Transcript
Every crisis creates an opportunity. The most profitable studios that participated in our survey have a man a full-time manager. There's no oimpic of of business ops. It's find, enroll, retain rigorously, consistently day in day out. So why are you looking for the next big thing? instead of encouraging people to do what [Music] works. Welcome to this week's episode of Lyfts, the show where we explore latest industry news and trends. It's been a while. We've uh it seems as though it's been months since we've actually sat here and done the show in this this particular setup. uh from we we've been in Vegas for for HFA. We've been at at we've been at FIBO and and a number of other Oh, and PerformX as well. So, so it's it's it's really the first Oh, it feels it's the first time in months where we've been able to do the traditional show. So, I'm I'm very excited uh to be to be back in in the seat again. So, um how how you how have you been, Mo? Well, I've been I think tired and building up the the air miles like like you, Matthew. We've been traveling a lot. Um, it's all been good, but it's definitely been a a very busy travel season and I've missed doing our regular list episode, right? Like we've done some really good stuff even live on stage at PerformX. We did our first uh lifts on stage which was really wellreceived. Even before that, we had connected health and fitness where we just had some tremendous interviews. In fact, just yesterday I was on with Carl Daker from Beachbody um who was talking about the great feedback that he's received even from our podcast and and kind of telling that telling his story. But this format kind of getting back into covering the latest in industry reports which I'm excited about today to have Julian on uh but even talking about there's so much news this year that has happened in the first almost six months. Uh, I think we'll have a lot to get to, but I'm excited to be back. I'm excited for the summer and just all things fitness. Well, well, I I um as as usual, I think it'll be good to to pick a couple of news stories just to um just to have an opportunity to catch up what's happening in the world today. But maybe maybe we can start for those who don't know. Maybe maybe Mo, you could do another introduction to um to Mr. Barnes. Yeah, I mean Julian, I want to say this is your third or fourth time on Lifts counting CES conferences. Probably five. Yeah, I think HFA five. Yeah, because you've done two at our summits and then HFA and CES and this is five. I'm And that's that is that is a lot. You you might be our most popular guest here. I don't think we've I mean honestly I don't think we maybe if we knew that confused with popularity uh we just have the data and uh and you guys are data geeks and you always like the data so we're happy to present some data to you. Well we love it and you always have a pulse in what's happening in what I feel like is um a fast evolving space. A very fast evolving space. So, for those of you that don't know Julian Barnes, Julian Barnes runs a boutique fitness um network, Boutique Fitness Summit. I know you've kind of gone through some iterations around it. You're here to talk about your 2024 state of the industry report. Uh thank you for coming on for the fifth time and being our most popular guest. Well, thanks for having us. Um so, the name of the company is the BFS network. BFS stands for beauty, fitness, and self-care. in network is exactly what it sounds like. We are we're a network of owners, operators, investors, media lives as part of the network and we sit in the middle of that network to share facilitate information with all the stakeholders in the uh in the retail in the brickandmortar based businesses in the beauty, fitness, self-care space. Can you tell us a bit about this report and we'll we'll dig into the report here um in a few minutes, but tell us a bit about the report itself. So since 2018, we've been publishing uh annual reports that provide the state of the industry and and the report itself has has um evolved during the years. This report had a very specific intent why we're so excited about it. It's actually includes seven profiles of profitable studios. That means when you look at the report, you're going to be able to ascertain the road map or blueprint to become a profitable studio. And we segmented the the survey results by modality and by market size. So for the first time ever, when we ask the question, how much are you paying your instructor? We're not comparing a Pilates studio in New York City with a strength studio in Boise. We're comparing like to like Pilates in the city with other Pilates in the city. Strength in suburbs to strength studios in other suburbs. So that's why we have seven different profiles. One for all modalities anywhere in the world and then two each for yoga, Pilates, and strength divided by cities and suburbs. So we're providing very specific comparable information for those three modalities. Um, so we're not comparing apples to oranges. We're comparing apples to apples finally. Well, well, Julian, we'll come back to the report here in a few minutes, but before we do that, true to the lift's format, we want to cover some breaking news for the audience and let's unpack and analyze it. I want to put one to you. Um, there were two reports, two new two breaking news um, articles which came out on the same day, I think within hours of each other. The first being Mark King from Exponential retiring and stepping down from his CEO role. Um he is going to be active until they find a new CEO replacement and he cited that he is going to be stepping down due to personal health reasons. And then literally, I think within minutes, um, even though what I'm told, this was not planned. There was no coordination around it. Anthony Gesler um announces the appropriately named SQL which is his new kind of comeback after being out of the industry for a year and launching his new boutique brand which has uh I think body 20 a Pilates product a recovery product and and I believe one more I know that they were there were four brands around SQL. Julian would love to get your take on I guess first let me start with what do you think? Do you think that this was coordinated or was Anthony just smart and announced this when he saw the other news of Mark King? The answer to that question is above my pay grade as they say. I don't know if it was coordinated. I think it was fascinating that it came out on the same day. Um but let's let's pull back for a second. this information, these two announcements are critically important for the boutique fitness