Gyms and at-home fitness battle for prominence this holiday season

The fitness industry appears to be headed for a strong holiday season, but not everyone will see a boost.

The category has been on a rollercoaster ride for more than two years, with the Covid pandemic changing training routines and coining new sector winners. Now, inflationary pressures and a post-lockdown reset appear poised to benefit traditional gyms and switch options, threatening connected home fitness equipment like products made by platoon Y Lululemon-Property mirror.

Inflation remains one of the main concerns of consumers, although the data for October showed slight relaxation. Vacation expense projections show that rising costs can result in more moderate gift giving this year.

Demand appears to be strongest for experiences more than things. The fitness category has a history of surviving pricing pressures and typically enjoys a surge in New Year’s resolutions.

“In 2008 and 2009, fitness industry revenue and membership actually increased compared to much of retail,” Jefferies analyst Corey Tarlowe told CNBC, referring to the financial crisis and recession at the time. .

Tarlowe, which covers fitness planet and Lululemon, said spending on fitness is holding steady, even among low-income and inflation-pressed consumers. But he sees gyms winning out over more expensive home equipment. People are trading lower and shifting more toward value, he said, “and that bodes well for Planet Fitness.”

fitness planet posted a record membership and extended its full-year guidance when it reported third-quarter earnings on Nov. 8. The company said it had 16.6 million members at the end of the quarter, an all-time high, even compared to the pre-pandemic era. – and said it added 29 new locations during the period.

Planet Fitness CEO Chris Rondeau said members are also exercising more — six times a month compared to five times a month when Planet Fitness went public in 2015. The company also reported a decrease in its churn rate. .

Rondeau said engagement from all age groups is near or above pre-pandemic levels. The company, known for its affordable memberships compared to fancier gyms like Life Time and Equinox, boasted strong customer acquisitions through its discount offers.

Luxury gyms are also seeing positive trends. Lifetime on November 9 reported a 9% increase in membership from 2021 and an additional 4,000 members compared to the previous quarter.

The cadence of additions is slower than it was between 2020 and 2021, but the luxury fitness brand continues to attract its higher-income customer base with in-person experiences like the increasingly popular pickleball sport.

Lululemon in September it showed strong demand for sportswear from its higher-income consumer base. The company said it was “not seeing any significant change” in consumer behavior despite the macroeconomic environment, and in fact raised its 2022 guidance range by around $200 million to between $7.87 billion and $ 7.94 billion.

The company will report its third-quarter results in December.

Other retailers expect home physical activity to remain on wish lists in the coming months. Dick’s Sporting Goods Y Lowe’s — which recently expanded its assortment of exercise equipment and accessories — have promoted the stability of the sector, even in the face of inflation.

But, as Jefferies’ Tarlowe points out, there is greater risk with lower-margin, capital-intensive equipment than with higher-margin products like sportswear. However, retailers such as Lowe’s are confident that demand will continue.

“Demand for home fitness equipment has held up since the pandemic,” Lowe’s executive vice president of merchandising Bill Boltz said in a statement to CNBC. “Especially during the holiday gift season, we are offering a larger selection of fitness accessories in stores.”

Luxury products for the home such as platoon, however, have struggled in recent months as consumers leave the house and return to offices and gyms. The stationary bike manufacturer reported first quarter results earlier this month that were well below Wall Street expectations, posting a quarterly loss in subscribers and, according to UBS calculations, a parallel drop in engagement: 16% year-over-year.

Even when the company seeks to attract new customers, selling their bikes on amazon Y at Dick’s Sporting Goodslaunch a rental program and placing bikes in hotels across the country: Analysts don’t think the value proposition is attracting more subscribers.

“It took a global pandemic to go from 1 million subscribers to 2 million. Can you really grow that base?” Arpiné Kocharyan, entertainment, gaming and accommodation analyst at UBS, in an interview with CNBC. “We’ve seen dropout rates double year over year.”

Peloton forecast second-quarter revenue of between $700 million and $725 million, about $150 million below the $874 million Wall Street expected, according to Refinitiv consensus estimates at the time of the report.

Lululemon, who acquired home fitness company Mirror in 2020 for $500 million, could be facing similar headwinds at home. Executives did not disclose Mirror sales in the latest quarterly update, but the acquisition remained an expense on the company’s financial statements.

“I just don’t think Mirror was strategically the best fit for Lululemon,” Tarlowe said of Jefferies. “It’s probably still going to dilute profits. They’re investing in the business to help improve the Mirror segment, but I question the value it will really add to the business as a whole.”

Mirror subscriptions have been wrapped in Lululemon’s new $39/month membership program, which also includes access to exclusive Lululemon products and some in-person training. The subscription is part of the company’s five-year plan to double revenue to $12.5 billion by 2025, a plan that has raised the skepticism of some analysts.

“Connected fitness as a phenomenon is here to stay,” said UBS’s Kocharyan. “But are they going to see significant growth rates from where they are today, given that they saw this abnormally high growth rate in the midst of the pandemic? I would say there are more questions about whether they are keeping those subscriptions and engagement high.”