With these themes in mind, we have identified several investment opportunities that should be well positioned to deliver substantial top-line growth in a post-COVID-19 world.
Differentiated boutique studio concepts (e.g., Barry’s Bootcamp, Rumble Boxing)
When it comes to reaching affluent consumers and delivering a premium experience at a premium price, no segment is better positioned than differentiated boutique studios, which also offer an opportunity to integrate with wearables platforms to facilitate performance measurement and tracking.
Their potential for post-pandemic growth differs by concept: Bootcamp/group exercise/kickboxing concepts are expected to experience strong post-COVID-19 growth as fitness enthusiasts return to in-person activities, while yoga/barre concepts may see a muted rebound as they are more susceptible to digital fitness replacement.
Spin is more of a special case. Whereas the strong community element and specialized equipment requirements help keep it insulated from digital fitness, strong Peloton (and Peloton clone) growth may have cannibalized a significant portion of the addressable spinning consumer base during the pandemic.
Well-capitalized concepts with a relatively small footprint, such as Barry’s Bootcamp, are uniquely positioned to capitalize on post-COVID-19 commercial real estate dynamics, benefiting from favorable rent terms and location availability. Indeed, even despite COVID-19, many of the stronger boutique concepts (e.g., Orangetheory Fitness and Xponential Fitness) increased their location count in 2020.
HVLP and HVLP 2.0 brands (e.g., Crunch Fitness, YouFit Health Clubs)
As discussed above, HVLP brands are expected to be among the earliest to return to their pre-COVID-19 heights due to attractive pricing and strong appeal to value-oriented consumers. However, there are several additional tailwinds that will benefit the HVLP brands and other providers within the HVLP ecosystem.
In a post-COVID-19 world, consumers are expected to place a higher degree of importance on fitness, health and wellness. As lingering COVID-19 concerns fade, HVLP brands will be well positioned to capture a disproportionate share of these new members as a result of their affordable entry price point and appeal to new or inexperienced exercisers.
Additionally, HVLP brands may be able to leverage digital fitness to enhance ancillary revenue in a post-COVID-19 world. HVLP members are less likely to adopt a separate digital fitness solution, creating a potentially meaningful opportunity for HVLP brands to upsell their own digital fitness service for an incremental fee.
Integrated ecosystems of hardware, software and content (e.g., Peloton, Hydrow, Mirror)
Not only do they reach more consumers and deliver a seamless turnkey experience, ecosystems that integrate hardware, software and content can streamline performance measurement and facilitate the tracking of individual users’ progress from session to session. In the process, they improve the quality of user experience and enhance user engagement, creating competitive differentiation from stand-alone digital fitness services.
Wearable-enabled performance tracking services (e.g., Noom, Strava)
Health and fitness has emerged as the “killer app” for wearables; both the recent launch of Apple Fitness+ and Google’s ongoing integration of Fitbit are expected to accelerate wearable penetration and grow the digital fitness user base going forward. The integration of Fitness+ content with the Apple Watch in particular should improve the scale and fidelity of data collection, which could be amplified even further if Google pursues a similar strategy with Fitbit. Meanwhile, a growing wearables ecosystem can enhance the value proposition of existing services like Noom and create opportunities for innovative new consumer offerings, such as fitness rewards/incentives programs.