THE WEEKLY HOWL IS FOCUSING ON SOFTWARE

Apparel: Under Armour just announced that it is exiting the fitness tracker space. UA is going to focus on fitness software just like Nike and Adidas. This is a big about-face for the company as it had previously harbored enormous ambitions around fitness trackers and smart clothing. This is part of a larger story around declining sales and a plummeting stock price.

-1st thought: This is the right move for UA and better late than never.

2nd thought: I wonder if the HTC-Google smartphone deal had anything to do with this. HTC was UA’s primary hardware partner in fitness trackers.

3rd thought: Has CEO Kevin Plank given up on the smart clothing dream?

                UA also announced that it will be getting out of tennis and outdoor apparel. Several high-profile executives have recently left the company as well. The company is reeling. They need to get back to focusing on their fundamentals. UA is not a tech company. Did you know that they have a subscription box service? They’ve forgotten who they are.

                Nike is going through a bit of rough patch as well although not nearly as rough as UA. Two years, CEO Mark Parker announced a goal of $50 billion in sales in 2020. That seemed ambitious in 2015 and completely unrealistic in 2015. Growth has slowed to a crawl in Beaverton. Adidas was better positioned to take advantage of the athleisure phenomenon with its blending of sport and fashion. Nike has always viewed itself as a sports company that made gear for athletes. That hasn’t been the ideal attitude in an athleisure world. So they’re trying at adapt. Nike will be rolling out pant studios in 5000 retail locations. The idea is to use these studios to go after Lululemon. Offer curated, head to toe outfits and build their women’s apparel business. Nike will also be investing more in product development for their sports bras. They are also rethinking their retail strategy:

More importantly, Nike announced a massive revamp of its wholesale strategy, which includes emphasizing just 40 retailers out of the current 30,000 retailers it distributes to. Those 30,000 retailers give Nike 110,000 points of distribution.

Nike was careful to say that it would not cut off its vast network of retail partners but that it would focus on 40 retail partners, including Foot Locker (NYSE: FL) and Nordstrom . Foot Locker shares swung wildly during the conference but emerged significantly higher.

The company is favoring retailers that will give them dedicated in-store space for Nike products, with Nike-trained employees to help customers. It will reward them with exclusive product, marketing efforts, and shoe drops.

                It is a changing retail landscape and companies need to adapt. This seems like a smart move for Nike. Especially since its chief rival, Adidas, is thriving. From Forbes:

The changing face of the active lifestyle customer is what is tripping up Nike and Under Armour today and propelling Adidas and Lululemon forward. Nike and Under Armour, being so heavily focused on the teen market with their performance-first approach, have been slow to pick up on the new needs that the active lifestyle customers have.

The active lifestyle customer which Adidas and Lululemon targets are older, so the role models they look to aren’t NBA basketball stars. They are less dedicated to one sport and less concerned with excelling in that. Rather they participate across a range of different activities and are looking for footwear and apparel that can take them from the gym to the street and into the yoga studio. And do it all with style.

                They didn’t even mention Reebok. Returning to its roots in fitness by sponsoring CrossFit and the UFC has been a huge success for the once flailing brand. The 800 pound gorilla in the athletic apparel room right now though is Amazon. Bezos & Co. are making a move into sportswear. This is not great news for the big athletic apparel companies although maybe not for the reason that you think. From Bloomberg:

 Amazon has developed its own brands in part because they fill gaps in its inventory. If customers are searching for a certain type of shoe or skirt, and don’t see much of a selection from established brands, Amazon wants to be able to offer its own options. Oftentimes, shoppers may not realize that the names -- such as Scout + Ro and North Eleven -- are owned by Amazon.

This also sends a message to brands reluctant to sell their full inventory on Amazon. If shoppers can’t find your products on the site, Amazon will make its own substitutes and become your competitor.

