Apple's Foray into Fitness
In 2014 over 54 million Americans were paying for a gym membership averaging an attendance of 100 days a year with continued growth (Franchisehelp, 2020). When the Coronavirus pandemic spread, states instituted lock downs and the closing of fitness facilities in many states. To adapt to the changing environment, consumers shifted to workout at homes by purchasing equipment and utilizing apps. Fitness tech was one of the top trends in 2019 and this was prior to the pandemic shutdowns (IHRSA, 2019). Moreover, consumers have shifted spending by transitioning from their usual fitness facility visits to working out from home, and some have no plans to return (Business Wire, 2020).
The pandemic has been brutal for some in the fitness industry with Gold’s Gym, 24 hour fitness, Town Sports International and Flywheel among those to declare bankruptcy in the industry (Evans, 2020). Not all in the industry have suffered, however, with at home providers benefitting from the shutdowns in terms of growth and revenue (Reuters, 2020). Among these has been Peloton. Peloton was uniquely positioned to benefit from the pandemic. Their core product is connected devices (bikes and treadmills), but they had made a strategic decision to increase their streaming services prior to the pandemic. This investment was made in attracting fitness personalities and expanding both user content to include yoga, strength and meditation in addition to their connected equipment.
One of the most well known at home fitness providers is Beachbody, which includes brands like P90X, T-25 and PiYo, with talented fitness personalities, was one of the early entrants in at home fitness and fitness on demand. However, the pricing for the Beachbody is $100 a month to access a full fitness library. Peloton, on the other hand, sells a digital membership of $12.99, which includes the ability to take live streamed classes, as well as access to a library of high production workouts on demand. This shifting marketplace has also attracted a new entrant with Apple introducing their Fitness+ product that will integrate their watch, tv, and health stats by allowing consumers to stream workouts and see real time stats synced from their watch to their device. Users will be able to access this for $9.99, or a complete suite of Apple products for $29.99.
While Peloton CEO, Foley, has said that Apple’s entry into the market legitimizes the market (Thomas, 2020), they also pose a threat for those brands in existence. Peloton may have been the first to market with their connected services and re-creation of a live class and feeling of community, but this is not hard to replicate and Apple has the financial ability to do so, if they desire. The difficulty for Peloton and others is that fitness is their core industry and they are reliant on the ability to grow revenue within this sector. Apple, on the other hand, does not need fitness to be successful, their revenue is from the sale of devices. Fitness+ is a continuation of their entry into production after launching Apple TV. They do not need these streams to be profitable, since any loss incurred is off set by the revenue generated of their core products. Their user reach also makes it feasible to make an investment in producing their own product, and they can pre-load their own apps on devices they sell, providing them an advantage over other businesses.
While they are in the early faces of their product creation, it is still early enough for them to be successful. One of the variables that they need to be aware of is the importance of the personality of the trainer doing the video. With at home workouts, the personality is paramount, and Beachbody and Peloton have an advantage. Once again, Apple has the cash available to make an investment, and in so doing, may exceed the 3 million users that Peloton currently has. Apple may also be utilizing the fitness sector as a way to gain data and legitimize their watch as a health tool. If Apple is able to generate data on users who are both healthy, and unhealthy, they can use that information to customize algorithms to determine a variety of health risks. The watch will then be able to offer alerts, sync with physician practices and enable Apple to use the watch as a means of ushering in an era of connected health care.
Apple may also be testing the waters to determine the long term viability of fitness on demand. Since this sector is not a major revenue source, the risk of entry is low, but the potential for upside growth is large, making it worth the investment. If this sector continues to grow, Apple may look to expand their holding by acquiring other businesses in this sector and creating their own linked network of equipment, watches, programming and data. If, indeed, fitness from home is not a fad, then Apple will be positioned to capitalize on the longer-term growth potential.
Previously successful retail fitness locations have been suffering prior to the pandemic, but if a shift results in a market move, there will be even more closures. Fitness on demand will offer the content, convenience and safety that consumer desire. Even at home, these companies have been able to create a community to replace the socialization that some participants crave. Companies that offer quality programming, with talented personalities will continue to be successful. Apple has the cash, technological know-how and consumer base to successfully profit in the future. Other brands need to understand their threat to entry and establish a risk mitigation strategy to capitalize on their current user base and grow it in the future.
BusinessWire. (2020). Consumer fitness survey finds post COVID-19, billions in spend will be lost or reallocated in massive industry transformation. https://www.businesswire.com/news/home/20200526005202/en/Consumer-Fitness-Survey-Finds-Post-COVID-19-Billions-in-Spend-Will-Be-Lost-or-Reallocated-in-Massive-Industry-Transformation
Evans, P. (2020, Sept. 15). Spinning out. Front Office Sports. https://frontofficesports.com/spinning-out-flywheel/
Franchisehelp. (2020). Fitness industry analysis 2020: Cost and trends. https://www.franchisehelp.com/industry-reports/fitness-industry-analysis-2020-cost-trends/
IHRSA. (2020). 2019 fitness industry trends shed light on 2020 and beyond. https://www.ihrsa.org/improve-your-club/industry-news/2019-fitness-industry-trends-shed-light-on-2020-beyond/
Reuters. (2020, Sept. 10). Peloton revenue surges as pandemic boosts demand for fitness equipment. New York Post. https://nypost.com/2020/09/10/peloton-revenue-surges-as-pandemic-boosts-demand-for-fitness-equipment/
Thomas, L. (2020, Sept. 15). Peloton CEO on Apple launching workout service: “It’s quite a legitimization of fitness content”. CNBC. https://www.cnbc.com/2020/09/15/peloton-ceo-on-apple-launching-workouts-a-legitimization-of-fitness-content.html
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