MAY 15, 2020
How The Fitness Sector May Never Be The Same Again – And Why This May Not Be All Bad News
By Herman Rutgers
For some organizations, near-term survival is the only agenda item. Others are peering through the fog of uncertainty, thinking about how to position themselves once the crisis has passed and things return to normal. The question is, “What will normal look like?” While no one can say how long the crisis will last, what we find on the other side will not look like the normal of recent years.”
These words were written 11 years ago, amid the last global financial crisis, by Ian Davis, managing partner of McKinsey. They ring true today, but if anything understate the reality the world is currently facing.
Exiting from lockdown will be more complicated than entering it was. The risk of resurgence will have to be continually managed, including increasing the capacity to care for critical patients if necessary. Protecting lives depends on minimizing the risk of infection to the most vulnerable (the elderly, the immune compromised and those with serious conditions) while keeping the health system functioning.
The challenges for the fitness sector of the economy are significant and here is a summary of key points to consider for the fitness sector post-Corona.
The Overall Business Environment
1. Many countries will be in a recession, resulting in a squeeze on consumer spending — more unemployed and less disposable income.
2. Business plans for 2020 and beyond will need to be revised and short- and long-term strategic reviews will take place.
3. Companies will be in crisis mode for the foreseeable future.
4. Fewer clubs/further consolidation — depending on the country, 10-15 percent fewer clubs is an uneducated guess. Chain operators may take this opportunity to weed out loss-making locations and not reopen those at all.
5. Obtaining financing will be more difficult and at higher cost. In spite of what they tell us, banks are very prudent.
6. Companies will focus less on growth per se, but will focus more on stabilizing their business, obtaining profitable growth, working with more conservative balance sheets and improving cash flow.
7. Companies will have to work with somewhat larger reserves for doubtful accounts/uncollectables.
8. There will be more attention to costs — fixed versus variable relationship will be more critical.
9. Leadership — the great and good ones have already shown their capabilities in a storm (or not).
10. Brand image is important. Some operators have dealt with this situation very well and gained sympathy and brand loyalty, while others have lost it.
11. Intermediaries are severely hit, with revenues dropping to zero and high expenses and low profits.
Fitness Operations Situation
1. Digital developments were already on the radar, but the lockdown has accelerated implementation with more live streaming and on-demand videos.
2. Wearables could be used as early warning for detection of coronavirus.
3. There is less pay-as-you-go and innovative membership packages will emerge.
4. There will be more layoffs, while small operators closing their businesses offers opportunities to search for talent for the surviving clubs.
5. During the lockdown teams learned how to work together at a distance (and across departments and borders) and have engaged in agile working. As a result many may have become stronger.
6. Many operators have used the downtime to provide their staff with online educational programs for upskilling and personal development.
7. Reopening will not take place on a national level, but will be organized by state, depending on the severity of prevalence of COVID-19, and with state-by-state determined protocols.
8. Hygiene will take precedence. Less physical contact, no handshaking, use of masks required, frequent cleaning of touch points of machines.
9. There will be more frequent cleaning and clubs will have to provide a supply of sanitizers, resulting in higher costs.
10. Physical distancing will be mandated, so clubs will need to re-arrange machine layout and will have to manage reduced capacity in the early phase of reopening and entry controls.
The Fitness Consumer
1. The biggest question: Will the consumer have trust and confidence in going into a confined space to sweat and be close to other people in a group?
2. Will the consumer go back to his/her “pre-corona” fitness routines?
3. Many consumers will have experienced home fitness for the first time during the lockdown and may like it and want to continue using online fitness.
4. Consumers may have developed the use of the apps from his/her club and started to use more functionalities.
5. They will be more price sensitive.
6. May be more sensitive to engage in longer term contracts and study the small print more.
7. Might have developed a higher awareness for the health benefits of fitness.
8. Will appreciate the social aspects of the sector more.
9. Personalization will become more important.
Suppliers to the Fitness Sector
1. Digital service providers are thriving.
2. Online education is in higher demand.
3. Home fitness equipment and accessories are doing very well.
4. Commercial equipment suppliers may have a tough 2020.
5. Hygiene products are in high demand and short supply.
The future of our sector after the coronavirus pandemic is very difficult to predict today. For sure it will not be black or white, but what tone of grey it will be will depend in which part of the country you are and in what segment of the fitness sector.
One thing is for sure — it will not be business as usual.
This article is excerpted from a series of articles on the EuropeActive COVID-19 webpage and is based on recently published material from Deloitte, McKinsey, The Economist and various talks with leading international CEOs from the fitness sector.
Herman Rutgers is owner of Global GrOwth Partners, EuropeActive and a FIBO Ambassador. His earlier publications on the topic include (see www.europeactive.eu/covid19):
March 20, 2020; “The Corona Virus: How it impacts fitness operators’ short term and some thoughts to restart stronger!” (available in Dutch, English, Spanish, Italian and French)
April 8, 2020; “Corona crisis and its impact on the health & fitness operators”
© Herman Rutgers, April, 2020