I have an interest in the fitness industry, and have just spent some time in the states looking at different operations. Fitness has long been dominated by the traditional 'big-box' style gyms such as Fitness First. Over the last 10 years this model has been tweaked with the rise of the 24/7 gyms utilising a smaller footprint, no classes (reduces rent and salary), less front-desk staff and of course are open 24 hours. In Australia, Anytime Fitness pretty much won the race thanks to a great business model and first mover advantage.
The next wave of change in the industry has been the rise of boutique operators specialising in group training. Think CrossFit, F45 Training, Orange Theory, Barry's Bootcamp, Fhitting Room and the focus of this post - SoulCycle. These are literally businesses that specialise in providing classes and nothing else. There are classes for all tastes including barre, strength, spin and HIIT (high-intensity-interval-training).
Side note: there is now even a new sub-industry aggregating classes provided by different providers such as ClassPass. ClassPass members gain access to a wide range of classes across different gyms. So you can choose between boxing at one place, cardio at another and barre at another place. This will potentially end up like the travel industry - the aggregators (agents) will be the ones who make money by clipping the ticket without having to bother with investing in physical property at the expense of the gyms. But that is a separate post altogether.
Group training is turning into big business. And it doesn't get much bigger than SoulCycle which has filed for IPO.
See here for the preliminary IPO.
SoulCycle is a mixture of spin class and ra ra. So it's literally a spin class, but the lights are turned down and the feel good factor is turned right up - lots of positive affirmations and American energy in the room. The prospectus itself is a good bit of propaganda. Try this on (page 2):
It sounds a bit cheesy, but let's face it the Americans do the positive stuff really well. And culture, along with a good dollop of celebrity pulling-power, is the competitive edge here - the actual product is literally a spin class and is therefore a commodity. But the positive vibes is what allows them to absolutely print money and the growth in earnings is phenomenal. Again, from the prospectus (page 2):
To break that down a bit more, in 2014 there were 2.9m rides (across 81,317 classes). Studio fees were US$91.8m meaning each ride generated US$31. $31 is a big number for one spin class! Standard classes are $35 and gets a bit cheaper if you buy class-packs. Classes can actually cost up to US$70 for the premium concierge service called SuperSoul. And I understand cancellation fees apply. So each bike can clip the ticket three ways: cancellation fees, standard fees and the SuperSoul service. Plus there is plenty of money made by selling merchandise, water, shoes etc - just another $18m revenue.
SoulCycle works on a corporate store model with 38 stores across the states mostly in NYC, Los Angeles and San Francisco. Interestingly, they don't work on a franchise model but instead invest heavily in their staff training and career development. It's quite a feat to develop a big, growing network and still deliver outstanding service, and one that I am genuinely in awe. This speaks volumes about the underlying culture of the organisation.
Starbucks and
Chipotle are other organisations delivering great, consistent service across a corporate store model which again, I find incredibly impressive.
Being a preliminary IPO, the selling price is not disclosed, so there is plenty of speculation about this - I've heard some obscene numbers thrown around that I won't bother repeating. How much would you pay? Rapidly growing business, great margins, but a product that could easily lose it fizzle if the culture starts fading. This could of course all be a bit of a fad and an attempt to cash-in on strong equity markets. Well, the equity markets
were strong when the listing was made! This feels like a bit like when Virgin Blue listed in Australia - lots of razzamatazz but ultimately an airline selling a commodity product in a highly competitive industry. I wouldn't be surprised to see the listing pulled if the markets continue their shank.
It's not for me, but the rise of SoulCycle is nonetheless a fascinating tale.
Kristian
