By Andrew Alfano, CEO of Retro Fitness
The fitness industry is a $30 billion industry that was forecasted to grow 20% over the next five years, and that was before a global pandemic shone a light on all the unhealthy behaviors we have adopted as a country. On the surface, the fitness industry seems like a very crowded space, but the high value/low price fitness sector has emerged as a compelling model for investors and consumers alike.
Prior to the pandemic, 71.6% of people in the country were overweight or obese, and the well-documented weight gain over the last few years has that statistic climbing. Today, medical experts believe obesity has become a healthcare crisis. That, along with anxiety and depression becoming more prevalent, exercise, health, and fitness are not only being seen as essential but, in many ways, it’s being considered an extension of healthcare.
When investors consider industries for investment, they want to seek an industry that is on the upswing and one that will benefit from social and economic tailwinds. Whether you believe we are heading towards a recession or not, most can align on the fact there is economic uncertainty, at least in the eyes of the average consumer. This, along with where we are as a country with obesity and mental health issues, fitness is an industry that will continue to see strong growth.
Fitness, specifically the high value, low price sector, has not only survived but rather thrived during times of economic uncertainty. People have shown a willingness to cut back on other expenses while still willing to invest in their health and wellness. We have proof of this from the 2008 recession, which was one of the peak membership periods for gyms, and we are seeing this again coming out of the pandemic.
As investors consider fitness, they will also want to consider staying far away from industries that will be directly or even indirectly impacted by Amazon, along with industries susceptible to labor force and wage pressure, supply chain issues, and other industries seeing margin erosion due to external factors out of their control.
For a period, the home gym market was surging, and investors flocked. While home gym solutions are not going away any time soon, fitness-minded people see home gym solutions as an opportunity to subsidize their fitness routine when they can’t get to the gym, not to replace their time at the gym. Fitness was never intended to be isolating or solitary. Beyond the obvious benefits of exercise, health, and fitness, going to the gym also satisfies the need for socialization.
Investors understand the size of the prize in this space as fitness is also no longer just about building muscle; it is now more about one’s quality of life, and the benefits are glaringly obvious to all generations. Consumer traffic tells us more people are prioritizing their health and wellness from Gen Z to Baby Boomers. All of this is leading to an increased demand for fitness services, and the affordable, high value, low price sector (HVLP) continues to offer all generations far more for far less. In short, low-cost and premium fitness concepts have gained share from mid-market operators as consumers migrate towards HVLP for value, amenities, and convenience.
The high value, low price fitness industry also offers investors the opportunity to enjoy recurring revenue and diverse revenue streams, such as personal training, group fitness classes, a smoothie bar for recovery and meal replacement, as well as in-club retail sales in the form of wearables, bottled beverages, fitness attire, and branded items. All of this helps to mitigate the risks as it provides multiple sources of revenue and profit centers all under one roof.
In recent years, investors who never saw themselves as franchisees have greatly benefited from solid returns during their hold time as well as enjoyed very strong multiples at transaction.
When considering investing in HVLP fitness franchises, it’s important to choose a reputable brand with a strong management team. Unlike in the past, there are now brands that offer investors the opportunity to get started without having to create an infrastructure themselves. Investors should look for brands that allow them to focus on investing.
The best franchisors will offer a range of services, including real estate site selection, lease negotiations, and construction. They’ll deliver a fully designed, built, and supplied turnkey box that’s ready to operate. Elite brands may also have an in-house media agency, call center, and accounting services for their investors and franchisees. These services allow investors to minimize startup costs and let the franchisor’s experts get the business up and running. Some franchisors even offer management agreements.
In conclusion, I believe that the high-value, low-price fitness sector has proven to be a compelling investment and will continue to do so.
About the author
Andrew Alfano is the CEO of Retro Fitness, a leader in the high value, low price fitness space with 200 health clubs open or in development. Alfano joined Retro Fitness in 2019 with over 25 years of experience in the retail, hospitality and restaurant industries to mature and drive the growth of the brand across the US. Alfano currently sits on the Board of Fellows for the Culinary Institute of America, and previously sat on the Board of Directors for Make-a-Wish South Florida and United Way, NYC Board of Fellows.
A high energy, driven leader, Alfano helped architect Starbucks’ rapid and strategic growth, in some of the more high profile, complex urban markets, specifically the flagship market of New York. During his time, these markets saw record growth in same stores sales and profits. In addition, Alfano was a key member of the leadership team that helped lead the US Business out of the company's downturn in 2008 and rang the bell at Nasdaq on five separate occasions during his tenure at the company.
Alfano and his wife are natives of Long Island, where the family, his wife and three children still maintain a home. Currently he and his wife spend the majority of their time at their primary residence in West Palm Beach, Florida.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.