                The only thing worse than having all your stuff on Amazon is not having all of your stuff on Amazon. Brands have had the same issue with Costco. Costco wants to heavily discount everything sold in their stores. For a manufacturer, that’s not great because it brings down your price points. But the alternative is having a competitor take your spot and eat away at your market share. Damned if you do, damned if you don’t. 

Fitness On Demand: Fast Company had a piece on POPiN, an app that lets you purchase gym time by the minute. There are a companies trying to disrupt the day pass, a blind spot of the fitness industry that I have never understood.

For POPiN CEO Dalton Han, the idea was rooted in his own passion for working out and the desire to get a piece of the sharing economy.

“I said to myself, ‘What would something like that in the fitness industry look like?'” the former app consultant recalls. Consumers could already get day passes, sans the commitment, he knew. But at $30-$50 for the average 45-minute workout, they’ve never been popular.

                Of course, they’ve never been popular. That’s a rip-off. Han is quick to say that POPiN is not meant to replace traditional memberships but Fast Company implied that it could. The problem is that most gyms probably couldn’t afford to operate on an on-demand model like that. I know Fast Company loves the idea of disruption but an app like POPiN isn’t really disruptive. It’s not offering an alternative to traditional gyms. It’s Priceline not AirBnB. POPiN is trying to tap into the unused capacity of brick and mortar establishment. That said, I love that there are companies doing this. Working out when you’re traveling shouldn’t be as hard as it traditionally has been.  

Gym Etiquette: Men’s Health outlined 10 rules of gym etiquette. They had some good ones (always bring a towel, excessive yelling, body odor, using multiple pieces of equipment at the same time) and some weird ones. I never see people taking selfies but that would be annoying. And is flatulence that much of an issue? Where is this person working out? I was confounded by #8 though:

8. Squatting is an exercise, not a selfish act.

Yes, we know you work out hard. But the longer you "rest" on that bench or machine, the more you piss off the rank and file (almost half of them). You have a gym membership, not a deed to the squat rack. Plus, why plant your ass? Raynor suggests "preparing" for your next set. Try floor bridges 90 seconds after a set of squats.

 

                Are they trying to say that other gym-goers will be bothered if you’re not staying active in between sets? I can’t stand it when people take way too much rest in between sets and tie something up for 20 minutes. I could care less if that person is doing floor bridges or not. Personally, I prefer it when people don’t do other exercises during their recovery period. It tends to slow the whole thing down. Rest 60 seconds and get back in there.

WeWork: I didn’t realize that WeWork has been branching out into B2B, managing office buildings for other companies. That puts their foray into gyms into a new light. From Forbes:

Adding wellness and fitness facilities to its arsenal will make WeWork more appealing to a broader range of companies, said Cushman & Wakefield Executive Managing Director Arthur Draznin, who represents office landlords and tenants in lease negotiations.

“Companies are trying to make sure their employees are operating on all cylinders — that means that they’re working with a sound mind and sound body — certainly fitness and wellness fits into that concept," Draznin said.

                Offering fitness options has become the best way to differentiate commercial and residential buildings. I thought that WeWork was following its consumer of co-working space into other areas in which it could leverage its real estate expertise. But maybe WeWork is using Rise as a test model for what it will offer in managed office buildings. What does WeWork say?

The company is tight-lipped about what the industry can expect in terms of scale or expansion plans. Yehiel said the company is still focused on testing out this first location.

“We really want to nail this one and understand exactly how to make it great for our members — I think the offer is there, the concept is there, and then we will think about the future,” Yehiel said.

They’re not talking so we’ll just have to speculate. It’s not easy to tell when fitness is on the rise everywhere.

