The Van Trump Report

Interesting Read…. Planet Fitness

There’s been a lot of stories and research circulating as of late regarding the “Planet Fitness” business model and the explosive growth the company has enjoyed! This is happening at the same time many traditional retailers across the U.S. have announced thousands of store closures. On the flip side, Planet Fitness recently announced they will open 225 gyms this year, some of which will be located in stores that Toys “R” Us or Sears once occupied. Keep in mind, Planet Fitness has been on one of the craziest growth runs the last few years, some saying they’ve turned into the Amazon of gyms as their stock (PLNT) has climbed more than +400% over the past four years. The company now has more than +1,800 gyms in the United States, which is a +60% increase compared to three years ago. In addition, they had a record-breaking Q1 in 2019 opening up 65 new clubs, bringing its total members to +136 million. What’s most interesting about this growth is Planet Fitness truly believes the company has the potential to reach over 4,000 nationwide locations.

What I think is most interesting, is their business model and target market. Gym memberships have increased +37% since 2008 yet over 80% of Americans still don’t belong to a gym. Where Planet Fitness is really separating themselves from the crowd is they are going after that 80% that don’t currently belong to a gym. In other words they are trying to create new marketshare rather than stealing existing marketshare. As many CEO’s have learned, this can at times be an expensive endeavor, but Planet Fitness seems to have found a winning recipe with their cheap $10-a-month membership that pitches members on joining a “judgment-free zone” and gives away free pizza. This is somewhat genius on Planet Fitness’ part because they have essentially built their business model around people who probably are not going to show up. Most of their gyms can hold a maximum capacity of around 300 people, but somehow each of their gym’s average about 6,500 members. The reason why Planet Fitness can get away with this is because it knows that members probably aren’t going to religiously show up. In fact they really don’t want to attract people who have traditionally been known as gym rats.

In my opinion, they have completely changed the gym industry and it’s working. Instead of displaying challenging equipment like weight benches and squat racks in the front of the gym like most, Planet Fitness hides the weight rooms and other equipment in the back. Instead, the gym has designed lobbies to look like hotels and fancy restaurants to make their customers feel welcomed when they walk inside rather than feeling intimidated. Another reason why Planet Fitness is so successful is because they have dramatically reduced their customer attrition rate and lose fewer customers than most in the same space. Gyms have notoriously had huge issues with customer retention, in fact, over 60% of gyms lose around half their members each and every year. Planet Fitness figured out a way to dramatically reduce this issue by charging ridiculously low membership fees not requiring long-term contracts and creating more “value” for their customers. Instead of adding more blenders, the company has bagel breakfasts once a month and pizza dinners, which happen to be its busiest times. In addition, they also offer a lot of extra amenities such as tanning and have massage chairs spread out across their lobby. I even heard they are working on implementing movie nights and spa treatments at select locations, which is why I suspect they are buying vacant retail stores.

At the end of the day, Planet Fitness is working to completely change the gym industry and I think their estimated growth is not unreasonable. In fact, Planet Fitness is now considered “one of the preferred partners” for landlords looking for anchor type tenants. The reason is because other retail stores find great benefit and foot traffic in being located next to the gyms. Recent data shows that +75% of Planet Fitness members combine their gym visit with some type of other shopping on their way too and from the gym. Interestingly, almost 90% of those will do some shopping at retailers who are located within the same shopping center a sPlanet Fitness. Kohl’s and Burlington have gone as far as shrinking their stores and partnering with Planet Fitness, giving them space, because they hope the gym can draw in customers. Kohl’s even announced it would lease out space for Planet Fitness gyms next to 10 of their stores. I should also mention, Planet Fitness is launching a new campaign called “Teen Summer Challenge,” which allows teenagers from 15 years old to 18 years old to work out for free in all Planet Fitness clubs. The reason why this is important and somewhat genius is because this offer will help the company introduce members in Generation Z to their gym, which will ultimately build the brand as well as build loyalty and affinity. This is definitely a company worth keeping an eye on moving forward and one with an interesting perspective and plan. Again, the power of having a different perspective and going after a target market that no one has wanted to tackle with an approach completely out of character, is extremely interesting to me… certainly makes me think!

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