THE WEEKLY HOWL IS WRITING ABOUT ECONOMICS

Apple Watch: GymKit has arrived in the United States, sort of.

With GymKit, when you step onto a compatible treadmill or elliptical, you simply tap your watch against the machine and the two are paired; the machine’s display mirrors what’s on your wrist, and the specific stats tracked by the machine are relayed to your watch. By syncing them up, you get a more complete picture of your workout, including more accurate calorie burn estimates—and with less effort, as your watch already has your height and weight information. At the moment, GymKit is only available at one gym in New York, but in 2018 it will roll out in Equinox facilities across the country. Over time, the connected platform will also integrate with machines from companies including Cybex, Life Fitness, Matrix, Schwinn, Stairmaster, Star Trac, and TechnoGym at other chains, too.

                This will be a big deal when it is ubiquitous. The question is how long it will take for most gyms to GymKit-capable. From Forbes:

Technogym is the launch partner, though more companies will follow soon. And it's not limited just to the newest machines, around three quarters of Technogym’s existing equipment can be simply upgraded to work with GymKit.

As Enrico Manaresi, TechnoGym Global PR Director, told me, the equipment in the first British club to be upgraded was modified in a matter of a couple of hours. ‘Digital connectivity and connectivity in these products makes it a successful lifestyle solution for people. All the new equipment we make will have this capability built in and we’re upgrading existing machines as quickly as we can. It’s a way to connect to a new community and make that connection even more personalized,’ he said.

                So TechnoGym can modify their existing equipment but I don’t know if other equipment manufacturers can or want to do that. Which could mean that it is a couple of years before gyms upgrade to the newest, GymKit-compatible machines. Don’t hold your breath.

Pay Per Visit: POPiN is an app that allows you to purchase gym time by the minute. I have used this blog to express my support for this idea in the past as well as my bewilderment as to why so many gyms make it so hard to purchase a short-term pass at a reasonable price. CEO Dalton Han talked to Business Insider about the challenges of selling this idea to gym operators:

Han says that gyms are too optimistic about their ability to convert occasional customers into full-time members. Rather than taking away potential revenue from unsold memberships, POPiN would bring the gyms customers who know they won't use the gym enough to justify a membership and can't be convinced otherwise without an extended trial. Gyms would receive a new revenue stream instead of replacing an existing one.

                This is easy money. Why wouldn’t you want people to pay to test out your service? And the idea that it would cannibalize standard memberships is ridiculous.

The current per-minute rates range from $0.14 to $0.26, which means that a sixty-minute workout at Tribeca Health & Fitness costs $10.80, instead of the $20 one would have to pay for a day pass.

But, if you do that same, 60-minute workout four times each week, you'd end up paying around $172 per month, which is $83 more than the gym's rate for a month-to-month membership. If a user visits a single gym often enough, POPiN will recommend that user buy a membership.

                If someone is so opposed to long-term memberships that they would pay that much of a premium to avoid it, just let them. Let them pay way too much money so they don’t feel locked in. Most of those people are probably travelers anyway. And gym operators don’t even need a middleman. Just offer no-strings attached day passes for $10, one week passes for $25 and then keep all the money.

Carrot or Stick: Fast on the heels of Pact’s demise, a new startup aims to master the art of paying people to work-out. This startup’s name is Karrot Health (get it?) and they want to be the middleman between companies that want their employees to be healthier and those same employees. From Built in Chicago:

“When I worked for Uber, they gave me $80 a month for a gym membership, which adds up to almost $1,000 per year,” said founder and CEO Kelley Halpin. “All they could tell was that, at some point, I signed up for a gym.”

Karrot lets employers set up a recurring “bonus” for employees that is unlocked by hitting certain fitness milestones — like logging 10,000 calories’ worth of workouts in a single month. Employees track progress using wearable devices or the fitness tracking features built into their smartphones.

Also:

Halpin said Karrot is currently gearing up for beta tests with a handful of early customers. Companies typically offer around $50 per month per employee in incentives, but they’re free to adjust that amount as they see fit.              

                You can’t pay people to exercise. It doesn’t work. I realize that the idea of it will always tantalize people but the motivation to work-out has to come from a deeper place than the prospect of an extra $50 at the end of the month. This feels like the difference between economics and behavorial economics. Traditional economists think that people make perfectly rational decisions about their well-being. Behavorial economists recognize that most people are anything but perfectly rational and that decision-making process is influenced by many factors. This is a company borne out of traditional economics. People could get in better shape and make a little bit of money, of course they’ll do this. But that’s not how the human mind works. How can I be sure? By using the classic economist’s argument for why something won’t work: if it was that easy, why hasn’t someone else done it already?  

Going National: There has been a lot of money flowing into the fitness industry the last few years as private equity firms have been buying up gym operators. Now TPG, one of the biggest PE firms, wants to capitalize on the fragmentation. From Well + Good:

Private equity firm TPG, which has approximately $73 billion in assets, sees this wide-open market as a major business opportunity. The company’s growth-investment arm has added recovery-based studio StretchLab to its fitness portfolio, which also includes Club Pilates and CycleBar. What’s more, TPG has created an entirely new company, Xponential Fitness, to serve as the umbrella to these sweat boxes—and any others acquired in the future.

                Fitness is still a very young and immature industry. There is a huge opportunity for someone with deep pockets to build a national brand in several disciplines.

 He explains that with each new vertical Xponential takes on (think: yoga, boxing), the goal is to hit 1,000+ studios. For now, the company plans to stick to investing in boutique fitness genres which have been tested over time and require some barrier of entry in terms of instructor training (e.g. Pilates, which requires months of training for its teachers). “We’re looking for things that are non-faddish, that will be around for a long time,” Geisler told Well+Good. 