The Future of Fitness: Technology is invading every corner of our lives including fitness. From the Independent:

Health clubs like Bannatynes have started to adopt data crunching too. The MyZone app records workouts both in the club and outside and even displays people’s’ heart rates and progress on the big screen as they go for the burn in a spin class or body combat, for example. Things are starting to a whole lot more fun, and competitive. You’re encouraged to race against the person next to you, buoyed along by the helpful on screen data, the pacey music, the instructor’s motivating yells, and the dancing disco lighting. It’s all designed to put you firmly “in the zone”. Elsewhere, a line of rowing machines has a console that allows users to “race” against each other. The humble treadmill that has its origins as an instrument of punishment in the early 1800s to cure prisoners of their idleness is now a multimedia device. You can view your workout progress for the week, your heart rate, watch your favourite TV show, compete against others using the MyZone app, and even visit a virtual cycle route!

                All this technology is going to create an opportunity in the future for cheaper, low-tech gyms. Because all this tech costs money and that cost is going to get passed on to the consumer. As gyms move upmarket to follow their most profitable customers, that creates an opportunity for new entrants at the bottom of the market. As technology becomes more present in fitness, keep an eye out for cheaper, old school gyms to make a comeback.

Focus: Chris Rondeau, the CEO of Planet Fitness, gave an interview to Entrepreneur magazine. They asked him about his challenges leading the company. This is what he had to say:

“One would be staying very disciplined to our business model because it is somewhat unorthodox compared to the typical gym. We have free pizza nights once a month, tootsie rolls on the front counter -- we don't have the heavy free weights that most clubs have or group exercise classes. We're catering to the first-time casual gym user. So staying disciplined [so] that we don't get persuaded or gravitate back to the industry and start doing what everybody else is doing.

                This is why Planet Fitness is succeeding right now. They know exactly what they’re doing: attracting people who won’t actually use their service but making it so cheap that they don’t quit either. If they deviated from this model, they would fail. There must be a lot of temptation to add personal training and group exercise but they don’t. They know what their strategy is and they stick to it. I’m not a fan of the business model but they are really good at executing it. It sounds like they learned a lesson after developing a proprietary software system:

“We started our own software platform that was our [point of sale] system and it was a huge mistake. We should have stayed in the gym business and let software companies be software companies. It was unstable and the franchisees were not happy with the product and how it was working. And like I said, if we keep them happy, they'll keep the members happy. So the decision was, after millions and millions of dollars spent on the project, to abandon it, take the hit and move on."

                Know what your core competencies are and focus on them. If you’re good at gyms, what makes you think that you would be good at software development? Have a strategy and stick to it. Sounds easy but so many companies fail to do it. It’s so tempting to deviate from your strategy in search of more revenue. 

The Kleenex of Fitness: Amy Wang from Quartz went to ZINCON, the Zumba Instructors Network Convention, in Orlando this past July. It sounds like a very lively affair but I was struck by a part of the end of the article where CEO Alberto Perlman laid out his ambitions for the company:

A.P. shares with me another metaphor he favors: Not just water, but Kleenex. “Nobody says ‘I want to go to dance fitness’ or ‘I want to grab a tissue’—it’s ‘a Kleenex,’” he explains. “We want to be the Kleenex of dance fitness. We chose some principles, like, local instructors have the freedom to choreograph their own routines, as long as they use the Zumba formula.” Zumba is happiness, after all; it’s not a 250-strong team of strategists who group together on a daily basis in a corporate office to push a product.

                I hope that Perlman is aware of the danger of a trademark being genericized. From Wikipedia:

A generic trademark, also known as a genericized trademark or proprietary eponym, is a trademark or brand name that, due to its popularity and/or significance, has become the generic name for, or synonymous with, a general class of product or service, usually against the intentions of the trademark's holder.

                For example, escalator used to be a trademark of the Otis Elevator Company. Now it refers to any moving staircases. That was not a great development for Otis. You know who is scared to death of this? CrossFit. They are extremely litigious when it comes to their trademark because they do not want CrossFit to become a genericized term for functional fitness. It’s worrisome to see the CEO if Zumba saying that this is what they want.

TidBits:

-London built a gym out of melted down knives

-How do you balance being a top CrossFit athlete and a full-time college student?

-Behold the power of community

-Fitness tracking for pets

-Cookeville, TN is becoming the Mecca of CrossFit