Mid-Market Gyms Struggle Against Boutique Options

Mid-Market Gyms Struggle Against Boutique And Low-Cost Options

Despite increased attendance and a spike in the fitness industry, some middle-market fitness gyms are struggling with debt, according to a report by Bloomberg.

Gyms like Town Sports and 24 Hour Fitness are among the troubled brands, and being a mid-tier provider means that a gym doesn’t “have the same price advantage of a low-cost gym or the competitive advantage of a boutique fitness option,” according to Emile Courtney from S&P Global Ratings.

Luxury brands like Equinox Holdings Inc. have towels that smell like eucalyptus and debt that trades at 100 cents per dollar.

Brands like Town Sports and 24 Hour Fitness have to deal with constant turnover from customers as well as loans that are sold with 20 percent discounts.

“Personalization and tribalism are fueling the boutique demand, especially among millennials,” said Meredith Poppler of the trade group International Health, Racquet & Sportsclub Association. “Most people want to be with ‘their people,’ the people like them who have the same passions. Boutiques deliver on that.”

Town Sports has 600,000 members and a $194 million loan that’s coming due in November. It outlined a plan to pay the loan back and also proposed a purchase of indoor cycling club Flywheel Sports. If it completes the acquisition, the company can delay the loan being due for four years. The owner of Flywheel, Kennedy Lewis Investment Management, would bring about $50 million to the transaction.

Existing debt holders need to support the plan, and it could fall apart if they don’t consent to it.

If the Flywheel deal goes through, it could help Town Sports boost revenue and offer more robust packages, even if the acquisition would mean more debt strain.

The gym 24 Hour Fitness has over 440 clubs, but it also has too much debt compared to revenue. In 2019, the company’s earnings went down due to the troubled debut of a new automated system for check-ins and signups. The company’s membership went down to 3.4 million in the third quarter from 3.5 million the previous quarter.