As a high school leftist, I would have looked down upon my current self with contempt based upon the fact that I give significant mental energy to the dynamics of markets and how they improve the quality of life for both business owners and consumers.
The market for CrossFit gyms has been consolidating over the last few years in the United States – meaning that many original gyms are closing or being purchased by other groups, and many of the gyms that started after the wave of initial success circa 2012 are limping along and occasionally shuttering their doors.
What’s going on here?
Some gyms are collapsing under the weight of the debt that they took on to finance their growth, others are noticing members churning out faster than they can replace them – resulting in a settling point of monthly cash flow that is below what makes it worthwhile to continue operating, some have pivoted business models to focus on Facebook marketing and 6 week challenges as opposed to “forging elite fitness,” and others have owners who have badly burned out from years of stress and chaotic hours with minimal financial reward.
While this happens, some of the gyms that “do things well” are getting stronger based upon flywheel effects where they are able to leverage their membership and cash flow to reinvest in their business and their staff – thus making the gap between them and the rest of the market even greater.
So, gyms that are coming on the market now are competing with even more established businesses with a significant head start – which makes the start-up costs to get involved in the market much higher since the expectation of the consumer has been elevated significantly.
Since boutique fitness in a brick and mortar location is a pretty low margin business, taking on significant debt to finance the growth of a new location is a pretty risky proposition (I should know since we did this at SLSC).
However, the introduction of these well-financed competition creates some interesting dynamics, since these businesses compete away marginal clients from pre-existing gyms – often while operating with business models that are not sustainable over the long term.
This is not something like the battle between Uber and Lyft where venture capitalists placed huge bets on the eventual profitability of each fraction of a percentage point of marketshare in a future with autonomous vehicles and layers of businesses built atop the logistical infrastructure developed to facilitate ride-sharing.
Instead, many of these folks are amateur investors who enjoy fitness and think it would be fun, cool and fulfilling to own a gym. (No knock on these folks, since I totally get it – we took money from some of them, as well).
I do have concern for the future of the boutique fitness industry, though, since so many gyms are operating with unsustainable business models.
What happens to the “big players” in the market that eventually close down since they’re unable to generate enough of a margin due to constant competition from competitors who aren’t subject to normal market dynamics based upon significant investments of amateur capital?
What happens to the new gyms that take on huge debt to get going but will never generate enough of a margin to pay it back?
How does this serve the clients who want to be coached by professionals – but the structure of the fitness industry doesn’t allow for enough revenue to support paying a living wage to coaches?
How do owners of boutique fitness businesses set up their businesses to be stable over time when they have to coach classes and work with clients for 30+ hours per week to generate enough revenue to pay themselves and keep the lights on?
I wish this problem statement was leading to some sort of clever and insightful solution, but all I can do for now is frame the problem.
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