikes that can fit in a studio. So there’s limited opportunity to make that real estate more productive. Sweetgreen can serve salads to far more Lululemon-clad millennials than Flywheel can easily accommodate.

Plus, the competition is ramping up. In Washington, for example, researchers at real estate firm CBRE found that the number of fitness outposts in the city has increased more than fivefold since 2009 — in part, to be sure, a natural accommodation of the influx of young residents to the city. But studios, rather than traditional gyms, account for more than 4 out of 5 of the current lineup, highlighting the tug-of-war these concepts face in getting devoted customers.

Markets such as Washington’s are getting more crowded just as Peloton Interactive Inc. and the Mirror are giving people trendy options for workouts at home. Peloton’s recent IPO filing showed it had 511,000 subscribers as of June 30. It’s safe to assume at least some of them defected from a cycling studio.

New wellness trends threaten to encroach on the dollars that are going to the bumper crop of boutiques dedicated to burning calories. There are studios now for meditation, napping, stretching and recovery from workouts.

It’s probably not a coincidence that the boutique-fitness craze has flourished during a long stretch of economic prosperity. If there’s a downturn, you can bet decadent workout packages will be one of the first things people ditch.

And if there is a boutique-fitness shakeout, it won’t just be studio operators that feel the burn. Commercial landlords have been eager to sign these newcomers as tenants for shopping centers and mixed-use developments as traditional retail tenants disappear. If these exercise emporiums fail, properties could face yet another wave of vacancies.

Of course, not every small-box fitness idea is doomed. Millennial cliché that I am, I’ve dabbled in barre and HIIT classes; I have a yearslong loyalty to a yoga studio and a cardio dance boutique. I prefer a class format to a solitary workout, and I like the idea of paying only for the classes that I take.

But it’s costing me a small fortune, and getting wait-listed for a class at a peak time is a drag. In some ways it is — gasp — making me long for the simplicity and value of an all-in-one gym membership.

Maybe I shouldn’t have been surprised, then, to learn that shares of no-frills gym Planet Fitness Inc. have surged nearly 300% since it went public in 2015, as it has delivered strong comparable sales growth and racked up millions more members.

Planet Fitness’s success is a stark reminder that “boutique” workout studios are called that for a reason: They aren’t for everyone. As the market gets closer to saturation, established chains and upstarts may find there are things besides a hard workout that can bring on a serious sweat.

To contact the editor responsible for this story: Michael Newman at mnewman43@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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