Fitness companies: These are the new Kraft shares

by Sven Parplies, Euro on Sunday

AThis is also one of the side effects of COVID: Many people have become fat. According to a survey by the Technical University of Munich, 40 percent of adults in Germany have gained significant weight during the pandemic. In the spring, when life returns to normal, many people should pay more attention to their bodies again – and this will also boost business in the fitness industry.

The pandemic has hit the studios in Germany particularly hard: According to the employers’ association for German fitness and health facilities, by the middle of last year alone they had lost 25 percent of their previously almost twelve million members. The start of the year is particularly important: around a third of the new registrations in the studios usually fall in the first quarter, when many people start with good intentions. However, the business is still being overshadowed by the corona restrictions: compulsory masks, distance rules, proof of vaccination, and in some federal states even compulsory testing are a deterrent. One can assume that the New Year’s business will be canceled for the second year in a row, the association warns.

pick-me-up

Figures from the USA and Great Britain give hope for a comeback: Because the government-imposed restrictions there are not as rigid, the shape curve is already pointing upwards again. At the American chain Planet Fitness, operating profit collapsed by almost three quarters in 2020, but has since recovered and, according to Wall Street estimates, could already exceed the pre-crisis level in 2022. Company boss Chris Rondeau promises that the company will emerge stronger from the crisis.

As one of the few fitness chains listed on the stock exchange, Planet Fitness recently had a market capitalization of around 6.5 billion euros with almost 2,200 studios. The Dutch group Basic Fit, which is positioned in the low-cost segment with 2.2 million customers and around 1,000 studios, is almost half the size of its stock market value. Business has recovered there too.

Fitness was already a big trend before the pandemic. In the USA, the industry grew by an average of six percent in the decade up to 2019, two percentage points faster than the American economy as a whole. Analysts at Mizuho Securities see cultural evolution as the driving force: fitness has become a way of life and no longer just an activity. The pandemic is likely to have further increased health awareness, after all, people who are overweight are particularly susceptible to a severe course of COVID.

The huge popularity of social media also encourages a healthier lifestyle, because young people often define themselves on channels like Instagram by their appearance. The fitness trend should therefore remain – and continue to develop: Just as people commute between home office and office in their job, they will also combine the classic gym with home training when doing sports, calculate the analysts at Deutsche Bank. Digitization is also becoming increasingly important.

Fit for the future

The gym of the future could be like Peloton. The New York company sells bicycles and treadmills that customers can use to sweat at home. The devices are equipped with a screen that can be used to receive fitness courses from the Peloton headquarters. The company is therefore a device seller and service provider. The pandemic has given the business a strong boost, but this may overwhelm the young company. It is also difficult to estimate how the acquisition of new customers will develop after the Corona surge. Most recently, management has disappointed Wall Street’s expectations. The stock has crashed, a bottom formation is still pending.

Garmin is maneuvering more calmly through the pandemic. The Swiss company is active as a specialist for smartwatches in a lucrative special field. Watches equipped with GPS are popular with runners and cyclists because you can measure your pace, distance covered and heart rate. Fitness and Outdoor are the two most important business areas. Garmin is also at the start with its products in aviation, under water and in cars. Medical applications could become an important growth driver. For example, Garmin is cooperating with the medical technology company Dexcom to give diabetics the opportunity to monitor their blood sugar levels. Despite the growing competition from Apple and Samsung, the Swiss have been able to assert themselves as premium suppliers. Analysts see sales increases in the high single-digit percentage range.

Even classic sporting goods manufacturers invest in technology. The Canadian fashion company Lululemon surprised in the summer of 2020 with the $ 500 million takeover of the tech company Mirror. Their core product is a mirror in which a fitness trainer demonstrating exercises is shown next to the reflection of the user. However, the share price driver is still the sporting goods business. More than two-thirds of Lululemon’s sales are generated with women and thus with an above-average growing area of ​​the sporting goods world. Most recently, however, business was unexpectedly slowed down by the pandemic.

The power of the giant

The products of the sporting goods industry are making their way into everyday life: sneakers and hooded sweaters have long been normal in many offices. The pandemic has further blurred the line between work and leisure time, and acceptance of comfortable clothing has increased, according to management consultancy McKinsey. The sporting goods giant Nike is one of the clear beneficiaries of the new casualness. Thanks to its large marketing budget, the US group can engage top stars as advertising partners. And thanks to the internet, their reach is gigantic: Nike partner Cristiano Ronaldo, a professional soccer player at Manchester United, has 388 million followers via Instagram, making him the clear number 1 on the platform.

The Internet is also becoming increasingly important as a sales platform. Higher margins can be achieved without intermediaries, and companies can collect a lot of data about their customers at the same time. The Corona crisis shook Nike off. CEO John Donahoe: “We are in a much stronger position than we were 18 months ago.”

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Image Sources: iStockphoto, Nike, Inc.