Profit is the payment you get when you take advantage of change
This quote from Joseph Schumpeter speaks to the subject of this two-part series that explores traditional club operators who have ventured into the boutique fitness studio arena.
Our journey begins with a broad brushstroke introduction to the boutique fitness studio trend and the impact it’s having on the health and fitness industry. We will then delve into the experiences of several leading club operators in the UK, US and Middle East, including many who have made the strategic decision to venture into the boutique business.
The journey will conclude – in part two of the series, in the September edition of HCM – with six takeaways for club operators who are considering whether to venture into this area of business.
The stage has been set
Since the onset of the Great Recession of the 21st century, the health and fitness industry has found itself weathering a series of disruptive business innovations that have wreaked havoc in the sector.
The first storm was the arrival of the budget operators, with their low-price value proposition leaving an indelible mark on the industry. If that weren’t enough, a second – equally destructive – storm then emerged: boutique fitness studios. The boutiques represented an entirely different innovative disruption – one that leveraged a very different capitalistic principle. Whereas budget clubs were an innovation that industry players could understand (all things being equal, the low price offering will win), boutique fitness studios were defying industry wisdom by saying you could get people to pay more for less.
According to IHRSA’s upcoming 2016 Health Club Consumer Report, out this summer, 35 per cent of US fitness consumers report being “members” of boutique fitness studios, spending around US$4bn more each year than members of traditional health and fitness facilities.
In the past few years, the number of consumers calling boutique fitness studios their destination of choice has grown by around 70 per cent, while traditional fitness facility membership has grown by a picayune 5 per cent. These boutique fitness “members” are, on average, a decade younger than your traditional club member, and primarily millennials.
These numbers tell a story – one that speaks to a sea change in how fitness consumers, and particularly millennials, spend their discretionary and non-discretionary income on enriching their personal health and fitness.
And now a small cadre of traditional but forward-thinking operators are seizing the business opportunity inherent in this newest capitalistic storm, endeavouring to profit from boutique fitness, whether by strengthening their existing value proposition or by creating a new one.
Mainstream goes niche
Perhaps the first mainstream club operator to identify the boutique studio opportunity was Equinox, which in 2008 acquired Pure Yoga’s two studios in New York, and three years later acquired New York’s hottest boutique studio business, SoulCycle. SoulCycle now has over 80 sites, with the UK on the radar – plans are to launch in London by the end of 2016.
But Equinox isn’t the only club operator to have ventured into the boutique studio arena. As of June 2016, a number of established UK commercial operators – David Lloyd Leisure, Fitness First, Pure Gym and The Third Space – have also thrown their hats into the boutique ring. Not to be outdone, a handful of local authority operations are also introducing boutique studio concepts, such as the Intencity studio run by Fusion Lifestyle.
Meanwhile, in the US, respected operators including Atlantic Coast Athletic Clubs (Maryland, Pennsylvania and Virginia), Brick Bodies (Maryland), Leisure Sports (California), Miramont Lifestyle Fitness (Colorado) and Town Sports International (Boston, New York, Philadelphia and Washington, DC) have plunged into the boutique studio fray.
Similar to the UK market, there are also local government recreation departments in the US looking to supplement their existing offerings with a boutique component.
The entry of these big, mainstream players into the boutique segment could be compared to the initial aftershocks after an earthquake. Similar to the supplemental damage caused by aftershocks, the entry of more established operators into the boutique fitness sector could prove another blow to traditional operators who choose not to adapt, and a first strike against independent studio owners who don’t evolve their business.
To better understand why these traditional operators have entered the boutique studio market, and to comprehend the strategic and operational implications of their brand divergence, we sat down with several operators – based in the UK, US and Middle East – to explore the why, what and how of their decision, and its consequences. What follows are highlights from the UK and Middle East interviews, with the US interviews to come in part two.
