Adjusting Market Expectations Amid Falling Gas Prices

This article appeared in the April issue of Athletic Business. Athletic Business is a free magazine for professionals in the athletic, fitness and recreation industry. Click here to subscribe.

There are certain aspects of running a fitness business that you come to count on over the years. You try to hire qualified and friendly staff, you expect them to take care of your members, and then you hope those members bring you referrals. You manage your pricing, your expenses, your debt — and you think you have it sort of figured out. But then everything changes.

Based on industry reports and our own experience, we have always defined a gym's most useful target market as people who live or work within an 8- to 12-minute travel time. That proximity is the first of the two most important factors that people consider when joining a gym, with the other being price. Years ago, we saw the impact of changes in travel time as our community grew and customers found it more difficult to get to us. There were more traffic lights and traffic. There was more construction. At the same time, other fitness facilities popped up along the way, and we lost market share as people chose more convenient options.

Our response to this change in our market was a major renovation, which resulted in us offering a facility and amenities (a pool, a large babysitting area) that others couldn't match. That, in turn, expanded our useful market by making our club more of a destination as opposed to "just" a gym. We also opened a satellite location near a significant but underserved market that we thought could benefit by having a gym.

That 8-to-12-minute guideline proved quite valuable, allowing us to determine how new and potential competitors might impact us, while also allowing us to make decisions about our own business. That was then, this is now, and the world has turned upside down.
 

FUELING CHANGE
Proximity no longer seems to matter for general-purpose facilities, where it's now all about price. For boutiques and personal training and other new "destination" facilities, it is all about proximity. We never saw that coming, and we are pretty sure that most people in the fitness industry are still blind to it.

Let's start with general-purpose facilities, such as ours. We have lost our standing as a destination. To the world, we are a gym, and gyms are now supposed to be cheap. Not inexpensive. Not high-value. Cheap, as in $10 (maybe $20) per month. We would of course argue — and do every day — that we offer a superior product while still providing great value (we'll spare you our commercial). But we are not cheap.

So, with more, cheaper alternatives now in our market — even though those alternatives can require quite a drive for some people — we became cheap(er) in 2016. Proximity no longer matters in a world of $2 gas, leaving price as the primary factor that drives most people's decision-making about their gym. We must admit that we did not foresee that. We always assumed that part of the old 8-to-12-minute rule was that people valued their time and, in addition to not wanting to burn gas, they didn't want to spend their time in their cars to get to the gym. Now it appears that time itself is not a factor at all, and consumers want a double-dose of savings: cheaper gas to get to cheaper gyms.

To be sure, our business is enjoying some benefits of cheaper gas prices, such as our members more readily availing themselves to both of our facilities and consumers perceiving more money in their pockets. But, we no longer believe that consumers — at least most of them — are shopping for value or appreciate it when they first see it. They want everything to be less expensive. Appreciating value has to come later.
 

BOUTIQUE PROXIMITY RULES
That brings us to where proximity now rules, and we didn't see this coming either. It is the fitness boutiques, which now seem to exist on every corner and in every strip mall, and that are now beholden to proximity. These are the places that used to be destinations. Everyone probably knows CrossFitters who used to drive an hour each way to get to their box, or someone who took subways to get to his or her cycle boutique. But now these boutiques are everywhere, so why travel?

After all, do you get pizza from your neighborhood pizza place because it's the best you ever had, or because it's closest to home? It's probably fine pizza, just like every other place in your community serves fine pizza. So, you go where it's easiest for you, even while you convince yourself that "my pizza place is the best!"

With dance studios, personal training studios, CrossFit boxes, yoga studios, hot yoga studios, climbing gyms, cycling studios, Barre method studios, rowing studios, boxing gyms — did we forget any? — all within a stone's throw of each other, and all charging on the order of $100 per month, are consumers really going to drive more than a few minutes to get to any of these places? And given that part of the appeal of these facilities is their smallness — easy parking, efficient in-and-out workouts, no crowds — consumers who are willing to spend that $100 per month now expect everything to be convenient. Taken to its extreme, that's why some consumers are willing to pay for in-home personal training. Zero travel time.

We can't predict how long this state of affairs will last, but we do tend to believe that pendulums swing.

We imagine that when gas prices rise — they will at some point — low-cost gyms that rely on pulling from a wide geographic area may see a significant reduction in membership as the 8-to-12-minute rule comes back into fashion and proximity matters again. That doesn't necessarily mean that those members will join another gym that's closer to them, but they will start to consider the price of gas in the total cost of their membership.

Our other prediction is that boutique gyms are going to cannibalize themselves, and these specialty locations — the ones that survive — will become the destinations they once were. There are simply too many, everywhere, for them all to survive. People who want to experience a certain form of training — hot yoga, Barre, dedicated cycling — will accept that they have to travel farther than they do now because there were never enough people in the first place to support so many individual businesses.

Or, we could be totally wrong. What we do know is that our local pizza place is the best.

This article originally appeared in the April 2016 issue of Athletic Business with the title "Gym market fluidity in a world of $2 gas"