Upstart fitness centers hurting large health clubs

Upstart fitness centers hurting large health clubs .

Elizabeth Johnson is giving the fitness- center industry cause for concern.

The 24-year-old reporter in Sarasota, Florida, ditched her membership at the local Youfit health club and in May joined the Seaward CrossFit studio. Since signing up at the club, which she says has about 40 members and runs classes of 10 or fewer people performing exercises in unison, she’s lost 40 pounds and gained the support of a crowd of like-minded fitness fanatics.

“I felt like they wanted me to be there,” Johnson said. “I like the small, community feel.”

CrossFit, SoulCycle and other programs luring consumers like Johnson are hurting fitness-center operators such as Town Sports International Holdings, which has posted losses and falling sales recently. While the large companies use warehouses of gleaming exercise equipment to draw members, the upstarts are creating tribal followings in small spaces at fractions of the cost. That’s prompted the big operators to fight back by cutting prices or starting their own studio-like concepts.

Studios are “clearly competing more with some of those full-service gyms by trying to take a portion of their business,” said Sean Naughton, a senior analyst for Piper Jaffray Cos. in Minneapolis.

The threat has caught the attention of the International Health, Racquet & Sportsclub Association, a trade group for fitness-center operators, which just started tracking studio- club membership in 2013. Studios accounted for about 21 percent of all fitness-club memberships that year, and traditional centers were at about 50 percent, the group said. Data for 2014 aren’t available yet.

Total membership in health clubs increased 5.4 percent in 2013, with a record 52.9 million Americans belonging to them. Industrywide revenue rose 4 percent to about $78 billion.

The studios are growing even faster. CrossFit now has about 11,650 locations, up from 10,000 in June. SoulCycle has grown to 36 locations in the U.S. since it started in 2006. By 2016, it plans to have around 50 or 60 studios across the globe, according to its website. SoulCycle also said on its site that it sees about 50,000 riders per week. The company declined to comment.

The studios have been able to grow so quickly because locations are cheap and easy to open. Someone seeking to start a CrossFit gym only needs to pass a training course and an exam. If their application is approved, all the person needs is to find an appropriate space, buy equipment and pay a $3,000 annual licensing fee. CrossFit gyms can be as small as garages or as large as 20,000 square-foot complexes, said Justin Bergh, a company executive.

Nairi Petrosian opened Revolutions Cycling Studio in Los Angeles a little less than three years ago with about $20,000. She later raised $32,000 to move to a larger facility in a better location by selling classes in advance through an Indiegogo campaign. The biggest expenses are bikes, which run $1,500 apiece, she said.

“Opening it up isn’t too difficult,” Petrosian said.

By contrast, a Town Sports facility can cost more than $4 million and take about 20 weeks to build after approvals are obtained, Lisa Hufcut, a spokeswoman for the New York-based company, said in an e-mail.

Devotees of the smaller studios also say they provide a community while fitness centers are large and impersonal. Petrosian’s patrons have wine nights and do charity events together. The studio recently commended a female member on Facebook for working out during her pregnancy, and another was highlighted in a group e-mail for fitting back into clothes she wore before she had a baby.

“We know your name,” said Petrosian, 29. “We know what your goals are.”

The studios’ growth has made for a challenging time for big fitness-center operators when the recovering economy and increasingly health-conscious consumers should have spurred a period of comfortable growth.

Town Sports’ revenue has shrunk for eight straight quarters and it’s posted four consecutive quarterly losses. While Chanhassen, Minn.-based Life Time Fitness Inc. has managed to keep sales growing, analysts estimate its profit last year slid 2.8 percent, the first annual decline since it went public in 2004.

Life Time Chief Executive Bahram Akradi said during a call with investors and analysts in June that while the studios will eventually “peter out,” their businesses are “going to explode, they’re going to put a lot of pressure on everybody.”

To respond, he said Life Time plans to introduce programs such as LifePower Yoga, Ultimate Hoops and EDGE Cycle.