The company plans to acquire just one brand per vertical, which means being incredibly selective about their purchases. “We want to see multiple units open and doing well,” Geisler explains. “We’re also looking for founders who have a compelling story, and for companies that fit in with our other brands.” Once a new studio has been brought into the Xponential fold, branding work (e.g. ethos, imagery, website, etc.) will commence while a dedicated team is built to run the franchise business out of Orange County, California.

                My thoughts:

-PE firms have been buying up gyms but they haven’t been taking them to IPO and they aren’t any options for strategic buyers. So their only exit strategy has been to sell them to another private equity firm which leads to diminishing returns. This is a bold strategy but if it works Xponetial could be a candidate for an IPO.

-There is the potential to bundle several boutique disciplines together this way. From Bloomberg:

Geisler said Xponential’s components will operate as independent brands: CycleBar, an indoor cycling studio chain; Club Pilates, which uses the traditional reformer equipment for workouts; and StretchLab, which leads classes in recovery and movement. Xponential aims to attract franchisees who may want to own several different exercise “modalities” in a single market, Grabowski said.

                A franchisee that owns 3 different boutiques in one city could offer a membership to all 3. That would be very interesting. The one drawback that I could see is if this corporatization of the boutiques diminishes the quality. Fitness is an industry driven by passion. Can you keep that passion alive when you’re operating multiple gyms in multiple disciplines? That will be the billion dollar question.

Data Overload: The quantified self is all the rage these days. People are using fitness trackers and smartwatches and fitness apps to collect data about their bodies and of course all that data will lead to greater health and performance. But there does come a point in which we can have too much data. There is a concept in economics called diminishing marginal returns. The idea is that just because a little of something is good, that doesn’t mean that a lot of that same thing is great. A cup of coffee in the morning might be a great way to start the day but if you drank it all day, you’d be a jittery mess. So how does this apply to fitness tracking? From Slate:

But for road racers, fall and winter are the offseason: a time to wind down and relax, to take some time to do other activities or ride a bike without the stress of specifically planned workouts. “Leave your Garmin at home, don’t look at the numbers, just have fun!” my coach said. Just have fun? Having been indoctrinated into all these tech tools for so long, the idea of riding “just for fun” was, frankly, anxiety inducing. If I don’t track anything, how will I get an accurate picture of my fitness? And if I don’t share my workout with the world, how will the world know what I’ve done? Most importantly: How do I know if I had fun if I don’t know how hard I worked out?

                My competitive running days pre-dated the advent of fitness trackers but I still found a way to achieve information overload: my watch. I would obsessively check my watch when I was running, especially when I was running from home. I think that I counted 10 different times when I would check my watch on my standard 5 mile loop. What’s the problem with this? You never relax. Every day should not be a hard day but it’s tough to have an easy run when you have splits you need to hit.

 I knew that my dependence on my ride tracking was a problem, and I’m not the first to experience it. Professional cyclist Kathryn Bertine found herself in a similar situation:

“You know, you could just not look at the power meter,” a friend suggested.

“That’s crazy talk,” [she] said.

I’ve had similar conversations. Bertine ended up taking a year away from the technology, and she came away better for it. While I’m not sure I’m ready to take that step, I do recognize the value in getting outside just for the pure joy of it, and I have been taking baby steps toward doing it.

                I would have had the exact same reaction if someone had told me to leave my watch at home but it would have been the best piece of advice that I could have ever received in my running career. Peter Drucker, management guru, famously said that “what get measured, gets managed”. The problem is that some things shouldn’t get managed.

Athleisure: How much money do SoulCycle clients have? The cycling studio chain is launching a new fashion line in conjunction with Public School, a popular streetwear brand. From Bloomberg:

Gegler is one of about 60 people who came to the launch of SoulCycle’s latest retail collaboration, a line of high-end workout clothing designed in tandem with Public School, the hip, New York-based streetwear brand. The two companies unveiled the line during a SoulCycle class that doubled as fashion show. In the middle of the session, models walked through the studio wearing such items as $185 leggings, $125 sports bras, and even a $655 bomber jacket meant to be worn to and from class. Riders clapped as they pedaled to the beat of the music.

                These people are not price sensitive at all, are they? Pay $34 per class and then shell out $655 for a bomber jacket to wear to class. Wow. That sounds like a great business to be in. I wonder how much money SoulCycle is making from retail:

SoulCycle, which is owned by Related Cos. via its Equinox Fitness subsidiary, has been selling its own branded clothing for years. Each month, the company puts out a new collection of 40 to 60 styles for sale at each of its more than 80 studios, annexes, and pop-ups, as well as online. The spin behemoth, which was on the cusp of an initial public offering back in 2015 before retreating, doesn’t make most of its money from merchandise, though. Retail is more of a marketing tactic.

                If it’s a marketing tactic, why not charge less than an arm and a leg? Why not lower the price and get more people out there wearing your brand? The margin on $655 jackets and $125 sports bras has to be huge. If SoulCycle isn’t making money charging LuluLemon prices, then something is very wrong here. Maybe if SoulCycle ever goes through with its IPO, we can see what’s going on.

TidBits:

-Rogue Fitness will be the official equipment provider for the World’s Strongest Man competition

-Planet Fitness is developing AI-enabled virtual trainers

-Nike is launching the Metcon 4 this month

-FitBit’s transition into a medical device

-If you live near a gym, you’re less likely to be obese