industry because it's one of it. Exponential um is one of only two publicly traded companies in the sector, F45 being the other. And so they have a they have um their shadow hoovers over the entire industry for and for investors who are not paying attention to the majority of the studios that are independently owned, not PE backed. what the investment community knows and thinks they know about the boutique fitness community is largely driven from what happens at exponential, what happens at F45, Soul Cycle, Barry's and F. So any any news coming from one of those five companies is impactful for the entire industry, good or bad. So, that was my first my first takeaway was this is going to have an impact on companies out here that are trying to raise money uh to build their own businesses. I would agree with that. Um do you think then with with Anthony coming out with his new brand, is that a signal towards a change? I think it only validates everything I've been hearing about boutique fitness is for a couple of years there was some softness in the market but I speak a lot just like you did Julian to brands like like peolve um strong pilates um solid core you know what's going on with and purpose brands and largely it's been positive I mean yes there are struggles but largely there is growth and optimism in this and I think with Anthony coming back I mean anony's a smart guy he's a great entrep reneur I don't think he would put good money versus bad um and him coming out with SQL I think just validates that there is still growth to be had in the category if you have the right execution plan in place so I would say I think there needs to be a distinction between the the performance of the individual studio versus the business model of the portfolio theory company, right? Let's look at exponential stock price from the time they went public to where it is now. And let's look at the per that at the performance of their brands and the fact that they have um uh divested some of their brands in the last couple years. I believe that there are other brands that are uh that are that may be available uh for purchase. So I think the jury is out as to whether the business model of one company owning five to 10 brands and different modalities where all those brands are operating or performing at the same high level. I think the jury is out as to whether that's an effective business model which is completely different from the individual success of of the brands that you mentioned. There's no question that uh boutique fitness, especially Pilates, is thriving. And in fact, I know we're going to talk about it later, but the first takeaway from our 2024 report is the fact that the amount of studios that achieved a profit of 20% or more almost doubled since our last report in 2022. 9.2% to 17% in the last two years. 17% representing the number of studios with a profit of 20% or more. That validates what you were saying that that there are studios that are surviving uh that are thriving in this industry. But I think that question is a different question from whether Anony's business model of SQL is a is proved. I think the jury's out as to whether that business model is effective. Well, something that's been impacting all businesses, including boutique and our industry as a whole, is tariffs. And I know Matthew, you and I have been sharing a lot of notes around the impact of tariffs. You've run a very large equipment business for I'm I'm probably not going to quote this correctly, but I would say 20 30 years. You've at least been involved in the category with equipment for at least for over three decades. I'd love to get your perspective on terrorists. I mean, how are you dealing with it, planning for it? Um, any takes on that? It's occupied a lot of my time and a lot of people I've worked with for for for quite a few months really. Um, and it' be great to see if we could actually get a dedicated episode on this because I think it's a big subject. But, um, yeah, certainly I think it's, um, it's created, um, a a challenge in the economy. I I think certainly things have slowed down because people are not sure about what it means. uh to to give you an idea of some of the challenges that people are probably dealing with. a a lot of lot of product particularly that comes into the fitness industry is coming in from Asia and and so what as as an importer the decision that you're facing is well we need product to supply customers but do we take the risk of importing in a product and potentially paying up to 150% duty on it from China um or do we hold off ordering and until this negotiation gets settled and then bring product into our warehouse at a lower rate because what what you know the the the challenge is if you bring it in then arguably you could be sitting on some product that you're paying you've paid a lot of money for. Uh the markets in a mindset of well you know that negotiation is over. Why are you charging me the inflated price? And you may have to sit on this product for for several months until you can sell it out potentially at a bit of a loss. So I so I think um you know certainly it's there's some positive news based on the fact that there seems to be an agreement with the UK which is great for us. Um there seems to be some 90day pause with with what's happening in in China but I I would I would say definitely as we get towards the latter half of the year there's going to be some there's going to be a significant supply chain crunch because most most importers have just paused uh product. There's a lot of stuff sat sat in in China at the moment and some of those common products. I think I think there's going to be a shortage and inevitably people are going to be paying a lot of lot of money for it. It's been fascinating to really watch and track and I I think as you know you know we have an office in Shenzen and we've produced wearable electronics and other types of fitness electronics related devices for many years and there's so many suppliers but even you think about an American brand like a life fitness as an example. I was just at the headquarters a couple weeks ago speaking with Jim Basani who's who's a friend of the podcast and even he talked about it's really the inputs a lot of people don't consider that is even brands that are manufactured in other countries things like consoles and electronic components still come from China so it's been really hard so we are I believe are going to see a permanent shift almost like co had a permanent behavioral shift on on on how consumers kind of think and it pulled forward a lot of demand. I think what this even