Ortus Blog: The Finance of Fitness

I booked my place in the 2016 Budapest Marathon today.  I had no choice.  I need something to motivate me to regain my fitness and (for me) a marathon on the horizon is the only thing that works.  I’m driven by memories of Amsterdam in 2014 when I backed myself to do a decent time with very little training.  I failed miserably.  It cost me time, money and effort.  However, the worst thing was sitting next to a fellow runner on the plane going home and lying about my finishing time.  It was a low point (relatively speaking).

So, now comes the training.  Road-running is unavoidable, but it’s something I try to minimise.  Firstly, I get hay fever and secondly I keep wanting to walk.   So, that means lots of running on treadmills in the gym … where the floor keeps moving and, unless I keep running, I get a serious injury.

Now, you’d have thought a gym membership in Central London would be expensive.  Well, you’d be wrong.  The EasyGym on Oxford Street is £26 per month with no signing-on fee and no contract.  I was a member in 2008 when it was Virgin Active and, back then, I paid £85 per month.  The EasyGym is exactly the same, albeit touch-screens have replaced the staff and everything is coloured orange.  The experience from an exercise perspective is no different.

On the face of it, this seems like a crazy business model.  How many other products have dropped in price by 70% since 2008 (apart from oil)?  However, the statistics suggest otherwise.

The 2015 State of the UK Fitness Industry Report stated that 1 in 8 people are now members of a gym, pushing the industry market value to £4.3 billion.  However, recently released TGI data indicates that only 27% of gym members regularly go to the gym.  This is probably linked toFitness Industry Association statistics showing that, while January is the busiest month for new gym memberships (12%), a quarter of the January members have given up by June, and another quarter by the end of the year.  However, it doesn’t say when these new members stop paying … presumably some considerable time after they stop attending.

Maybe it comes down to hope.  People join a gym to improve themselves and, even if they stop going, it takes them a long time to accept that they’ve given up.  I guess this is a credit to them … I certain determination not to be defeated.  However, for the gyms its great business.  In fact, what could be better … quite literally charging people for nothing.  In fact, some degree of client inertia is necessary for gyms to operate.  In the same way banks couldn’t cope if all their savers asked for their money on one day … many gyms couldn’t cope if all their members started turning up regularly.

The EasyGym model won’t work everywhere.  In some places you’d be overcome with members, most of whom would turn up.  However, for the Central London demographic it makes sense … people rarely have time to attend the gym, but have enough money not to bother cancelling the £26 per month.

At Ortus, we see gyms as great businesses, and importantly we’ve put the time into understanding them.  And the vast pricing differences (which are often counter-intuitive) are a good example of why detailed lender research is so important.

 

 

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