Fitness Industry Works Out New Business Models in Pandemic Recovery

In the before times, the dawn of a new year was always a boom time for gyms. But as we approach the second anniversary of the COVID-19 pandemic, the fitness industry is struggling to increase—and, in some cases, even maintain—its body mass. 

Nearly two years of shutdowns and mask mandates have taken a big toll: According to IHRSA, the global health and fitness coalition, 27% of the gyms open in 2019 had permanently closed by summer 2021.

In San Francisco, around a dozen independent gyms closed, according to Dave Karraker, the co-owner of MX3 Fitness in the Castro and a leader of the San Francisco Independent Fitness Studio Coalition, leaving about 80 independent fitness studios operating in the city.  

The survivors are merging insights and best practices learned during the pandemic with the old-school hospitality that has traditionally helped drive their business. 

Dean Eriksen, co-owner of San Francisco independent fitness company Fit Local Fit, said the pandemic has fundamentally changed his business model. He now views a hybrid experience—time in the gym, and time working out at home—as key to the future of his business and the fitness industry writ large. 

“There’s going to be times when you want to go to the gym and you have time to go to the gym and there’s going to be times when the opposite is true,” Eriksen said. “Having that digital solution is critical in the evolution of the fitness industry, simply because it gives patrons the opportunity to engage in a number of different ways.”

Case in point: Fit Local Fit has teamed up with a vendor who offers a library of on-demand workout programs that customers can use either at the gym or at home. But Eriksen believes in bricks-and-mortar too: His company is slated to open its third location in the Sunset sometime in the first quarter of 2022 after a multiyear permitting and construction process. 

Other business owners are pivoting away from virtual experiences and have redoubled their efforts to bring clients back in person.  

Billy Polson, co-owner of SoMa fitness studio DIAKADI, said with “the market being completely saturated” a key differentiator is the personalized high-touch model that his trainers employ.

Instead of adopting online options, DIAKADI built out an outdoor turf gym to continue its operations during the depths of the pandemic. 

“We came to the decision that our one-on-one training service has an element to it that absolutely cannot be duplicated online,” Polson said. “You can have a lot of great generic programming and a lot of hands-off work, but there is definitely a ceiling to that and we have always worked to be above that ceiling.”

Tony Ward, president of the Americas for Xero, which provides accounting software to small and medium-sized businesses, said marketing will be key for fitness centers to differentiate themselves and compete with home machines like Peloton and Tempo that gym-goers may have flocked to during the pandemic.

Ward, a former gym owner himself, said that he’s seen gyms start to promote their safety and cleanliness factors to allay concerns about the pandemic. 

“What are airlines saying? The safest place to be right now is on an airplane,” Ward said, adding that he’s seen some gyms have success by advertising their outdoor workout options. “I would be overemphasizing that the safest place for you to be is in the gym.”

As in other sectors of the economy, a labor shortage is further complicating the industry’s comeback plans. Polson has seen a number of his company’s training professionals depart to go independent in the wake of the extended closures, leaving the battle for remaining talent even more fierce. 

“When all the facilities were closed, they had to build their own business model without having a facility, so at that point in time, they basically got a raise,” Polson said. 

DIAKADI operates on a business model where independent trainers run their businesses out of the company’s facilities which, contain training equipment, support staff and top-of-the-line amenities.

“A lot of the trainers that went out and built their own thing have no reason to come back in and start paying rent to us because they either have a garage, gym or they’re outside, or they’ve made it work virtually,” Polson said. 

Out of the 84 trainers that DIAKADI worked with prior to the pandemic, only around 48 have returned. 

“That’s industry-wide, any type of gym is desperate for trainers,” Polson said. 

Silver Linings

Even with the Omicron variant sowing uncertainty, New Year’s resolutions—combined with pandemic fatigue—may still give local gyms a boost.

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The first two months of the calendar can account for up to 25% of a gym’s annual revenue, according to Karraker.

“That’s when we see people buying 10 and 20 personal training credits versus five or one,” Karraker said. 

A key aspect driving the return of Karraker’s business has been the return of “hardcore” gym-goers who work out at least three times a week. While these customers have always made up a majority of his gym’s revenue, particularly in the personal training segment, they have been especially critical to getting his business back on its feet after the shutdowns.

Karraker added that the experience of the pandemic has led to increasing awareness of personal health among the larger population, which—paired with the cabin fever resulting from the pandemic—has led to gyms functioning as a much-needed outlet. 

“The hardcore folks came back hard, they wanted to get back in the gym and lift heavy things. They were tired of working out with bands at home,” Karraker said. 

He added that his gym has started to see record levels of interest, but has had to turn away prospective customers because of a lack of available trainers. 

And the curveballs keep coming: California imposed a statewide mask mandate on Dec. 15, but one day later said San Francisco could keep its exemptions for fully vaccinated people in gyms and offices. On Dec. 29, the city reversed its prior reversal and reinstituted a universal masking policy.

Eriksen said around 30 customers put their memberships on hold since the latest mask mandate came down.

But Karraker thinks San Francisco’s extremely health-conscious population will hold up the industry in the long run.

“If I was in Bakersfield or Riverside, I would not feel optimistic,” Karraker said. “But we’re here in San Francisco with a super high vaccination rate. I’ve attended three holiday parties that requested a COVID test before you attended. That’s not happening in much of the U.S. where you need to show a negative test before having some eggnog.”

Kevin Truong can be reached at kevin@sfstandard.com.

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