short-term tariff implications and and you know I think uncertainty has done is it's really caused brands to open up and look at alternatives and this you know some popular places have been Vietnam. I've heard Vietnam being brought up by at least three or four other companies where um experts who've been doing this for quite a bit in China and Taiwan have now set up shop in Vietnam where where labor is more affordable and they're trading up the labor force to be able to do manufacturing. India potentially has come up as another one and I would even add you know companies looking at do we produce if we have a big enough market do we start thinking about producing things domestically. So even there might be relief in tariffs. We have a 90-day pause. Who knows if it's going to be 5% 10% especially coming out of China. But what it's caused people to do sometimes these things are inflection points because you know if things are working well as executives right we tend not to think about it. We might know hey we we need to be kind of thinking about concerns in China. I'm not picking on China but could be another market but it's not a priority right now. And something like the tariffs has been the catalyst for companies including ours to rethink our strategy. Are we doing the right thing by being overly invested in one country? Should we diversify and spread risk across multiple regions? Um are we able to recognize better economics? And you know from what I've been hearing is yes it's been frustrating but it's almost like a Eureka moment because now you're like hey I didn't know Vietnam or Malaysia or India had these kills. Hey, I didn't know we could bring things to the US or Mexico and so on to be able to execute on production. So, I do think we're going to come out of this probably in a better shape than what where we were before. I think the biggest loser in all this is probably going to be China. I have two perspectives on the tariff issue. Uh one is from the um from the perspective of operators who are expanding. We have 50% of the BFS peer network members are currently in the process of opening new locations. And so that means they're buying equipment and they've already signed leases. They've already uh hired architects. They've started their buildout. They had a budget for the buildout. And for them, they can't stop the buildout. They just have to their expense may go up because of that. Um, so I don't think we're going to see those studios slowing down their process of opening new locations. The question becomes, will other studios pause before they open a new location because of the possible increase of cost of buying equipment? So that's one takeaway. Uh, the second takeaway I think is is is more interesting. It's on the consumer side. uh what you've described is the uncertainty in the marketplace and when there's uncertainty, people tend to pull back uh in their in their in their buying experiences, but I think that creates an opportunity for operators to focus on the outcomes of what they're selling at their brick and mortar locations as opposed to selling the features and benefits of of working out at a gym or taking a Pilates class. Look at this. This this report was published earlier this year uh this chart in the future 100 and what's notable to me is the four three of the top four expenses are necessities taking care of your ch of your kids food and groceries and utilities. Well look what number three is health and well-being. So even in a world of of uh greater uncertainty with expenditures, there is an opportunity for operators to emphasize the outcomes of their services and connecting them to health and well-being. And by outcomes, I mean not just get stronger, get ready for the beach, but improving your mental health, improving your sleep, reducing your stress, reducing your anxiety, uh improving your overall total well-being. And the operators who take this opportunity to dial into that message may are likely to have greater success in reaching their existing members to prevent their members from pausing or cancelling and still have an opportunity to convert leads into members because what's interesting about this another article that I read recently talked about this would be the summer of the station uh specifically the people who have second homes who used to also take a two-eek trip to Europe. will most likely cancel that two-week trip to Europe and spend more time with their summer homes. If there are more time with their summer homes, that means they're local. So, there may be an opportunity for the operators who have a slower summer in general to have a slightly uh busier summer if more people are staying close to home because of the uncertainty from the tariffs. Every crisis creates an opportunity. I think the opportunity here for operators is to emphasize um the outcomes. to the health and wellness outcomes. I think it'd be a good time if we dive into the report now. Um and uh may maybe we start like Julian you mentioned about the the the profitability um of of the uh you know some of these studios and and maybe that's a that's a good place to to start and I've I've got a couple of questions around this and one that it I don't I don't think it sort of specifically mentions you know what's behind some of this but from what I understand most a lot of the businesses that you represent um the owners are are involved in in many cases in in some of these companies. And I was I was just just curious, you know, it's it's we've been through a very challenging decade really. We've we've had the pandemic now we've got a lot of uncertainty in the world with with with you know what what's happening with um you know leadership of some of the main countries and we've got sort of the the a lot of um uncertainty in central Europe which is certainly kind of affecting what we see in in United States. And I'm I'm just wondering, you know, from a a sort of behavioral mindset perspective, like, do do you see any kind of patterns between the the studio owners that are running these these high-profit studios and the ones that that don't, you know, from a from a from an individual perspective? That is a great question, Matt. And let me answer that by sharing one of my favorite slides here with you. Um, look at this. Our analysis of of our data disclosed this fact right here that the most profitable studios that participated in our survey have a man a full-time manager. So I'm emphasizing full-time, not a teacher who's doing some administrative work, you know, for five or 10 hours, but someone whose primary occupation is running the day-to-day